EBRD bank trims economic outlook

[LONDON] Europe's development bank said Wednesday its outlook for the regions it covers had weakened slightly owing to ultra-low oil prices, markets volatility and international tensions.

The European Bank for Reconstruction and Development (EBRD) gave the assessment for its 36-nation investment zone - comprising countries in eastern Europe, central Asia and the Mediterranean - on the first day of its annual meeting in London, where it is headquartered.

The 25-year-old bank's governing council will meanwhile on Wednesday vote on its president for the next four years.

Sources close to the matter told AFP that Britain's Suma Chakrabarti - who has held the position since 2012 - is set to be re-elected. He is standing against Marek Belka, the outgoing governor of Poland's central bank.

"All of EBRD's annual meetings are special in their own way. But this year's is exceptional as it coincides with the 25th anniversary of our founding," Mr Chakrabarti told delegates Wednesday.

"Over the last quarter of a century the EBRD has invested more than 105 billion euros (S$163 billion) in over 4,500 projects, and delivered significant impact." The EBRD on Wednesday forecast that average economic growth in its investment zone would stand at 1.4 per cent in 2016.

That was modestly below its prior November guidance for 1.6-per cent expansion.

The performance would still mark a strong acceleration from the 0.5 per cent experienced in 2015, and will be followed by an estimated 2.5-per cent growth in 2017.

"The slightly softer outlook reflects a further drop in the price of oil since the previous report, increased volatility in global financial markets, lower capital flows to emerging markets worldwide, weakness in global trade and increasing geopolitical tensions," the bank said in a statement.

The EBRD also highlighted "elevated" geopolitical risks, particularly in the Middle East and eastern Ukraine.

However, acting chief economist Hans Peter Lankes warned that the 2016 forecast downgrade "masked a divided picture".

The Eastern Europe and the Caucasus area - which includes countries like Armenia, Belarus and Montenegro - was set to shrink by 0.2 per cent this year.

That contrasted sharply with the previous forecast of 1.4-per cent growth.

This region - along with central Asia - has been hit hard by "weak commodity prices and the (ongoing) recession in Russia", the EBRD said.

The Mediterranean nations - comprising Egypt, Jordan, Morocco and Tunisia - were revised sharply down to 2.9-per cent growth in 2016 from 4.1 per cent previously.

"Weaker tourism receipts partly due to security concerns and the slowdown in global trade are clouding the outlook in southern and eastern Mediterranean, as well as Turkey," the bank said.

However, the EBRD's other regions - central Europe and the Baltics, and southeastern Europe - saw their prospects improve on the back of lower energy costs and accommodative monetary policy in the neighbouring eurozone.

The bank, which invests in private enterprises together with commercial partners, was founded in 1991 to help ex-Soviet bloc countries make the transition to free-market economies and democracy.

It has expanded its reach in recent years to Turkey, Jordan and north Africa.

AFP