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EBRD warns of slowing growth in Eastern Europe

The European Bank for Reconstruction and Development (EBRD) expects the global financial market turmoil to slow down economic growth and cause financing problems for Eastern Europe’s more vulnerable economies, the Financial Times reported on Monday.  

EBRD’s chief economist Erik Berglof wrote in a note to the bank’s staff that five countries with high current account deficits, Bulgaria among them, have “come under pressure at some point”. The other four are Latvia, Hungary, Romania and Serbia. “Some cooling off may be a good thing for these countries. Their economies, particularly in sectors like real estate and construction, have been growing too fast, reaching sometimes unsustainable levels,” Berglof said. Berglof’s note echoes a World Bank report published last week, which describes the ten new EU member states as being in a good position, but still cautions that the countries with high current account deficits could see external financing flows dry out. 

The three Baltic States and Bulgaria are seen as the most vulnerable countries, although for now no evidence of that just yet. Analysts forecast that Bulgaria’s current account deficit will exceed 20% of GDP, largely due to the growing trade gap. Imports to the country continue soaring to keep pace with growing household consumption, which in turn is fuelled by a credit boom that saw banks increase their loans portfolio by more than 50% in the 12 months ended in September.

(BBJ 01.x.07)

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