Pace of emerging Europe economic growth slows as global outlook weakens, EBRD says

By Anthony Williams
@ebrdtony


  • Pace of growth in the EBRD’s emerging economies slowing to 2.4 per cent in 2019
  • Deceleration reflects continued weakness in Turkey, slowdown in Russia and slower global growth
  • Growth in 2020 expected to accelerate to 2.9 per cent in 2020

The pace of growth in the EBRD’s emerging economies is slowing on the back of a weaker global economic outlook, and pressure from slower growth in the eurozone and China, US/Chinese trade tensions and a contraction in world automobile production, according to a new EBRD report.

A deceleration in EBRD economic growth this year has also reflected continued economic weakness in Turkey and a slowdown in Russia, it says.

The EBRD’s latest Regional Economic Prospects report sees average growth of 2.4 per cent in 2019 across all EBRD countries, compared with 3.4 per cent in 2018.  

The report sees a recovery to 2.9 per cent in 2020, a small downward revision from the forecast of 3.0 per cent in May and still clearly below 2017’s growth rate of 3.8 per cent.

Next year’s upturn will be driven primarily by a stronger performance in Turkey and Russia. The report predicts steady growth in the EBRD’s southern and eastern Mediterranean region.  

The outlook sees a strong correlation between growth in emerging Europe and global and advanced European economic trends. It notes that global growth forecasts are currently at their lowest level since the start of the global financial crisis. The eurozone growth outlook is at its lowest since 2013.

“Given its deep integration in ‘factory Europe’ and the importance of the automotive industry for the regions’ economies, emerging Europe is highly vulnerable to weakness in the automotive sector and a further slowdown in Germany,” the report says.

It points out that the Slovak Republic is the world’s largest car producer relative to the size of its population. Other economies in central and south-eastern Europe, such as Hungary, Poland, Romania and Slovenia, are also highly dependent on the automotive industry.

The report says a further escalation of trade tensions and rising global policy uncertainty, including over the United Kingdom’s plans to leave the European Union, constitute major risks to its latest outlook.

Economies in the EBRD regions are particularly vulnerable to a further slowdown in the eurozone, a deeper-than-anticipated slowdown in China and protracted weakness in the automotive sector globally.

The direct impact of a “soft” Brexit on most of the economies in the EBRD regions is expected to be limited. Indirect effects – through weaker growth in the eurozone – are estimated to be much larger in the event of a “hard” Brexit, particularly in south-eastern Europe.

“In this region, the slowing momentum in the approximation with the European Union and the latest controversy regarding the prospects for the EU accession for the Western Balkans could have a negative impact on investors’ sentiment and the growth outlook.”

The EBRD report sees economic growth moderating in most of central Europe and the Baltic states and south-eastern Europe in line with weakening euro area growth and headwinds to global trade.

In central Europe and the Baltic states growth is seen slowing to 3.7 per cent in 2019 and further to 3.2 per cent in 2020, compared with 4.2 per cent last year. The EBRD wound back sharply its 2019 forecast for the Slovak Republic by 1.1 percentage points to 2.5 per cent.

In south-eastern Europe, the Bank expects growth of 3.3 per cent this year and 3.0 per cent in 2020, after 3.4 per cent in 2018.

After sliding to 0.7 per cent in the first half of this year, because of a hike in value added tax, falling oil prices and weak investment, growth is expected to pick up in Russia as a result of increased public investment spending and a more accommodative monetary policy.

This recovery to 1.1 per cent in 2019 and 1.7 per cent in 2020 still leaves growth below the 2.3 per cent seen in 2018. But the report says the stronger growth momentum in Russia will support growth in eastern Europe and the Caucasus and Central Asia.

The EBRD sees a return to economic growth in Turkey in 2020, after a contraction in 2019 that will probably be smaller than previously expected on the back of credit growth, fiscal stimulus and rising consumer confidence. The economy will probably grow by 2.5 per cent next year after shrinking by 0.2 per cent in 2019.

In the southern and eastern Mediterranean growth is expected to remain broadly unchanged compared with 2018. Continued high growth in Egypt is expected to be driven by high investment and a strong tourism season on the back of reforms in the sector.

Lebanon’s already-bleak outlook is subject to significant downside risks in light of the current political instability and the recent social uprisings.

Download report 

  Actual  

Forecast

(Nov 2019) 

 
        Change from May 2019 
  2017 2018 H1 2019 2019 2020 2019 2020
EBRD region1 3.8 3.4 2.1 2.4 2.9 0.0 -0.1
               
Central Europe and the Baltic states 4.4 4.8 4.2 3.7 3.2 -0.1 -0.1
Croatia 3.1 2.6 3.1 3.0 2.5 0.5 0.0
Estonia 4.9 4.8 4.2 3.2 2.6 0.0 0.0
Hungary 4.1 5.1 5.2 4.6 3.1 0.9 0.2
Latvia 4.6 4.8 2.4 2.6 2.2 -0.7 -0.5
Lithuania 4.1 3.6 4.0 3.6 2.3 0.5 -0.2
Poland 4.8 5.1 4.4 3.9 3.5 -0.2 0.0
Slovak Republic 3.2 4.0 3.0 2.5 2.5 -1.1 -0.8
Slovenia 4.8 4.1 2.9 3.0 2.8 -0.3 0.0
               
South-eastern Europe 4.3 3.4 3.4 3.3 3.0 0.2 0.0
South-eastern EU 4.8 3.2 3.6 3.3 2.9 0.4 0.1
Bulgaria 3.5 3.1 4.2 3.7 3.0 0.3 0.0
Cyprus 4.5 3.9 3.2 3.2 2.8 -0.2 -0.2
Greece 1.5 1.9 1.5 2.0 2.4 -0.2 0.2
Romania 7.1 4.0 4.6 4.0 3.2 0.8 0.0
Western Balkans 2.5 4.0 2.9 3.2 3.4 -0.2 0.1
Albania 3.8 4.1 2.4 2.8 3.5 -1.1 -0.4
Bosnia and Herzegovina 3.2 3.6 2.7 3.0 3.0 0.0 0.0
Kosovo 3.7 3.8 4.2 4.0 4.0 0.0 0.0
Montenegro 4.7 5.1 3.1 2.8 2.6 0.0 0.0
North Macedonia 0.2 2.7 3.6 3.2 3.2 0.2 0.2
Serbia 2.0 4.4 2.8 3.2 3.5 -0.3 -0.3
               
Eastern Europe and the Caucasus 2.4 3.0 3.0 2.9 2.9 0.1 -0.1
Armenia 7.5 5.2 6.8 6.0 5.0 1.5 0.5
Azerbaijan 0.2 1.4 2.4 2.8 2.4 -0.7 -0.9
Belarus 2.5 3.0 0.9 1.3 1.2 -0.7 -0.6
Georgia 4.8 4.7 4.7 4.5 4.5 0.0 0.0
Moldova 4.7 4.0 5.2 3.8 4.0 0.3 0.2
Ukraine 2.5 3.3 3.6 3.3 3.5 0.8 0.5
               
Turkey 7.4 2.6 -1.9 -0.2 2.5 0.8 0.0
               
Russia 1.5 2.3 0.7 1.1 1.7 -0.4 -0.1
               
Central Asia 4.7 4.8 5.1 4.9 4.7 0.5 0.5
Kazakhstan 4.1 4.1 4.1 3.9 3.6 0.4 0.4
Kyrgyz Republic 4.7 3.5 6.4 4.3 3.7 0.7 0.1
Mongolia 5.3 6.9 7.3 6.8 5.4 0.6 0.4
Tajikistan 7.1 7.3 7.5 7.0 6.3 2.0 1.8
Turkmenistan 6.5 6.2 6.2 6.3 6.0 0.0 0.0
Uzbekistan 4.5 5.1 5.8 5.5 5.8 0.5 0.6
               
Southern and eastern Mediterranean 3.7 4.3 4.4 4.4 4.8 -0.2 -0.3
Egypt 4.2 5.3 5.6 5.6 5.9 0.1 0.0
Jordan 2.1 1.9 1.9 2.1 2.3 -0.1 -0.1
Lebanon 0.6 0.2 0.2 0.2 -0.2 -1.1 -2.2
Morocco 4.2 3.0 2.6 2.7 3.3 -0.5 -0.5
Tunisia 1.9 2.5 1.2 1.5 2.6 -1.2 -1.5
               
               
EBRD Excl Turkey 3.1 3.5 2.9 2.9 3.0 -0.1 -0.1

1- e indicated figures fror H2019 are unofficial estimates

2 Weighted averages, based on countries nominal GDP values in PPP US dollars. 2020 weights have been updated since May 2019 REP.

3 EBRD figures and forecasts for Egypt's real GDO reflects the country's fiscal year (July to June)