EBRD expresses hope over eurozone debt

Jan 22, 2013

The European Bank for Reconstruction and Development has expressed optimism the worst of the eurozone debt crisis is over, but trimmed the 2013 growth forecast for its investment region in the ex-Soviet bloc.

The EBRD cut the growth forecast for the countries where it operates to 3.1 per cent this year, the London-based institution announced in its latest economic outlook report on Monday.

That compared with the previous estimate in October of 3.2 per cent gross domestic product (GDP) growth.

Downside risks to the outlook have continued to recede as the likelihood of further deterioration of the eurozone crisis diminishes,’ the EBRD said in the report.

Growth in the transition region continued to slow down in the third quarter of 2012, but the deceleration is showing signs of bottoming out.’

The economies in the EBRD’s investment zone shrank by 2.6 per cent last year, hit by fallout from the long-running eurozone sovereign debt crisis, after impressive expansion of 4.6 per cent in 2011.

For the first time in a long while, we are now seeing the possibility of a reduction in the risks facing emerging Europe, especially the risks from the eurozone,’ said EBRD chief economist Erik Berglof.

It is too early to sound the all-clear, but there are signs of stabilisation,’ Berglof added.

The London-based institution added that key policy measures - including the European Central Bank’s firefighting policies - had helped support the improved outlook for the eurozone.

The EBRD report points to policy decisions taken within the eurozone in recent months as increasing the chances of an economic improvement in the single currency bloc, albeit a very slow and gradual one,’ it said.

Recent such decisions include the European Central Bank signalling its readiness to help countries under pressure on the sovereign debt markets as well as moves to create a European Banking Union.

The euro area crisis will continue to negatively impact growth in the transition region, but as the eurozone recession bottoms out, economic activity in the transition countries that depend on it is likely to stop deteriorating.’

The EBRD was formed in 1991 to help former Soviet bloc countries switch to a market economy, and invests alongside private-sector firms.

It agreed earlier last year to expand its reach into emerging Arab democracies.

In May last year, it approved the pumping of 1 billion euros ($A1.3 billion) into nations in the Middle East and North Africa region, at the lender’s annual meeting.

At the same time, the group appointed its first British president, veteran civil servant Suma Chakrabarti.

Source: Sky News