Kourkoumelis & Partners News Risks in emerging Europe recede as eurozone outlook stabilises
Risks in emerging Europe recede as eurozone outlook stabilises
22/01/2013 10:37

Signs of stabilisation in the eurozone are reducing the risks facing emerging Europe, leading to cautious optimism that the worst of the transition region’s problems may slowly be drawing to a close. After a sharp slowdown in economic activity in 2012, economists are expecting a moderate acceleration of growth this year.Across the whole transition region, a growth of 3.1 per cent in 2013 is expexted, after a sharp slowdown to 2.6 per cent in 2012 from 4.6 per cent in 2011. The 2013 forecast is marginally lower than the 3.2 per cent seen in October. Several policy decisions taken within the eurozone in recent months are increasing the chances of an economic improvement in the single currency bloc, albeit a very slow and gradual one.

Recent such decisions include the European Central Bank signalling its readiness to help countries under pressure on the sovereign debt markets as well as moves to create a European Banking Union. Performance still varys from country to country. In recent months the eurozone recession has caught up with relatively strong performers such as Poland and the Slovak Republic. Hungary entered a renewed recession resulting in an overall contraction of about 1.5 per cent in 2012.  The country shows the most rapid pace of bank deleveraging of any transition country and a further small contraction of 0.1 per cent is expected in 2013. However, forecasts for the Baltic countries have been raised for both 2012 and 2013 relative to the previous outlook in October.

In southern and eastern Europe, the slowdown in the eurozone and a significant drop in agricultural output have had significant dampening effects on Romania’s growth. After only negligible growth for 2012 some recovery is likely in 2013, with growth seen at 1.4 per cent. Meagre growth of 1.0 per cent is seen returning to Ukraine after stagnation in 2012. After strong expansion in Turkey in 2011, there was a slowdown last year and relatively moderate growth is expected in 2013 of 3.7 per cent. The Russian economy has not been immune to the impact of the eurozone crisis. In 2012, the weaker global environment and lower investor and consumer confidence led to a significant slowdown in both external and domestic demand.  Russian GDP growth is estimated at 3.5 per cent in 2012 and expected to remain at around 3.5 per cent in 2013 and the medium term, which is less than half of the rapid growth rate that Russia enjoyed in the years before the 2008-2009 crisis.

The four countries in the Middle East and north Africa are expected to deliver better results than last year and a substantial improvement on 2011 as the region remains on a recovery path from the political turmoil of the “Arab spring”. Recovery in the largest economy, Egypt, though continues to face significant headwinds. The recent return of political turmoil and widespread protests are likely to weigh on the Egyptian economy, impacting normal business activity, tourism, and confidence.