By Karin Strohecker

LONDON (Reuters), The European Bank for Reconstruction and Development, Thursday’s forecaster for growth for its 37 member countries raised on Thursday. But it also warned of rising energy costs and slow COVID-19 progress that could dampen future prospects.

According to the EBRD (which tracks economic trends in Europe, Asia, and Africa), a strong recovery over the first six months would increase region-wide growth by 5.5% in 2021. This is an increase from the June prediction of 4.2%, which follows a decrease of 2.4% for 2020.

Beata Javorcik (EBRD chief economist) said, “While these positive developments are encouraging,” but the recovery was bittersweet. The trade balances for energy importers are affected by high prices for, oil, and other commodities, especially in the eastern and southern Mediterranean.

The EBRD stated that high energy prices heightened inflation pressures. These were exacerbated in certain countries like Latvia, Slovenia, and Romania by tight labor markets.

Central banks across the region have been increasing rates in response to inflation pressures, often more than expected. Poland’s central banks announced Wednesday their largest rate increase since 2000, but they did not rule any further tightening.

EBRD calculated that debt service costs could rise as a result of tighter policy in advanced economies. This is despite the fact that they have risen an average of 13 percent of GDP over the past year.

On Wednesday, the U.S. Fed stated that it would begin to decrease its asset purchasing program for this month.

The EBRD increased Turkey’s GDP forecast by 9% in this year, thanks to a strong export market and a recovery post-lockdown. But, they lowered their 2022 outlook to 3.5% because of increasing risks to macroeconomic stability.

Russia saw an increase of 4.3%, slightly more than was expected. Higher commodity revenues helped to fund social spending programmes. But Russia will remain the same 3.0% for 2022.

The fastest and most significant growth in their regions was seen in South Eastern EU, Western Balkans and the Western Balkans. They also saw the largest upward revisions from June’s forecasts.

However, the majority of countries considered that next year’s projections would remain largely unchanged, or at least reduced.

Javorcik stated that hesitancy about COVID-19 vaccines in many EBRD nations, which resulted in a slow rollout and inability to sever any link between rising rates and increasing mortality rates, was also a risk.

She said, “There are clouds gathering at the horizon.”

Graphic: EBRD growth forecasts: https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnbrmrpq/EBRD%20growth%20forecasts%20November%204%202021.PNG