(Rewrites throughout, adds OECD forecast, details)
By Sebastian Tong
LONDON, Nov 25 (Reuters) - Economic growth in eastern Europe
and the former Soviet Union will halve in 2009 from this year as
the financial crisis and global downturn take their toll, the
European Bank for Reconstruction and Development said on
Tuesday.
The crisis could push more countries in the region to seek
help from the International Monetary Fund (IMF) and cause those
economies earmarked for graduation from the EBRD's lending
programmes to miss their deadlines, the development bank said.
"Some countries continue to run excessive current account
deficits combined with high foreign currency debt and are
therefore prone to significant output reductions if capital
inflows fall off rapidly," the EBRD said.
Overall growth in the 29 economies it invests in would
likely fall to 3 percent in 2009 from this year's estimated 6.3
percent -- sharply down from 2007's record 7.5 percent.
Economic growth in central Europe and the Baltics will slow
to 2.2 percent next year from 4.3 percent in 2008, the EBRD said
in its annual transition report.
South-eastern European economies are set to expand 3.1
percent in 2009, less than half of this year's 6.5 percent,
while growth in the Commonwealth of Independent States (CIS) and
Mongolia could slow to 3.4 percent, down from this year's
forecast 7.3 percent.
The latest figures represent a downgrade from forecasts on
Nov. 5. "The depth and duration of the global crisis are
unclear, but the region is now bracing itself for higher
unemployment and lower consumption growth," said Erik Berglof,
EBRD Chief Economist.
On Tuesday, the Organisation for Economic Cooperation and
Development (OECD) said Hungary would slump into recession next
year but predicted that most central and east European economies
would keep growing through the global downturn. []
However, several of the region's economies gorged on cheap
external funding during the boom years, and the credit crisis
that began in the developed West has left them struggling with
higher debt costs and weaker domestic currencies.
The EBRD warned there was a risk of even slower growth if
external funding for the region suddenly fell away.
Last week, the London-based bank said it could raise its
investments next year to 7 billion euros ($8.8 billion) -- its
single largest annual investment.
FOCUS DIVERTED
Several economies have been hard hit by the drying up of
international capital flows -- Belarus, Hungary, Latvia, Serbia
and Ukraine are among EBRD recipient countries to have turned to
the IMF for help.
"Several countries have been forced to seek the shelter of
the IMF umbrella and there will be more to follow," Berglof said
at a media briefing, adding the crisis could delay the departure
of some economies from the EBRD's lending programmes.
The Czech Republic has already stopped receiving EBRD funds
and recent EU members such as Poland and Hungary are due to
leave the bank's lending programme by 2010.
"Depending on how long the crisis lasts, we need to be
flexible about the graduation process," said Berglof.
The development bank, set up in 1991 to help former
communist countries in Eastern Europe make the transition to
market economies, counts 61 countries, the European Community
and the European Investment Bank among its 63 shareholders.
It urged recipients to stabilise their banking systems;
persevere with corporate governance reform, restructuring and
competition policy; and invest more in education, saying many
had failed to capitalise on their relatively strong educational
and skills base.
It also advocated a sophisticated export mix, saying natural
resource-rich economies such as Kazakhstan and Russia could
diversify more.
For table of EBRD GDP forecasts, please click: []
(Reporting by Sebastian Tong; Editing by Ruth Pitchford)
