The European Bank for Reconstruction and Development (EBRD) has reduced its 2009 economic growth forecasts, reflecting the prospects of a deepening recession in the developed world, and faster-than-expected slowing in economic activity in its region in the final months of 2008, the EBRD said on January 27 2009.

In its latest forecast on economic growth, the Bank still expected the EBRD region to avoid a blanket recession of its own. However, average growth predictions marked some stark variations.

The EBRD now expects average 2009 growth of 0.1 per cent in the 30 countries where it has investments, compared with a prediction of 2.5 per cent based on country forecasts made in November 2008. It estimates that the region expanded by 4.8 per cent in 2008, compared with the prediction of 6.3 per cent made last November.

EBRD chief economist Erik Berglof said, "The EBRD region is feeling the full impact of the global slowdown, mainly because of the region's increased integration within the global economy."

He said: "The ability of these countries to withstand such a major external shock over the longer term will depend largely on the speed of the recovery of the global economy, the combined efforts of individual governments and international financial institutions, including the EBRD, to safeguard financial systems in the region, and the support of foreign banks to their eastern subsidiaries."

Despite the lower short-term growth prospects, the mid to long-term expectations call for a rebound, possibly as early as next year. Berglof said that economic fundamentals throughout the region had strengthened over the past decade, paving the way for the revival of economic momentum once the global economic downturn had abated.

For Bulgaria, the new projection of GDP growth in 2009 is two per cent, down from the 3.8 per cent the EBRD projected for 2009 in its November 2008 report.

The EBRD expects economic growth of one per cent in Russia this year, down from the three per cent predicted last November.

South Eastern Europe was expected to show growth of 1.5 per cent this year, down sharply from the 7.3 per cent estimated for 2008.

"Positive growth in these countries reflects still strong domestic demand, and in some cases lower levels of financial integration, but the risk of an even sharper slowdown is high," Berglof said.

Growth in Central Europe and the Baltics is seen at 0.4 per cent this year after 3.9 per cent last year.

Central Asia was seen growing most robustly this year, showing growth of 2.3 per cent, compared with 4.9 per cent expansion in 2008.

Despite predicting close to flat growth for the whole of its region, the EBRD expects economic contractions this year in Ukraine, Hungary and the three Baltic states. The Ukrainian economy is expected to shrink by five per cent in 2009, Hungary by two per cent, with declines of 3.5 per cent, five per cent and 2.5 per cent seen in Estonia, Latvia and Lithuania, respectively.