The emerging economies are a source of growth for the industrial gas community, but the European Bank for Reconstruction and Development (EBRD) says that some of these regions will experience modest growth this year.

A recovery this year in the regions where the EBRD invests is expected to be slow, it claims, despite improvements in the world’s most advanced economies including in the US and Eurozone.

Domestic policies will be key to the longer-term outlook.

EBRD economists see growth in the transition region of a modest 2.7% in 2014, virtually unchanged from its November forecast, and after expansion of 2.0% in 2013.

The EBRD’s latest Regional Economic Prospects report said emerging economies were still suffering from capital outflows that were likely to persist in light of the expected gradual tightening of US monetary policy.

For the first time since 2011 net private capital flows turned negative for the EBRD region as a whole in the third quarter.

“For sustained recovery to take hold, countries in the region need to resume structural reforms and tackle the persistent legacies of the crisis, including high rates of non-performing loans and long-term unemployment,” the report said.

“How countries react with policy changes now will determine how their economies respond to further bank deleveraging and adjustments to US monetary policy”

Overall, the CEB region will probably grow at 2.2% this year, twice as fast as in the previous two years and reflecting the fact that a recovery is finally taking hold in Croatia and gaining momentum in Hungary, Poland and the Slovak Republic. Growth in Russia will only partially recover in 2014, to 2.5% from 1.3% last year. In Eastern Europe and the Caucasus, growth will strengthen to 2.0% from 1.2%. Ukraine is expected to post small growth after virtually no growth in 2012 and a 0.8% contraction in 2013.

Growth in Central Asia will remain relatively strong owing to a number of large natural resource projects in Kazakhstan, Mongolia and Turkmenistan, while growth in Turkey is likely to moderate somewhat to 3.3% in 2014, from 3.7% – reflecting monetary tightening and an increase in financing costs linked to higher political risks which are pulling growth back.

“There are increasingly positive signs in the world economy, especially in the most advanced countries. But the EBRD’s own region is not yet out of the woods and still faces many challenges,” added EBRD Chief Economist Erik Berglof.

“How countries react with policy changes now will determine how their economies respond to further bank deleveraging and adjustments to US monetary policy,” he said.

Outlook 

Looking ahead, the report expected only a gradual improvement in external factors affecting the transition region, with a slow and uneven recovery in the Eurozone and a general deceleration in larger emerging markets partly offset by the stronger outlook in the US and Japan.

It said growth in countries most closely integrated with the Euro area would remain modest even as the negative impact of the Eurozone crisis diminished. In addition to uncertainties linked to the Eurozone, other risks to the outlook include the possibility of a faster deceleration in large emerging markets, especially China.