World Bank: eurozone risks for Eastern Europe, Central Asia

By Frank Fuhrig Sep 23, 2011, 20:14 GMT

Washington - The economic recovery in Eastern Europe and Central Asia is slower than in other developing regions but similarly 'at risk' from the troubled eurozone, the World Bank said Friday.

The World Bank projects growth to average 4.3 per cent this year across Central Asia and post-communist emerging Europe, which easily beats advanced economies but is 'one of the lowest of any developing region,' said Philippe Le Houerou, World Bank vice president for the Europe and Central Asia region.

'The slow recovery in the region may be establishing a 'new normal' of lower economic growth rates in many of the region's countries,' he said during the annual meetings in Washington of the World Bank and the International Monetary Fund.

'Most countries in emerging Europe and Central Asia have recovered from the global economic crisis, but growth has returned at lower rates than pre-crisis trends in most of the region.'

The eurozone's sovereign debt crisis, which has already led to bailouts of Greece, Ireland and Portugal and rising credit costs for Spain and Italy, is a challenge to the already 'tepid' recovery of Eastern Europe and Central Asia.

'The Eastern Europe and Central Asia region is especially dependent on Western Europe as an export market and a source of finance and migrant remittances, so slower growth in the West will hurt,' Le Houerou said. 'The region's strong financial linkages to Western Europe, which were a source of growth during the boom years in Central and Eastern Europe, are now a source of vulnerability for some countries.'

Due to the importance of Greek banks in the Balkans and Italian banks in Central Europe, the eurozone's problems with both public budgets and private financial systems threaten direct impacts in those countries, the World Bank said.

A significant slowdown for this year and 2012 in the eurozone will further impact emerging Europe and Central Asia, as most of the countries in the region have their top trading partners in Western Europe. Signs of declining export demand are already present, with the global slowdown only increasing downside risks, the World Bank said.

High commodity prices have disproportionately aided recovery in countries in the eastern part of the region, several of which are oil producers.

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