EBRD predicts deeper 2020 contraction, weaker 2021 bounce for its region

Karin Strohecker
·2-min read
The sun is reflected off the windows of headquarter of the European Bank for Reconstruction and Development (EBRD) in central London
The sun is reflected off the windows of headquarter of the European Bank for Reconstruction and Development (EBRD) in central London

By Karin Strohecker

LONDON (Reuters) - The European Bank for Reconstruction and Development (EBRD) forecast a deeper economic contraction and softer recovery in 2021 for its region on Thursday, saying the fallout from the coronavirus had been longer lasting than expected.

The EBRD now expects the 38 economies it invests in, ranging from Estonia to Egypt and Morocco to Mongolia, will on average contract 3.9% this year compared to a previous forecast of -3.5%. The EBRD also predicted its region to grow 3.6% in 2021.

Weaker demand for exports, a collapse in tourism, a drop in remittances, and low commodity prices compounded the hit from the economic fallout of the coronavirus pandemic, the bank said.

"It's becoming apparent that the second wave of the virus is with us," said EBRD chief economist Beata Javorcik.

Economies highly dependent on external sources of income, such as Albania, Croatia, Cyprus, Greece and Montenegro, which lost most of their tourist season this year, are bound to face the most severe contractions.

Countries relying on workers abroad sending money back home also took a sharp hit with remittances from Russia to Central Asia, eastern Europe and the Caucasus dropping 29% in the second quarter year-on-year.

Some sectors, such as tourism, may face lasting damage in the longer term, the EBRD said.

The brunt of the economic pain was borne by the less affluent and less well educated. In a separate study together with German research institute Ifo, the EBRD looked at the more detailed impact on the population in Belarus, Egypt, Greece, Hungary, Poland, Serbia, Turkey and Ukraine. It found that one-third of households in Egypt and a quarter of households in Turkey, Ukraine and Belarus had reduced food consumption.

Overall, 73% of respondents said they were personally affected.

"We are particularly concerned about lower income people in countries that are not set to benefit from European firepower," said Javorcik, referring to the unprecedented stimulus measures launched by countries in the 27-nation European Union to help shore up economies against the coronavirus fallout.

(GRAPHIC - EBRD: https://fingfx.thomsonreuters.com/gfx/mkt/oakpeeyqopr/EBRD%20growth%20forecast.PNG)

(Reporting by Karin Strohecker; Editing by Mark Heinrich)