January 15, 2013 / 4:40 PM / 5 years ago

INTERVIEW-EBRD sees east Europe back on slow growth track

VIENNA, Jan 15 (Reuters) - Emerging Europe’s downturn has bottomed out, the EBRD development bank said on Tuesday, hinting that forecasts next week will show the first improvement since much of the region began to slip back into recession.

European Bank for Reconstruction and Development President Suma Chakrabarti said that since around 2011, each time the bank issued its quarterly prognoses they would point to worse economic conditions. But that was about to change.

“We think the situation has bottomed out and we’re back on the upward curve,” he told Reuters in an interview.

“The curve will still be slow, not rapid growth as such. It will vary from country to country. But we think that (for) 2013 and 2014 we’re back on a growth curve.”

Chakrabarti praised budget consolidation steps taken by governments around the region as “heroic” and said the unpopular austerity measures were the only route the countries could take to avoid being punished by investors.

He did note, however, that Hungary had drawn negative attention for several years of policies by Prime Minister Viktor Orban’s government and was having trouble staying competitive and attracting new investment.

Budapest has particularly angered foreign-owned banks and utilities with a string of policy moves that include the creation of Europe’s highest banking tax.

The measures have hit growth as well. The country of 10 million contracted in 2011 and only expects growth of about 1 percent this year.

“The questions Hungary needs to ask itself is how did we go from being the poster child for FDI (foreign direct investment) and success in the 1990s to becoming a country that is very difficult to get any foreign investors to want to go to? And what do we need to do to change it?” Chakrabarti said.

“I think that’s the sort of debate we need to have.”

Chakrabarti also said that deleveraging - the reducing of credit to the region by the mainly Western banks that own large percentages of the lending sector stretching from the Baltics to the Balkan - was still a worry but not as extreme as in recent years.

“It’s not a trivial issue, but it’s not as big an issue as in 2011,” he said.

Editing by Jeremy Gaunt.

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