Lacklustre growth in emerging European economies could turn into recession if the euro zone crisis escalates, the European Bank for Reconstruction and Development has said today.
The EBRD nudged up its 2012 growth forecast for the 29-country emerging Europe and central Asia region to 3.2%, from 3.1% in its January outlook.
It also projected 3.1% growth for 2012 across the whole region where it now operates, including for the first time Jordan and three countries of North Africa.
But it said the uncertainties facing the euro zone made it likely that growth this year and in 2013 would turn out lower than expected and could even be negative.
"The risk that emerging Europe as a whole will re-enter recession within the next 12 months is viewed as high," the EBRD said in a statement accompanying the growth forecasts.
"A further worsening of the euro zone crisis or an oil supply shock are both possible and pose significant downside risks for the region as a whole," the report said.
The euro zone is struggling to contain renewed risks of Greece falling out of the single currency, which many fear could be the first step in a wider breakup of the bloc.
Central and eastern Europe, reliant on the euro zone for exports and investments, has come under increasing pressure as trade has shrunk and Western banks have cut back on lending to the region or sold off local subsidiaries.
To manage the deleveraging, the EBRD has helped organise a various initiatives to keep Western banks in emerging Europe.
The EBRD said however it expects bank-related outflows to continue in coming months, as lenders focus on strengthening their balance sheets.
"As European parent banks continue to deleverage, subsidiaries in the transition countries will see reduced cross-border funding and therefore extend less credit," it said.
Despite these problems the whole region grew at a healthy 4.6% last year, the EBRD said. It said growth could pick up to 3.7% in 2013.
