EBRD cuts C.Europe, N.Africa 2013, 2014 forecasts

Monday, 11 Nov 2013 | 6:30 AM ET

LONDON, Nov 11 (Reuters) - The European Bank for Reconstruction and Development cut its 2013 and 2014 growth forecasts for central and eastern Europe and North Africa on Monday, citing weak external demand and unfinished structural reforms.

The EBRD's forecasts for its regions of operation included a drop of half a percentage point for the biggest economy, Russia.

"Potential growth will continue to be weak in the absence of reforms, low investment and high structural unemployment that is eroding skills," EBRD Chief Economist Erik Berglof said in a statement.

The EBRD cut its 2013 forecast for central and eastern Europe to 2.0 percent from 2.1 percent, and dropped its 2014 projection to 2.8 percent from 3.1 percent.

It cut its 2013 forecast for Russia to 1.3 from 1.8 percent, and for 2014 to 2.5 from 3.0 percent, citing subdued investment and a drop in the price of oil, the country's biggest export. It said Russia grew at a healthier 3.4 percent clip last year.

Russia last week slashed its long-term growth forecast to an average annual 2.5 percent by 2030, down from 4 percent.

The bank, which focuses on investment in the private sector, also cut its forecasts for its newest countries of operation - Egypt, Jordan, Morocco and Tunisia.

Growth for these North African and Middle Eastern economies was seen at 2.8 percent this year and 3.5 percent in 2014, down from 3.0 and 4.1 percent respectively. Political instability remained a concern in Egypt and Tunisia, the EBRD said.

The EBRD cut its forecast for its overall central and eastern Europe and North Africa region of operation for this year to 2.0 from 2.2 percent, and for next year to 2.8 from 3.2 percent. It saw growth last year at 2.7 percent.

The likelihood had decreased of a worsening euro zone crisis, but this still presented a risk to the forecasts, the EBRD said.

Other risks came from a slowdown in China and other large emerging economies, and from a deadlock over raising the U.S. debt ceiling, the EBRD said.

The bank sees an economic contraction next year in euro zone member Slovenia, which is at risk of a bail-out.

Inflation rates have fallen in most countries, which might allow for easier monetary policies that could support growth, the report said.

But non-performing loans continued to weigh heavily on bank balance sheets, in particular in Kazakhstan, virtually all southeastern European countries, Ukraine, Slovenia and Hungary.