Emerging European economies continue to face a significant risk of falling into recession if the sovereign debt crisis in the euro area worsens, a report from the European Bank for Reconstruction and Development (EBRD) said Friday.
Growth in the region will continue to be hampered by negative credit growth and declining exports, though latest data show that negative spillovers from advanced Europe may be leveling off. A possible oil supply shock, and deterioration of the Eurozone crisis could impede growth prospects of the 29-country emerging Europe, via trade, financial as well as remittance linkages, the report said.
Considering the downside risks, EBRD continues to expect growth in emerging Europe to slow sharply to 3.2 percent this year from last year's better-than expected 5 percent. The latest forecast is slightly above the previous estimate of 3.1 percent.
EBRD said that though the Eurozone may succeed in containing the debt crisis to some extend, it is unlikely to avoid a mild recession this year. The crisis, however, could not be contained before it spreads to larger single currency area members, thus posing serious downside risks to other economies in the region.
EBRD currently expects the central Europe and Baltic states to grow at a faster rate of 1.6 percent in 2012 than the 1.4 percent growth estimated earlier, and confirmed the growth forecast for Russia at 4.2 percent. South-eastern European countries are seen growing on average 1 percent this year, unchanged from the earlier forecast.
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