EBRD: Inflation Hitting Eastern Europe Hard

KIEV, Ukraine -- Rising inflation is severely hurting Ukraine and other Eastern European nations, while the global credit crunch will slow growth in those countries dramatically in coming months, the European Bank for Reconstruction and Development said Sunday.

Ukrainian President Viktor Yushchenko (R) and Prime Minister Yulia Tymoshenko attend the annual meeting of the European Bank of Reconstruction and Development in Kiev, May 18, 2008.

"Inflation, now in double digits in many countries, is the region's most pressing current problem. If left unaddressed, inflation could risk price-wage spirals, exchange rate realignments, or could force a belated and sharp response by monetary policy," the bank said in a statement.

Gathering in Kiev for their two-day annual meeting, bank officials were scheduled to discuss the impact of global economic turmoil and soaring food prices, among other topics.

The worldwide credit crunch could sharply pinch markets in ex-Soviet bloc nations, and as a result, the bank said it had downgraded gross domestic product growth projections for Ukraine and other countries.

Overall growth of 6 percent is expected in Eastern Europe this year, compared with 7.3 percent in 2007, the bank said.

Real GDP growth in Ukraine is expected to slow to 5.5 percent in 2008, the bank said. The government had earlier projected a 6.8 percent pace.

The bank also attributed the slowdown to rapid increases in consumer prices, which will affect household incomes and consumption.

Neighboring Russia, meanwhile, will continue its rapid oil- and gas-fueled economic expansion, with growth expected to reach 7 percent this year, the bank said.

The EBRD is the largest financial investor in Ukraine, investing up to $1.6 billion annually into projects ranging from banking to infrastructure.

Governors of the EBRD — which is meeting in Kiev for only the second time — were also expected to appoint German Deputy Finance Minister Thomas Mirow as a successor to President Jean Lemierre.

Source: AP