Eastern Europe’s Paths Diverge on Global Forces, EBRD Says

  • Low oil prices weighing on nations such as Russia, Azerbaijan
  • Ukraine to grow 2% in 2016 after 10% contraction last year

Global economic forces are clashing in Europe’s east, resulting in diverging growth trajectories for nations in the region, according to the European Bank for Reconstruction and Development.

While low oil prices are weighing on energy exports and currencies in countries such as Russia and Azerbaijan, others including Poland will benefit from the European Central Bank’s additional monetary easing and Ukraine will rebound from two years of recession, the London-based lender said.

“These projections are subject to major risks related to geopolitical tensions in and around the region and a general weakening of investor confidence with respect to emerging markets,” the EBRD, which is celebrating its 25th anniversary, said Wednesday in its twice-yearly outlook. Other risk factors include a possible slowdown in China’s economy and the U.K.’s potential exit from the European Union, it said.

The development bank, set up to help ex-communist countries shift to capitalism, has widened the scope of its lending to 36 countries that include places as far apart as Morocco and Mongolia. It kicked of its annual meeting Wednesday in London, with President Suma Chakrabarti being elected to a second four-year term. It put 2015 investments at a record 9.4 billion euros ($10.8 billion).

The EBRD released new economic forecasts, with the biggest change coming for Azerbaijan. Gross domestic product in the ex-Soviet Union’s third-biggest oil producer will shrink 3 percent this year, compared with a previous projection for growth of 2.5 percent. A conflict with Armenia over the disputed Nagorno-Karabakh region poses further risks, the bank said. It affirmed its forecast for a 1.2 percent decline in Russia’s GDP this year.

Ukraine’s economy will expand 2 percent in 2016 after contracting about 10 percent last year, and having plunged in dollar terms by half to $90 billion between 2013 and 2015, the EBRD predicted. It upgraded Poland’s growth forecast to 3.6 percent from 3.3 percent as government efforts to boost family finances buoy consumers.

“Most countries in the region will show solid economic growth in both 2016 and 2017,” Carlo Vivaldi, Unicredit SpA’s local head, said Wednesday in London during the presentation of a banking outlook. “The economic environment in which banks are operating in central and eastern Europe is expected to remain overall positive.”

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