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Oct 04, 2007 11:42 EEST
SOFIA (Bulgaria), October 4 (SeeNews) – Global tightening of credit supply resulting from the credit crisis that hit the U.S. earlier this year may cause Bulgaria, Romania and Serbia to slow down their growth, the chief economist of the European Bank for Reconstruction and Development (EBRD) said.
Recent uncertainty over the health of the U.S. subprime mortgage market triggered sell-offs on global markets and affected many banks holding securities linked to subprime mortgages, making investors more cautious.
“We are certain that the crisis in the west will be a serious one which will last for some time and this means it will definitely have an impact on our countries [of operation]. We distinguish between two different effects: short-term liquidity problems and more long-term increases in borrowing costs,” Erik Berglof said in an interview posted on EBRD’s website.
The more important effects will come in the longer term as growth will come down, from very high levels, due to the difficulties and higher costs associated with obtaining credit, Bergolf said, adding Bulgaria, Romania, Serbia, Latvia and Hungary were among the most vulnerable.
“Bulgaria, Romania and Serbia have […] enjoyed very rapid growth and credit expansion and have benefited from large inflows of foreign direct investment. The main effect of the crisis in the west will be the reduced appetite for risks in emerging markets, which means that countries representing a higher level of risk or which have large external financing needs will be the most affected,” Bergolf said.
Bulgaria's GDP grew by 6.1% last year and is seen expanding by above 6.0% in 2007, while Romania's GDP, which rose 7.7% in 2006, is expected to grow by a real 6.0 to 6.5% this year. Serbia's economy grew by 5.7% in 2006 and the government has projected that the state economy would grow by 5.9% this year.
EBRD expects that the region's very rapid credit expansion will slow down somewhat, he added.
“A slowdown in the US economy will not affect the region directly as it is not a major trading partner for our countries of operations, but it could dampen growth in the EU which is already weak. That would have an impact on central and eastern Europe, which is very dependent on exports to the EU,” Bergolf said.
Some cooling off may be a good thing for these countries. Their economies, particularly in sectors like real estate and construction, have been growing perhaps too fast, reaching sometimes unsustainable levels. In the credit markets, the cost of risk was unreasonably low and prices did not reflect the different levels of risk. Now this is coming back into the system, he added.
The real estate sector in Bulgaria and Romania, which joined the European Union in January, attracts significant investments as investors see high potential for good returns, while Serbia is still gaining popularity.
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