Page 12 - bne_newspaper_May_11_2018b

Central Europe
May 11, 2018 www.intellinews.com I Page 12
EBRD ups regional growth forecasts, but says Central European boom has peaked
IntelliNews Pro
The European Bank for Reconstruction and Devel- opment (EBRD) increased growth forecasts for its 40-country region, but growth has peaked and the dollar’s growing strength could bring problems, the bank said at its annual meeting in Jordan.
The EBRD added that US president Donald Trump’s decision to pull out of the Iran nuclear deal could also drive up oil prices, which could send Turkey’s economy over the edge. Turkey is already running a large current account deficit and is in the midst of a spiralling currency crisis.
The bank forecasts average growth in its region of 3.3% this year, up 0.3 pp from its November fore- cast, followed by growth of 3.2% in 2019 for the whole EBRD region, which includes the former Soviet Union and North Africa. However, this fore- cast is a slowdown from last year’s 3.8%, which suggests the boom enjoyed by most countries in Central and Eastern Europe (CEE) has peaked, EBRD Chief Economist Sergei Guriev told report- ers at the bank’s annual meeting.
“(But) in order to develop new sources of growth, these countries need to carry out structural reforms of product, capital and labour markets,” Guriev said, adding that governance, integration into the global economy, and sustainable infrastruc- ture were also widely needed, Reuters reports.
Guriev added his voice to a growing concern among analysts over the large corporate and state debt in many of the emerging markets as it be- comes clear the US Federal Reserve will continue to raise rates this year, putting EM debt under pressure.
Corporate debt as a percentage of gross domestic product in the EBRD regions increased to more than 60% in 2018 from around 40% in 2007, much of it external and denominated in foreign currency, Guriev said.
“If your debt is in foreign currency and your own currency becomes weaker, suddenly your debt- to-GDP ratio goes up, and not by just a per cent or two but maybe by 10 pp of GDP,” said Guriev in remarks cited by Reuters.
He doesn't expect the debt problem to blow up into crises anytime soon, however, and said that even Turkey has strong enough fundamentals to weather its current currency storm.
“Actually a very important part of the solid funda- mentals of the Turkish economy is that the lira is flexible and therefore helps to adjust and restore the competitiveness of the economy,” Guriev said.