EBRD raises E.Europe growth call, warns on inflation

By Dmitry Zhdannikov

KIEV, May 18 (Reuters) - The EBRD on Sunday raised its 2008 growth call for eastern European and former Soviet states to around 6 percent, citing their surprising resilience to global economic problems, but it warned inflation risks loomed.

"Inflation, now in double digits in many countries, is the region's most pressing current problem," the European Bank for Reconstruction and Development said in its economic outlook report, issued at its annual meeting in the Ukrainian capital.

"If left unaddressed, inflation could risk price-wage spirals, exchange rate re-alignments, or could force a belated and sharp response by monetary policy," the report said, highlighting a robust economic performance despite disruptions to the global economy from turmoil in international credit markets.

The bank, launched in 1991 to help the states of the former Soviet Union become fully functioning market economies, said in January it had cut its full year growth forecast for the region to 5.0-5.5 percent from 6.1 percent previously.

Although the multilateral lender has hiked its estimate of growth to "around 6 percent for this year", that still marks a slowdown from the 7.3 percent growth the commodity-rich region chalked up in 2007 as the global economy boomed.

The EBRD attributed the slowdown to several factors, but put soaring prices first among them.

"The anticipated slowdown reflects very rapid increases in consumer prices, which are likely to impact household incomes and consumption, especially in the CIS," it said, adding that the global credit crunch could start to bite in the region.

"A more restrictive international funding environment, together with interest rate rises to combat inflation, could reduce domestic credit growth and limit growth in domestic investment," the EBRD said.