Russia's Slow Economy Is Dampening Eastern Europe's Economic Growth As The European Bank For Reconstruction And Development Cut The Region's Growth For 2013 and 2014

The European Bank for Reconstruction and Development (EBRD) has said that it is cutting its expectations for growth for 2013 and 2014, according to its Regional Economic Prospects report that was released on Monday. It lowered growth estimates for 2013 and 2014, citing slow economic growth in Russia as the primary factor, although overall growth in the euro zone has improved.

The forecast for 2014 has been revised from 3.2 percent to 2.8 percent, reflecting two years of slow growth after 2013 was taken from 2.2 percent to 2.0 percent. The region grew by 2.7 percent in 2012.

"The reasons for the weak regional outlook are both cyclical – reflecting continuing weak external demand – and structural - reflecting lower growth potential, limited sources of finance for investment and unfinished structural reforms," said the report.

Many of the countries that the EBRD assists are former Soviet states, Eastern European nations and countries that lie on the Adriatic peninsula that have come from relatively recent conflict or communist rule. The history of the countries and the downturn in growth represent a period of time that has meant fiscal measures outweigh infrastructure projects and for that reason many of the countries are struggling from unfinished structural reforms.

The EBRD aims to produce a transition report on the Nov. 20 with focus on how the EBRD countries can overcome the vicious circle of economic downturn and reform stagnation.

“Potential growth will continue to be weak in the absence of reforms, low investment and high structural unemployment that is eroding skills,” said EBRD Chief Economist Erik Berglof.

The region faces further destabilization should the Eurozone lapse back into recession, but as things stand this is unlikely. However, some regions of the EBRD could face possible difficulties should the economic slowdown in China and other large emerging markets continue. The report also says that the new fiscal impasse from the United States has not subsided.

Strong performances from countries like Lithuania and Latvia have been undermined by slower economies in Russia, Eastern Europe, the Caucasus, southern and eastern Mediterranean which has meant growth expectations for the region have been lower.

The subdued investment climate, say the report, has intensified the slowdown in Russia. While growth in Central Asia has remained strong and the economy in Turkey has performed better than expected in the first half of this year. Growth in the south-eastern Mediterranean has generally weakened.

Across the whole EBRD region unemployment has remained high while inflation in Egypt, Kazakhstan and the Kyrgyz Republic has steadily declined allowing for relaxed monetary policy that could stimulate growth.