EBRD trims growth outlook for the region, warns of more inflation pain to come
|Rising energy prices will pile more price pressure on consumers in emerging Europe, central Asia and North Africa, the European Bank for Reconstruction and Development said on Wednesday, while also trimming its 2023 growth forecast for the region.
Key quotes
Inflation in the EBRD's region, which covers some 40 economies stretching from Kazakhstan to Hungary and Tunisia, reached an average of 16.5% in July, a level last seen in 1998, based on the bank's latest report published in September.
While food has been an important inflation driver in the EBRD region, Javorcik did not expect this to spark social unrest, pointing to wheat prices returning to levels last seen before Russia invaded Ukraine on Feb. 24, based on the report.
The bank estimated economies across to region will grow 2.3% in 2022 - 120 basis points above its May forecast - thanks to a stronger first half of the year when households spent savings accumulated during COVID-19 lockdowns despite a fall in real wages.
But reduced Russia gas supply prompted the bank to trim 2023 growth projections to 3% from a prior forecast of 4.7%.
Ukraine's GDP was forecast to contract 30% in 2022, while the Russian economy is set to shrink 5% instead of the 10% forecast previously.
Growth for Turkey, the single biggest recipient of EBRD funds, has been revised up to 2.5% from 2% for 2022 while next year's growth was confirmed at 3.5%.
The report noted that 88% of central banks in the EBRD region raised interest rates between May 2021 and July 2022.
Market implications
The news adds strength to the market’s risk-off mood and the US dollar, which in turn weigh on the EUR/USD prices. That said, the major currency pair remains pressured around the recently flashed 20-year low near 0.9550 by the press time.
Also read: EUR/USD renews 22-year low as yields propel DXY, focus on ECB vs. Fed drama, energy crisis
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