EBRD Sees Growth Slowing In Eastern Europe

Economic growth in Eastern Europe and the Commonwealth of Independent States will slow this year, with Poland and Russia acting as a drag on the region, the European Bank for Reconstruction and Development said in its bi-annual Transition Report.

The economies of Eastern Europe and the CIS grew faster than other parts of the global economy in 2001, with strong domestic demand and investment spending compensating for a slowdown in export growth. However, with domestic demand slowing down, the performance of the region's economies is expected to be weaker than in 2001, the development bank said. While the 27 countries in which the bank operates are likely to continue to outperform the global economy, the margin is expected to narrow down.

In the report, the EBRD said it expects the economies of Eastern Europe and the CIS to grow by a weighted average rate of 3.3 percent in 2002, down from 4.3 percent in 2001.

In 2001 the main drag on growth in Central Europe was Poland, its largest economy. The Polish economy grew 1.1 percent in 2001, and the EBRD expects only a modest rebound to 1.5 percent this year.

The EBRD said that Eastern Europe and the CIS continue to attract an increasing volume of foreign investment. In 2002, the bank expects foreign direct investment to rise to 34 billion USD from 25 billion last year.

However, foreign investment in the region's stocks and bonds fell slightly in 2001, and was heavily concentrated in the government bond markets of the Czech Republic, Hungary and Poland.

The EBRD attributes the reluctance of investors to buy securities to "weak protection of investor and creditor rights and underdeveloped financial sectors."