Key insights
- The EBRD president warns emerging economies to limit crisis support due to tight fiscal space and rising borrowing costs, exacerbated by the Middle East conflict and Ukraine war. This suggests potential for slower growth and higher inflation in these regions, which could indirectly impact global markets by affecting commodity prices and investor sentiment. The bank will cut its growth outlook and raise its inflation forecast, signaling a more challenging economic environment ahead for developing nations.
Investing.com -- Government support in emerging economies affected by the Middle East conflict should be temporary and targeted, European Bank for Reconstruction and Development President Odile Renaud-Basso told Reuters on Monday, as tight fiscal space and higher borrowing costs bite.
The warning comes ahead of the London-based bank’s annual meeting, which starts on Friday in Riga. The gathering takes place after six years of crisis that began with the COVID-19 pandemic and continued with Russia’s full-scale invasion of Ukraine.
The shocks left many countries with higher debt burdens, Renaud-Basso said, including emerging Europe, Central Asia, the Middle East and Africa - the regions where the bank invests in private sector projects.
Energy price spikes and potential fertilizer shortages due to the ongoing war in Iran risk pushing up food prices and inflation further.
"There is less fiscal space in a number of countries," Renaud-Basso said. "You need to be very targeted, very focused on the most affected people and avoid very generic across the board measures that could be very expensive."
The lender will cut its growth outlook and raise its inflation forecast in its economic update due to be published on Wednesday, she said, without giving further details.
The bank had forecast 3.6% growth this year and 3.7% in 2027 in the 41 countries covered in its February forecast.
The EBRD announced in April it would deploy €5 billion into countries hit by the fallout from the Iran war.
Renaud-Basso said governments also needed to attract private investment, noting growing interest from institutional investors such as pension funds in the Netherlands and the Nordics.
Ukraine will be in focus, with the EBRD hosting a donor meeting on the Chornobyl nuclear plant - site of the world’s worst nuclear disaster whose protective confinement was damaged by a Russian drone strike last year.
Asked about recent turmoil in Turkey, one of the bank’s key markets, she said conditions appeared to have stabilized. Political moves against the main opposition party hit the lira and other assets some two weeks ago.
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