The road to a fragile recovery
By: Anthony Williams Head of Media Relations
The EBRD has released its latest economic forecasts. Signs of positive growth in the third quarter suggest the recession is bottoming out in much of the EBRD region - but any upturn in 2010 is likely to be fragile and patchy.
At the start of this year, the global economic crisis was hitting central and eastern Europe with unimaginable force. Any illusion that this region was somehow immune from the “western” credit crunch and the subsequent financial squeeze was definitively quashed. Output was declining at startling rates that would only become apparent much later in the Spring.
But the danger signs were everywhere. There was real risk of a genuine emerging market crisis – that financial systems in a number of countries would collapse entirely, that currencies would run out of control, that there could be sovereign defaults.
That this horror scenario didn’t happen was a result partly of unprecedented international support, with the EU and organisations like the IMF providing huge macroeconomic packages that were flexible and tailored to specific country needs. Other IFIs, including the EBRD, stepped into provide micro support to banking groups and corporates with little or no access to liquidity. Crucially western banks, a dominant force in financial sectors in many countries in central and eastern Europe, did not retrench as feared. The authorities in eastern Europe responded with policies aimed at dealing promptly and effectively with the crisis, even though those responses were in some cases immensely painful and politically unpopular.
These economies are not yet out of the woods. The EBRD forecasts show that the contraction of the economy this year will on average be worse than expected just five months ago and while a modest recovery has started to set in, a number of countries will only show full year growth in 2011.
Most importantly it will take several years before economies start growing again at levels where they have even the prospect of catching up with European Union norms. This means that the sacrifices that have been taken will take even longer before they are translated into standards of living that the people of the region aspire to and deserve.
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