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Emerging economies to see 4.2% growth this year

posted onJuly 2, 2021

Emerging economies in eastern Europe, Central Asia and northern Africa are expected to see 4.2% growth in 2021, according to the European Bank for Reconstruction and Development (EBRD).

In its latest Regional Economic Prospects report published on Tuesday (June 29), the London-based lender, lifted its forecast for 2021 to 4.2 percent, up from 3.6 percent in its previous report. For 2022, the EBRD expects further solid expansion with 3.9 percent growth.

Industrial production and retail sales largely recovered after easing of Covid-19 restrictions, the new report said. Higher commodity prices have boosted the revenues of commodity exporters and demand for manufacturing exports has been strong. Manufacturing exporters are gaining from a temporary shift away from services and towards manufacturing.

However, EBRD Chief Economist Beata Javorcik warned: “Although the revised forecasts give reasons to be optimistic, huge uncertainty remains.”

The outlook for international tourism remains highly uncertain and due to still widespread travel restrictions tourism-dependent economies continue to suffer. Meanwhile, foreign direct investment remains far below pre-crisis levels in most of the regions where the EBRD invests.

Higher commodity prices, increased demand for manufactured goods, currency depreciations and higher inflation in trading partner countries have pushed up inflation in the EBRD regions (by an average 0.8 percentage point relative to pre-pandemic levels), despite slack in the labour markets in many economies.

The headline numbers also hide significant differences in the impact of Covid-19 on individuals, with the young and those with lower levels of education and income particularly affected.

Furthermore, fiscal vulnerabilities have increased as large stimulus packages have boosted public debt in the EBRD regions by an average of 11 percentage points of GDP. In many economies, public debt is now at levels last seen during the transition recession of the early 1990s and may rise further. While bankruptcies have so far remained contained owing to extensive policy support, vulnerabilities may surface when government support measures are withdrawn. 

Regional overview

  • In central Europe and the Baltic states, output is expected to increase by 4.8 per cent in 2021 and 4.6 per cent in 2022, reflecting strong household consumption and investment.
  • In the south eastern European Union GDP is expected to grow by 5.2 per cent in 2021 and 5 per cent in 2022 .
  • In the Western Balkans, output is expected to grow by 5.1 per cent in 2021, and moderate to 3.8 per cent in 2022. 
  • In Russia output is seen growing by 3.3 per cent in 2021 and 3 per cent in 2022.
  • In eastern Europe and the Caucasus, economies are expected to grow by 2.8 per cent in 2021 and 3 per cent in 2022 .
  • In Central Asia, output is expected to increase by 4.5 per cent in 2021 and 2022.
  • Turkey’s economy is forecast to grow by 5.5 per cent in 2021 and 4 per cent in 2022. 
  • In the southern and eastern Mediterranean (SEMED) region, output is expected to grow by 3.5 per cent in 2021. Growth is predicted to increase to 4.6 per cent in 2022.

(Graph source: CEIC, National authorities and EBRD forecasts)

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