East Europe Growth Is Worst Among Emerging Nations, Capital Says

Eastern Europe will recover more slowly than other emerging economies as the euro region’s recession curtails export demand and bank funding, according to Capital Economics Ltd.

Expansion in eastern Europe and Turkey will average 1.8 percent this year after an estimated 2.5 percent in 2012, compared with 4.5 percent and 5 percent for all emerging economies, Capital said today. The region will grow 2.5 percent next year, half the emerging-market average, it said.

“Prospects look worst in emerging Europe, reflecting the region’s close links to the stricken euro zone and limited room for policy support,” economists led by Capital’s London-based Managing Director Roger Bootle wrote in an e-mailed report. Sluggish credit growth is also more of a concern than in other emerging markets, they said.

The euro area, the biggest export destination and main source of investment and bank financing for emerging Europe, remains in recession. European Central Bank President Mario Draghi said today that even as low rates in the euro area should help fuel growth later this year, risks to the economic outlook remain on the downside.

Ukraine, Hungary and Turkey are among the most vulnerable countries in terms of market turbulence in the event of Europe’s debt crisis escalating, Capital said, citing their large external financing needs.

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