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East: EBRD Sees Growth Slowing

  • Ron Synovitz

The European Bank for Reconstruction and Development, the EBRD, says economic growth in Eastern Europe and the former Soviet Union will slow this year from last year. In its revised economic forecast for 2001, released ahead of the bank's annual board meeting today, the EBRD said the impact of the slower growth will be felt more strongly in the former Soviet Union, which remains highly dependent on Russia. RFE/RL correspondent Ron Synovitz is attending this week's annual meeting in London and files this report:

London, 23 April 2001 (RFE/RL) -- Economists at the London-based European Bank for Reconstruction and Development, known as the EBRD, say the impact of a global economic slowdown is becoming increasingly apparent in Eastern and Central Europe and the former Soviet republics.

Based on data that has become available since December, the EBRD has downgraded its predictions on economic growth (that is, gross domestic product, or GDP) this year for many countries across the region.

An update of the bank's "Transition Report" released over the weekend predicts the regions' economies will expand 3.7 percent in 2001 - down from 5.4 percent last year.

Nevertheless, EBRD President Jean Lemierre casts a favorable light on the predictions. He says the economies in all 27 countries where the EBRD operates are growing, and that Eastern Europe and the former Soviet Union, as a whole, are expanding more rapidly than many other regions in the world.

"We at the bank are positive about the economies of Eastern countries. The prognosis of the bank for 2001 is that growth will be positive in the whole of the area -- and growth will be at least 3.7 percent in region as a whole, which will probably be a higher level of growth than in other regions of the world. Central Europe's economies are linked to those of the European Union. In the former Soviet republics, reforms have been important and they have created a better context for investment. I have a message for businessmen. It's the right time now to invest."

Among the countries of the Commonwealth of Independent States, only Georgia and Moldova are expected to have higher growth rates this year than last. Indeed the rate of growth for the CIS as a whole is expected to slow by nearly half -- from 7.3 percent last year to an expected 3.6 percent this year.

Much of the slowdown for the CIS is being attributed to unfavorable developments in Russia, the largest economy in the region. According to the EBRD's latest forecasts, GDP growth in Russia is expected fall to 3.4 percent from 7.7 percent last year.

The EBRD's chief economist, Willem Buiter, says a key reason for Russia's slowdown is falling world prices for oil and natural gas. Energy is Russia's main export commodity.

High international oil prices last year propelled Russia's economy, contributing substantially to the country's recovery from a financial crisis in August 1998. But oil prices are expected to remain steady or fall, meaning, Buiter says, that the favorable economic environment in Russia will fade.

"Our oil net exporters will not be helped as much in the coming year as they were by the high oil price [last year]. Of course, the region as a whole is not a net energy exporter. In fact, there are many net energy importers. Ukraine is an obvious example. Growth achieved by Ukraine in the last year and the first quarter of this year is rather remarkable because [the country] was at the receiving end of high oil and [natural] gas prices, rather than the beneficiaries of it."

Buiter says another factor that helped Russia's economy was the relatively low value of the ruble on foreign exchange markets. A weak currency can stimulate an economy by making its exports relatively more attractive. But Buiter says the ruble is now rising in value.

"Russia, in terms of real external competitiveness, is back where it was before the [1998] ruble crisis. And that means that to sustain growth, you can no longer rely on competitiveness created by a weak currency. You have to rely on competitiveness driven by superior productivity. That requires private investment and that requires structural reform. So the lesson is simple for Russia and for the other countries in the region and the CIS. There will be no continued growth without thorough radical further restructuring."

In Central Europe and the Baltic states, where reforms are more advanced than in the CIS, the slowdown isn't expected to be as dramatic. The EBRD projects growth in those countries to fall to 3.7 percent this year from 4.1 percent last year.

Three countries in the area, the Czech Republic, Slovakia, and Lithuania, are expected to counter the overall trend with higher growth rates this year than last.

Economic growth also is expected to decline for the Balkan region to about 4 percent this year from 4.4 percent last year. But Buiter says this decline could be moderated by an improvement in Yugoslavia following the ouster last year of former President Slobodan Milosevic.

"For Southeastern Europe, we foresee only a small growth slowdown. There is hope that this region will benefit as a whole from the reintegration of the Yugoslav economy -- the filling of the hole in the Balkan doughnut -- which could have beneficial effects for the region as a whole."

Romania is the only Balkan country that is expected to have faster growth this year than last year. But with projected growth at just 2.5 percent this year, Romania still would have one of the slowest growth rates among all East European countries and former Soviet republics. Only Belarus, Uzbekistan, and Macedonia have lower GDP growth projections.

(For the full list of the EBRD's economic forecasts, please see East: EBRD Issues Projections On Eastern Growth.

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