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EBRD lifts growth forecasts for eastern Europe, Turkey, Russia
November 7, 2017 / 2:18 PM / a month ago

EBRD lifts growth forecasts for eastern Europe, Turkey, Russia

LONDON (Reuters) - The European Bank for Reconstruction and Development sharply raised growth forecasts on Tuesday for the 37 countries in which it operates, saying improving exports, a revival in investment and firmer commodity prices were supporting a broad upswing.

Average economic growth for the group, which ranges from Morocco to Mongolia, is now expected to hit 3.3 percent this year, compared to 2.4 percent the multilateral lender had forecast in May and 1.9 percent last year.

Turkey and Poland, which have become two of the EBRD’s biggest markets since it stopped lending in Russia in 2014 in response to the Ukraine crisis, are seen among the biggest drivers of growth.

The EBRD now sees Turkey growing at 5.1 percent this year and 3.5 percent in 2018. This year’s projection is almost double May’s forecast, which was lowered following April’s power grab by Turkish President Tayyip Erdogan.

Poland’s expansion meanwhile is expected to top 4 percent following a burst of fiscal stimulus there.

“We see an upward revision in growth pretty much everywhere and what is good news this time is how broad-based it is,” EBRD Chief Economist Sergei Guriev told Reuters.

“One of the biggest revisions was on Turkey and that is due to very bold fiscal stimulus and credit expansion stimulus which the government undertook to respond to potential uncertainty related to political turbulence.”

Set up by governments in 1991 to invest in the ex-communist economies of eastern Europe, the EBRD has expanded its mandate in the last decade and now operates in parts of North Africa and central Asia as well as euro crisis countries Greece and Cyprus.

A total of 27 of the EBRD’s 37 economies have seen growth pick up this year, the first time there has been such an upturn since 2010. The bank said the overall 2017 forecast is the best since 2011.

Guriev said faster western European growth was helping the EBRD’s traditional heartland of central and eastern Europe towards a 4 percent expansion this year, adding that Romania -- like Turkey -- is now back at its pre-global crisis growth rate.

Growth across the EBRD region is also expected to continue into 2018, but at a slightly more moderate pace of 3.0 percent.

Russia, the largest economy the development bank looks at and a major influence on many of its others, has now pulled out of recession after a cumulative contraction of 3 percent over the last two years.

The country is expected to see GDP growth of 1.8 and 1.7 percent in 2017 and 2018 respectively, though it could be more as Guriev said the forecasts did not capture the most recent leg up in prices for oil, Russia’s main export.

The increase in the oil price compared with 2016 has also helped other commodity exporters in Central Asia and eastern Europe, and also the Caucasus countries that rely on Russia for remittance flows or as a destination for their exports.

In contrast, forecasts for Ukraine were left unchanged at 2 percent growth this year and 3 percent next year.

The EBRD cited uncertainty whether the government, which is heading towards in elections in 2019, will push through the necessary reforms to get the next tranche of its IMF bailout.

“Currently the budget deficit is on track, currently they can get access to the (bond) market, so overall we don’t expect disaster,” Guriev said.

“We think it is unlikely that Ukraine quits the IMF program ... These reforms may be delayed but they will still happen.”

Reporting by Marc Jones; Editing by Catherine Evans

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