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EBRD: Economic growth will be 7.8% in 2011, 4.4% in 2012

26 July 2011 15:26 (UTC +04:00)

Baku - APA-Economics. he European Bank for Reconstruction and Development on Thursday lifted its 2011 economic growth forecast for emerging European economies to 4.8 percent from 4.6 percent, citing a recovering global economy, Reuters reported.

The outlook for economic growth in 2012 for the 29-country region was unchanged at 4.4 percent.

"This assumes a relatively benign external environment in which risks from the euro zone are contained," said the report, issued by EBRD Chief Economist Erik Berglof.

Prior to the report’s release on Thursday, euro zone leaders agreed at an emergency summit to give their financial rescue fund sweeping new powers to help Greece overcome its debt crisis and prevent market instability from sweeping across the region. For all top news related to the euro zone crisis.

French President Nicolas Sarkozy said leaders of the 17-nation euro currency area had agreed to ease lending terms to Greece, Ireland and Portugal, while private investors would voluntarily swap their Greek bonds for longer maturities at lower interest rates.

If the euro zone crisis were to escalate, serious risks would be posed to the growth and recovery across the region, especially in southeastern Europe and the new European Union members.

The EBRD said southeastern Europe remains weak and most directly threatened by euro zone financial instability because a significant portion of its banks are owned by Greek banks.

"Croatia is the one country in the region that has yet to show convincing signs of a recovery," the report said.

"While other transition regions have either reached or are approaching their pre-crisis levels of real gross domestic product, the Baltic countries remain more than 10 percent below their early 2008 output levels, as they recover from a particularly deep recession."

CIS countries and energy-exporting nations are less likely to be affected by the euro zone debt market instability, though stagnation in the economy would be felt via a negative impact on commodity prices.

Private sector credit growth is weak and provides only limited support to economic expansion. There are two exceptions, however. Turkey had a 44 percent increase, adding to concerns about overheating. Russia had an increase of 18 percent.

Capital inflows in the first quarter of 2011 were stronger than in most of 2010, the EBRD said.

Foreign direct investment still dominates capital inflows although portfolio investment had shown signs of a pickup before recently reversing.