Reuters reported that European Bank for Reconstruction & Development has slashed its 2009 forecast for emerging Europe to a 5.2% contraction from the 0.1% growth predicted earlier this year.

Cutting its forecasts for the second time in 6 months, EBRD said that the global credit crisis was now severely affecting the corporate sector and leading to large declines in output and domestic consumption. It added that Russia's economy would shrink by 7.5% estimate based on the government's first quarter figures, dwarfing the 4.7% contraction forecast.

Mr Erik Berglof chief economist of EBRD said that "There are downside risks to these predictions. But now there is also upside potential. Our underlying outlook assumes continued external engagement, particularly from the western parents of banks in the region."

EBRD first revised its growth estimates for the region in January after initially predicting 3% 2009 economic expansion for emerging Europe in November.

(Sourced from Reuters)