Growth to Moderate in Eastern Europe


Eastern Europe and the former Soviet Union will see 2007 economic growth moderate slightly from record levels, the European Bank for Reconstruction and Development said yesterday, cited by

Economic growth in 2007 is projected at 6.5% in the 29 transition countries it tracks, up from a November estimate of 6.0% growth. Spurred on by industrial revival, foreign direct investment and rapid credit growth on both the consumer and corporate level, growth reached a record 6.9% in 2006 versus 5.8% in 2005.

Russia, the largest economy in the EBRD's sphere, had economic growth of 6.7% in 2006, and is expected to buck the general trend of decline with a 6.9% increase in 2007. "Russia is the engine of this region. Russia is entering into a very strong investment phase. It is in it already and affecting growth," Erik Berglof, chief economist at the EBRD told reporters during the bank's annual meeting in the ancient Russian city of Kazan, 500 miles east of Moscow. "The main issue is about the ability to absorb the very large amounts of money that are being invested," he said. Berglof said that the slight drop in economic growth in 2007 was "only natural" given it was a record last year.

The rapid growth of emerging market economies, fuelled by high commodity prices, helped lead to record profits last year at the bank, which was founded in 1991 to aid the transition of communist bloc countries to capitalism.

The fastest growth in 2006 was recorded in the Commonwealth of Independent States and Mongolia, at 7.5%, up from 6.8% in 2005. The bank forecasts growth of 7.2% for 2007. "This was largely due to continuing high commodity prices but also strong domestic demand," the bank said in a statement. Foreign direct investment in the region is forecast to fall to 61.023 billion in 2007 from a record $70.838 billion in 2007. Inflation however remains a concern. Across the region median inflation is expected to rise to 5.9% in 2007 from 5.6% in 2006. Current account balances are expected to worsen, as are general government balances.

At its annual assembly in 2006 in London the EBRD announced its progressive withdrawal by 2010 from eight countries which it had helped achieve market economies since 1991. The Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia all became members of the European Union on May 1, 2004 are now considered to have "sufficiently solid" markets and an access "to other sources of financing", EBRD spokeswoman Brigid Janssen told AFP. The Czech Republic will be the first country to lose the EBRD's services this year, she said.

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