Balkans Vulnerable to Eurozone Crisis, EBRD Says

In a new report, the European Bank for Reconstruction and Development, EBRD, underlines that Southeastern Europe remains vulnerable to the on-going crisis in the eurozone, owing to its exposure to the Greek and other eurozone periphery economies.

The report says the negative impact of the eurozone crisis on growth in the region through overall capital outflows may have lessened, but its effect on lending through cross-border bank deleveraging was continuing. "Financial sector vulnerabilities constitute the biggest risk, given that the vast majority of the banking system is foreign owned and given the reliance in most countries on funding from abroad," the report said. The report noted that Albania continued to grow faster than other countries in the region in 2011 but experienced a slowdown in the second half of 2011 and in early 2012, largely due to the weak performance of its key EU markets, Greece and Italy.  "Albania’s strong trade, investment and remittance ties to these countries are likely to continue to constrain growth in the coming year, while public debt is close to the statutory limit of 60 per cent of GDP, limiting the room for fiscal manoeuvre," the report added. In Bosnia, the report said that the economy had been relatively stable in the past couple of years, but domestic consumption remains subdued, largely due to fiscal austerity measures and to falling remittances. According to the report, in the short term the country could benefit from a continued strong demand for certain export products, such as metals and timber, which may compensate for weaknesses elsewhere in the economy. Recovery is expected to continue to be modest in Bulgaria in 2012 due to sluggish export demand.

However, the government continues to adhere to fiscal prudence, with the government budget marginally in surplus in the first five months of the year, the report said. The economic situation has also been worsening in Croatia, the EU’s future 28th member state, with the economy being "technically in recession".

Source: EBRD