Russia, eastern Europe hit by eurozone woes: EBRD

Central and East European countries face a "substantial economic slow-down" this year and next as a result of the ongoing turmoil in the eurozone area, the London-based European Bank for Reconstruction and Development (EBRD) said Wednesday.
"The intensification of the eurozone crisis occurred late enough in 2011 not to derail the transition region's full-year economic performance," said the EBRD in its 2012 Transition report. But, since then, the eurozone's sovereign debt crisis had deteriorated. "Recovery has stalled in many transition countries which are particularly integrated with the single currency area," it said.
In comments made during the presentation of the report in London Wednesday, EBRD chief economist Erik Berglof said there was a "huge variation in terms of how vulnerable" countries were to developments in the eurozone. It was now clear that growth in Russia was "really affected" by the difficulties in the currency union, due to its dependence on energy production and exports.
Quarterly growth and industrial production in Russia had "slowed significantly" during the first half of 2012. For the region as a whole, "what happens in Russia is critical," said Berglof. He cited Ukraine as a country "very much affected" by both the eurozone problems and "developments in its surroundings."
The eastern Europe and Caucasus regions with closer links to Russia would see slower growth mainly due to the "substantially weaker" Ukrainian economy, where "idiosyncratic factors will combine with the weak external environment of eurozone recession and slowing growth in Russia," said the report. As the eurozone was likely to "progress slowly and unevenly towards containment of the crisis," its repercussions would "continue to negatively impact growth in the transition region in the near future," it continued. The report said gross domestic product (GDP) growth in south-eastern Europe and the Baltic States would be "particularly slow," as some countries "have entered or will re-enter mild recession." Under these conditions, GDP growth in the region was expected to "slow down substantially" to 2.7 per cent in 2012, and 3.2 per cent in 2013 - from 4.6 per cent in 2011, said the report.