Today.Az » Business » EBRD sees ex-Soviet bloc growing 5.3 pct in 2006
21 May 2006 [17:15] - Today.Az
Economic growth in the former Soviet bloc will ease in 2006, with a mild upturn in central and southeast Europe offset by a slow-down in Russia and former Soviet republics, the region's development bank said on Sunday.

According to Reuters information agency, the European Bank for Reconstruction and Development (EBRD) said the region's economy was set to expand 5.3 percent this year after an estimated 5.6 percent growth in 2005.

The London-based lender said new European Union members from central and eastern Europe and the Baltic states were benefiting from strong foreign investment and exports.

"We see that a lot of growth in the region comes from foreign-controlled enterprises," the bank's chief economist, Erik Berglof, told a news conference.

In contrast, Russia and other members of the Commonwealth of the Independent States (CIS), which in 2005 outpaced the rest of the region thanks to high world prices for oil and other commodity exports, were starting to feel capacity restraints.

"The rate of growth in the CIS is declining sharply and is likely to fall further in 2006, reflecting the limited investment to date in productive capacity," the EBRD said in its latest report on the transition of former Soviet bloc members towards a market economy.

The EBRD was established in 1991 to fund investments in the former communist states of central and eastern Europe and central Asia.

Earlier this month the bank said that by 2010 it would stop investing in eight central European and Baltic nations that joined the EU in 2004, and shift its focus to Russia, southeast Europe, the Caucusus and central Asia.

The EBRD said the region as a whole continued to perform strongly, and its growth was set to stablilise at 4-5 percent average annual growth in the medium term.

"Growth we have seen in the past was very strong by historical standards and it will come back to more sustainable levels," Berglof said.

But the bank warned that the region's growing integration into the world economy made it more vulnerable to an expected further cooling of investor sentiment towards emerging markets and a levelling off of foreign direct investment inflows.

The bank listed high fiscal deficits and limited commitment to budget reforms as central Europe's key challenges, while high trade deficits left several Balkan states relying heavily on transfers from expatriates and international aid. In several countries political instability remained a concern.

"In parts of south-eastern Europe and the CIS political uncertainties remained a danger," it said.

Commenting on Russia, the biggest of the 27 nations covered in the report, the bank said its economy would grow by 5.5 percent in 2006, down from 6.4 percent last year, mainly sustained by rising private consumption.

"Medium-term prospects depend on whether the confidence of domestic and foreign investors can be revived, and whether capital formation ... can be stimulated," the EBRD said.

"However, given the prospect of enduring high energy prices and the approaching presidential elections, incentives for further reforms to improve the investment climate are likely to be limited."

Ukraine is set to be the worst performer among 27 nations where the bank is active, with growth seen slowing to 1.2 percent this year from 2.6 percent in 2005, hit by double-digit inflation and a sharp rise in import prices for natural gas.

The oil-exporting former Soviet republic of Azerbaijan was poised for another year of growth in excess of 20 percent, thanks to increased oil and gas production and export capacity.

/www.reuters.com/



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