* EBRD cuts emerging Europe 2010, 2011 GDP forecasts
* Southeast Europe 2010, 2011 GDP forecasts cut
* Hungary/IMF standoff could hit regional economies, markets
(Adds details, background)
LONDON, July 22 (Reuters) - The European Bank for
Reconstruction and Development (EBRD) on Thursday cut its 2010
and 2011 economic growth forecasts for emerging Europe, warning
of greater uncertainty due to fiscal tightening measures across
the euro zone.
It also said the suspension of the International Monetary
Fund's talks with Hungary on its aid programme could affect
markets and economies in the rest of the region.
The development bank cut its projected 2010 gross domestic
product growth rate for emerging Europe to 3.5 percent from the
3.7 percent it predicted in May, and also lowered its 2011
forecast to 3.9 percent from 4 percent.
"Given the weakening outlook for the euro zone -- as fiscal
austerity programmes are implemented and financial markets are
likely to remain volatile -- the external environment is likely
to be less benign than previously projected," the EBRD said.
Monetary tightening in China could also trigger a
sharper-than-expected slowing of global growth, the bank said.
Credit growth in the region will stay weak as bank balance
sheets remain under pressure and the cost of capital is expected
to stay elevated, it said.
With the exception of Turkey, the outlook for southeastern
Europe has weakened, the bank said, noting that the region was
suffering from near zero or negative output growth as well as
financial-market pressures due to worries over sovereign debt.
On average, the EBRD expects the economies of southeast
Europe to shrink 1.5 percent, compared with its more optimistic
projection in May of 0.3 percent growth.
The revision is sharper in 2011, with southeast Europe GDP
expected to expand 1.2 percent, less than half the 2.9 percent
growth rate seen in May.
Emerging Europe is recovering from its steepest recession
since the collapse of communism in the region two decades ago,
when the EBRD was set up to help former communist economies
adjust to free markets.
HUNGARIAN CONCERNS
The EBRD said there was a growing disparity in the pace of
recovery across the 29 economies where it operates.
It expects the recent stronger than projected economic
growth in eastern Europe to fade in 2011.
Eastern European economies are seen expanding at an average
of 3.9 percent next year instead of the 4.2 percent previously
forecast.
The commodity-focused economies of Russia and Mongolia,
however, are expected to continue to benefit from strong
commodity prices.
Noting "poorly communicated" fiscal-policy statements by
Hungary's new government in June, the EBRD warned that the
country's revenue-raising plans, which include a bank levy,
risked undermining its economic recovery.
"Measures announced in the financial sector, including a
temporary levy on all financial institutions, risk derailing any
recovery in credit, which would further set back the recovery in
domestic demand," the EBRD said.
The breakdown of talks with the IMF over the continuation of
Hungary's 20 billion euro multilateral financing package could
also "cause additional volatility and dampen growth in the
country and beyond", it added.
Hungarian Prime Minister Viktor Orban signalled on Thursday
that he would not renew the country's safety net with the IMF
and would row back on a commitment to cut the budget deficit to
European Union-prescribed levels next year. []
In May, the EBRD's 60-odd country shareholders formally
approved a 10 billion-euro capital increase to 30 billion euros.
For a TABLE of the EBRD's GDP forecasts for individual
countries, click []
(Reporting by Sebastian Tong and Eunice Ng; Editing by Hugh
Lawson)
