Nudging up forecasts, EBRD warns growth may have peaked

By Karin Strohecker

LONDON (Reuters) – The European Bank for Reconstruction and Development (EBRD) nudged up its regional economic forecasts on Wednesday, but warned that growth may have peaked and structural reforms were needed to keep up the momentum.

The EBRD, which tracks trends in 37 countries across three continents from Estonia to Egypt and Mongolia, said it expected to see growth in every economy it covers. The bank predicted average growth of 3.3 per cent in 2018, an upward revision of 0.3 percentage points from its November forecast, and an expansion of 3.2 percent in 2019.

However, this represented a slowdown from last year’s 3.8 percent, reflecting lower rates of productivity growth as well as adverse demographic trends, the report said.

The bank’s chief economist, Sergei Guriev, said most EBRD economies had exhausted the growth levers that had delivered rapid expansion until the onset of the crisis.

“In order to develop new sources of growth, these countries need to carry out structural reforms of product, capital and labor markets,” Guriev said, adding that countries needed to improve governance, promote integration into the global economy, and invest in human capital and sustainable infrastructure.

Outlining risks to its forecasts, the EBRD cited a substantial rise in corporate debt levels, policymakers’ limited room for maneuver, a further rise in populist political parties and security as well as geopolitical risks.

“With constrained fiscal space and very accommodative monetary policy, governments may have limited ammunition to respond to a major dip in market confidence,” the report found. 

Corporate debt as a percentage of gross domestic product in the EBRD regions increased to more than 60 percent in 2018 from around 40 percent in 2007, much of it external and denominated in foreign currency, the bank said.

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