World Bank downgrades outlook for developing countries in Europe, Central Asia

FILE PHOTO: A participant stands near a logo of World Bank at the International Monetary Fund - World Bank Annual Meeting 2018 in Nusa Dua
FILE PHOTO: A participant stands near a logo of World Bank at the International Monetary Fund – World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, October 12, 2018. REUTERS/Johannes P. Christo/File Photo

April 9, 2020

By Andrea Shalal

WASHINGTON (Reuters) – The World Bank sharply downgraded its outlook for developing countries and emerging markets in Europe and Central Asia this year due to the coronavirus epidemic, but said those economies could swing back into solid growth in 2021.

In an updated outlook published late Wednesday, the World Bank said the wide range in its forecasts was due to significant uncertainty about efforts by countries to contain COVID-19, the illness caused by the coronavirus, and mitigate the economic damage it was causing.

It said its baseline scenario called for gross domestic product among developing countries and emerging markets in the region to contract by 2.8% in 2020, while the downside scenario saw a deeper recession with growth shrinking 4.4%.

That marked a downward revision of 5.4% to 7% from the bank’s outlook just three months ago.

“The pandemic is certain to derail the near-term outlook by weighing on domestic demand, putting further downward pressure on commodity prices, disrupting tightly-linked global and regional supply chains, reducing travel and tourist arrivals, and decreasing demand for exports from the region,” it said.

The report covers a broad region that includes Bulgaria, Hungary, Lithuania and Poland, as well as Serbia, Belarus, Ukraine, Georgia and Kazakhstan.

It said the baseline scenario was becoming less likely, and the downside scenario looked more probable.

The pandemic came at an already fragile time for the region, the bank said, noting that growth in the emerging market and developing economies of Europe and Central Asia had already slowed to 2.2% in 2019 from 4.3% in 2018.

Growth had been poised to pick up in 2020 when the outbreak occurred, it said.

Economic activity could rebound significantly in 2021, with GDP set to expand between 5.6% to 6.1%, however much would depend on when measures to contain the virus were lifted, the pace of improvement in commodity prices and the speed of recovery in the euro area, the Bank said.

It said the projections for regional growth also assumed a resumed recovery in Turkey, firmer growth in Russia, an orderly departure of Britain from the European Union and no flare-up in trade tensions between China and the United States.

Policymakers needed to act decisively to save lives while minimizing the economic cost of the pandemic, but many countries in the region already had rising debt levels and were ill-prepared to address the crisis, the Bank said.

(Reporting by Andrea Shalal; Editing by Cynthia Osterman)

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