EBRD cuts economic forecasts for south-eastern Europe

EBRD cuts economic forecasts for south-eastern Europe

EBRD cuts economic forecasts for south-eastern Europe

The FINANCIAL -- The EBRD has cut its 2014 economic forecasts for south-eastern Europe as a result of major flood damage in the region and stresses in the Bulgarian banking sector, according to EBRD.

The sharpest revisions are in Bosnia and Herzegovina and Serbia. Both countries suffered extensive damage from the flooding in late May. Vital sectors of the economy such as energy and agriculture were badly affected.

Growth in Bosnia is forecast at just 0.2 per cent now, compared with prediction in May of 1.8 per cent. Serbia is likely to swing into recession, with the  economy expected to contract by 0.5 per cent, compared with a previous growth forecast of one per cent.

The EBRD downgraded its forecast for Bulgaria to 1.5 from 1.9 per cent, mainly following the problems in the financial sector, according to EBRD.

However, the report said the longer term impact of the financial sector turmoil was likely to be limited by prompt action by the authorities, including the stated intention to opt into Europe’s Single Supervisory Mechanism for the banking system.

In contrast to its outlook for this year, the EBRD has revised up its average 2015 growth forecast for south-eastern Europe to 2.6 per cent, up from 2.4 per cent seen in May.

The Bank predicts a modest reconstruction-related rebound in the Bosnian and Serbian economies in 2015, while prospects for Albania, FYR Macedonia and Montenegro have also improved because of progress in clearing arrears in Albania and better prospects for major public infrastructure projects in FYR Macedonia and Montenegro.

The economy in Cyprus, the EBRD’s newest country of operations, remains in deep recession, but signs of confidence and optimism are becoming increasingly apparent, according to EBRD.

The EBRD said the economy faces severe problems, not least in the banking sector where most lending has dried up and non-performing loans are around 50 per cent of the total.

GDP is expected to fall by 3.5 per cent in 2014. Zero growth is expected for 2015. But the report said there was more than usual uncertainty surrounding next year’s forecast.

Separately the EBRD report highlighted the potential positive knock on effects of an effective policy of quantitative easing (QE) in the Eurozone for  emerging European countries, according to EBRD.

“The case for quantitative easing has become compelling to support the still fragile recovery in the Eurozone, to which much of the (Central Europe and Baltic and south eastern European) regions are strongly linked. An effective Eurozone QE may help lessen the risk of setbacks in the recovery of those regions,” the report said.