EBRD sounds deeper recession warning for Ukraine

Ukraine faces plunging deep into recession this year and Russia could follow as the economic fallout from the crisis threatens to spread globally, the EBRD development bank warned on Wednesday. "The crisis in Russia and Ukraine is having a severe impact on the economies of the two countries and is threatening to slow down the recovery in the wider EBRD region (of investment) -- or even bring it to a complete halt," the bank said as it opened its annual conference in Warsaw. Sharply downgrading its forecasts made in January, the bank  said it now expected Ukraine to tumble into recession in 2014 with a contraction of 7.0 percent -- and to deliver zero growth next year. The EBRD was founded to help ex-Soviet bloc countries make the transition to free-market economies and democracy, The International Monetary Fund (IMF), which last month approved a $17-billion (12.4-billion-euros) aid package for Ukraine, has forecast a 5.0-percent contraction to the nation's economy this year. At the start of the year, before the outbreak of the crisis, the European Bank for Reconstruction and Development (EBRD) had forecast that Ukraine's economy would grow by 1.5 percent in 2014. On Wednesday, the bank added that it estimated Russia's economy would post zero growth this year and expand by only 0.6 percent in 2015. In January, it had expected Russia to grow by 2.5 percent in 2014. Citing "an unusually high level of uncertainty surrounding the forecasts", the EBRD warned that Russia could slip into recession this year while Ukraine may suffer an even deeper contraction. "Under a less-benign scenario including the imposition of financial sanctions in particular, Russia would slip into recession, the output contraction in Ukraine would deepen and average growth in the region would grind to a halt in 2014-15. “At this point, the Russia-Ukraine crisis would start impacting the global economy,” the EBRD concluded in its latest report. The IMF in April forecast that Russia was already in recession. - Bloody violence in Ukraine - The EBRD meanwhile also slashed the 2014 growth forecast for its entire region of operation to 1.4 percent from an estimate of 2.7 percent made in January. Its region of investment, including mainly former communist nations across Central and Eastern Europe but also Turkey and emerging economies in north Africa and the Middle East, grew by a combined 2.3 percent in 2013. "The outlook for growth in the transition region has thus materially deteriorated compared with the January 2014 forecast, dashing hopes that the continuous decline in the region's growth rate since 2011 would be reversed in 2014," the EBRD noted. The bank said that a modest upturn of 1.9-percent average growth could occur in 2015 across its region of operation but only if the Russia-Ukraine crisis does not escalate from the current situation. Ukraine is hosting roundtable "national unity" talks on Wednesday after its military suffered its bloodiest day since launching an offensive to oust separatist pro-Moscow rebels in the east. Insurgents killed seven Ukrainian soldiers in an ambush and firefight near the rebel-held eastern town of Kramatorsk on Tuesday, underscoring the urgency of a new diplomatic push by Europe to resolve the escalating crisis on its doorstep. Before the crisis broke, Russia's already slowing economy had expanded by 1.3 percent last year and Ukraine posted zero growth, according to the EBRD. - Cyprus, Libya in focus - The bank's latest annual gathering is taking place almost 25 years after the fall of the Berlin Wall and a decade since eight former communist nations, including Poland, became members of the European Union. After spending more than two decades investing in private and public sector projects across countries such as Poland and Hungary, the EBRD has in recent years decided also to lend money for schemes in emerging economies Turkey, Egypt, Morocco, Tunisia and Jordan. On Thursday, EBRD shareholders will decide on whether Libya should become a member of the bank, which would precede a move to begin investing there. They are to vote also on whether bailed-out economy of Cyprus should temporarily receive financing from the bank.