BLBG: East Europe Growth to Slow on Sluggish Demand, World Bank Says
Eastern Europe and Central Asia will see economic growth slow this year as unemployment stays high and households remain hindered by debt, the World Bank said.
Gross domestic product for the region will expand 4 percent in 2011, compared with 4.7 percent in 2010, before accelerating to 4.2 percent in 2012, the Washington-based bank said today in a report. GDP expanded an average of 7.4 percent annually from 2003-2007, before the global economic crisis, the lender said.
The economies of east Europe, which grew at a faster pace than western peers in the last decade, endured their deepest recessions since switching to free-market policies 20 years ago during the credit crunch. The recovery that started last year will slow as western European countries, hurt by the region’s debt crisis, buy fewer goods from the east, the bank said.
“Both investment and consumer demand will continue to be held back by high unemployment and household and banking sector restructuring, even as domestic-demand growth plays an increasing role in the recovery,” the bank said in the report.
Underdeveloped financial markets, low saving rates and high local interest rates resulted in a surge in foreign-currency loans during the boom years. As the recession took hold, borrowers fell behind on their payments and banks struggled to roll over loans.
Bank balance sheets, still impaired in many east European and Central Asian countries, are a risk to the recovery, and slower growth may hurt profitability, according to the report. The World Bank called for “decisive action,” such as improved provisioning and supervision standards in the financial industry, to help restore credit expansion.
Russia’s growth will accelerate to 4.2 percent this year from 3.8 percent in 2010, driven by strengthening domestic demand and higher prices for fuel and other commodities, the World Bank estimated. The economy will slow in 2012 because of a delayed overhaul of the economy and as the government gradually withdraws stimulus measures, the bank said.
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
To contact the editor for this story: Willy Morris at wmorris@bloomberg.net.
