ERBD: GDP Mongolia -1.6% (2017)
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The European Bank for Reconstruction and Development has warned of a potentially “scary” economic hit to its bloc of countries if Britain’s exit from the European Union goes badly and fuels a backlash against market economy reform.
The development bank published new forecasts on Thursday that showed a modest upgrade to growth this year in its 36-country region that has grown from former-communist central and eastern Europe to include the likes of Turkey, Greece and Egypt.
Russia and Ukraine emerging out of recession should help region-wide growth of 1.6 percent this year and 2.5 percent in 2017 and offset forecast cuts to heavyweight economies Poland and Turkey where political uncertainty has risen. It is the looming threat of Britain’s exit from the European Union though and its possible hit to the rest of Europe that poses the biggest threat.
“The middle of the range scenario (of Brexit effect) is not going to be catastrophic,” EBRD chief economist Sergei Guriev told Reuters, saying for most countries it would be under 1 percent of GDP. “But the harder the Brexit the more negative the scenario. You can imagine a much tougher impact where it would go from 1 percentage point to a few percentage points. I don’t want to scare you, (but) we have some really scary scenarios.” The real damage would happen if Britain’s move fuelled anti-EU actions elsewhere and drove a further push-back against market-based development policies.
But even a simple ‘hard’ Brexit, where trade is “significantly disrupted” and key EBRD countries see EU grants cut, would be painful enough. South-eastern Europe could see its GDP growth potential fall almost 6 percentage points cumulatively by 2021 while Ukraine, central Europe excluding Poland and Baltic states could see reduction of around 4.2 percentage points. “There will be an impact on the euro zone, there will be an impact through trade, through financial flows, through investment, through remittances,” Guriev said.
And we have an internal debate on whether this could also have an impact on reform momentum within our countries. This is much harder to quantify.” In the shorter term, however, the uncertainty could help these developing countries by reducing the chances of a meaningful rise in interest rates from major central banks.
A rise in oil and other commodity prices relative to the EBRD’s last forecasts in May was likely to help Russia and its neighbours, though weaker tourism, partly due to security concerns, continue to cloud the outlook in the southern and eastern Mediterranean (SEMED) and Turkey.
Growth in Turkey, which is now the EBRD’s biggest market but has seen a strong government clamp down following a coup attempt earlier in the year, is projected to moderate to around 3 percent in 2016-17, from around 4 per cent in the first half of 2016, as a result of weaker outlook for investment.
Reporting by Marc Jones
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