Reuters reports that the European Bank for Reconstruction and Development (EBRD) lifted this year’s growth forecast for the 37 countries in its region, but warned rising energy costs and slow COVID-19 vaccination progress dampened prospects ahead.
The EBRD estimated that a sharp recovery in the first six months of the year would lift region-wide growth to 5.5% in 2021. That is up from its June forecast of 4.2% and follows a contraction of 2.4% in 2020.
High energy prices ramped up inflation pressures, which were exacerbated by tight labour markets in some countries such as Latvia, Slovenia and Romania, the EBRD said.
Inflation pressures have already seen central banks in the region ramp up rates, in many cases further than anticipated. On Wednesday, Poland’s central bank delivered its biggest rate hike since 2000 and did not rule out further tightening.
Meanwhile policy tightening in advanced economies could make it more expensive to service debt burdens, which rose an average 13 percentage points of GDP since the end of 2019, EBRD calculations showed.