EBRD sounds warning for virus-hit emerging economies

LONDON, United Kingdom – Europe’s development bank warned Wednesday, May 13, that the coronavirus crisis would deal a “massive” economic blow this year to its investment zone, which is also reeling from collapsing commodity prices.

The European Bank for Reconstruction and Development (EBRD) predicted that the near-40 economies where it operates will shrink by an average 3.5% this year on the back of the global health crisis, before rebounding by 4.8% next year.

And the downturn could potentially be deeper than expected – if COVID-19 physical distancing measures remain in place for longer than anticipated.

“The crisis has been a massive hit and coming out of it will be just as challenging,” said EBRD Chief Economist Beata Javorcik in the bank’s latest outlook report.

“This is not the time to engage in economic nationalism and protectionism, but a time to shape a better future through international commitment to free trade, climate change mitigation, and economic cooperation,” she added.

The EBRD cautioned that the growth predictions are however subject to “unprecedented uncertainty” arising from the global health crisis, adding that some of its investment zone has also been slammed by tumbling prices for commodities – particularly oil.

And the institution warned there could be “potentially significant longer-term economic, political, and social effects” that could deepen the painful downturn.

“If social distancing remains in place for much longer than anticipated, the recession may be much deeper, with the 2019 levels of output per capita not attained again for years to come,” the EBRD said Wednesday.

The London-based bank was founded in 1991 to help former Soviet bloc countries switch to free-market economies but has since extended its reach.

The institution now invests in emerging economies from central and eastern Europe, through to Central Asia, the Middle East, and North Africa.

The EBRD’s latest forecasts assume a gradual exit from global lockdowns and travel restrictions, followed by a return to normal life in the second half of this year.

The bank predicts that almost all countries of operation were set to shrink this year, but exceptions included Egypt, Turkmenistan, and Uzbekistan.

The EBRD expects that the economies of Croatia, Latvia, and Lithuania will be the hardest hit, shrinking about 7% this year on strict virus containment measures.

In southern Europe, Greece and Cyprus are each set to contract by 6% due to slumping tourism, while Turkish gross domestic product is seen dropping 3.5%.

Russia is meanwhile set to decline by 4.5% owing to the devastating collapse in oil prices.

“Russia [faces] the double shock of the coronavirus pandemic, which has hit global demand, and the collapse of an agreement to limit oil production, which together caused oil prices to fall substantially and resulted in a sharp slowdown in activity,” the EBRD said.

“With its economy still dependent on oil, the fall in oil prices was significant, particularly in light of the fiscal stimulus needed to offset the impact of the pandemic.”

The EBRD had originally been due to hold its annual meeting in London on Wednesday and Thursday, May 14, but it was postponed owing to coronavirus turmoil. A new date has yet to be confirmed. – Rappler.com