WASHINGTON: Continued crisis in the Euro Zone hurts the modest recovery under way in emerging European and Central Asian
nations, the World Bank (WB) said on Friday, warning of the risk of a credit crunch in the region due to exposure to Western banks.
“The region is going to witness a slowing down of the recovery, and this is obviously because a large part of the region is very vulnerable
to the negative growth prospects in the Euro Zone,” Philippe Le Houerou, WB’s vice president for the European and Central Asian region, said during a briefing.
The region, which includes 30 countries and stretches from Poland and the Balkans through Ukraine and Russia to the post-Soviet republics in Central Asia, has strong trade and financial linkages with the Euro Zone, which helped it grow in the 2000 to 2008 period.
Economic expansion in the region is to ease to 3.4 per cent this year, from 5.5 per cent in 2011 — one of the slowest expansions of any
developing region, he said.
“There is a pattern that’s emerged, which is pretty consistent with the overall macro story,” he said. Turkey is likely to suffer the biggest slowdown in gross domestic product growth to 2.9 per cent this year from eight per cent in 2011. Ukraine’s GDP growth is expected to ease
to 2.5 per cent from 5.2 per cent last year.
The region also faces risks of a credit crunch as a result of the financial integration of the region with banks in some of troubled Euro Zone economies. “Now we have a legacy where the Western banks are facing pressures and there is a risk of credit crunch in the ECA region,” Le Houerou said.