The European Bank for Reconstruction and Development on Sunday cut growth forecasts for Ukraine, Kazakhstan, and Romania - three key countries for emerging markets investors - because of difficulties arising from the global credit crunch and mounting inflation.While the EBRD, the multilateral bank for eastern Europe and the ex-Soviet Union, raised its 2008 growth forecast for the region as a whole, saying it was pulling through the global turmoil better than expected, it singled out the three countries, plus impoverished Tajikistan, for significant reductions.In a report issued at the start of its annual meeting in Kiev, the EBRD warned that Kazakhstan was suffering from 'the impact of inflation and credit stagnation' and reduced expected gross domestic product growth from 8.5 to 5.1 per cent.

    Romania's growth forecast was cut from 6.5 to 5 per cent, on the grounds of 'rapid monetary tightening', with the central bank raising interest rates to counter inflation.For Ukraine, the growth forecast was reduced from 6 to 5.5 per cent, as the EBRD warned of the impact of inflation which last month hit an annual rate of 30 per cent, the highest in Europe and among the highest in the world. Tajikistan's GDP growth prediction was slashed from 9 to 4.1 per cent, because of the country's exceptionally severe winter, power shortages and a serious accounting dispute with the International Monetary Fund which is hitting Dushanbe's access to foreign credit.The bank's concerns about Ukraine were echoed by David McCormick, the US Treasury undersecretary for international affairs, who said he had raised the inflation issue in discussions with Ukrainian officials. 'It's a very significant issue†‰.†‰.†‰.†‰there's a recognition here that we require an integrated combination of both monetary and fiscal policy.

    'Erik Berglof, the EBRD chief economist, said: 'We are in a global slowdown that is quite difficult†‰.†‰.†‰.†‰What's coming up as the major concern in the region is inflation. It is related to a weaker fiscal stance in many countries.'However, he emphasised that the region as a whole was growing faster than expected, with the bank raising its forecast average GDP growth rate from between5 and 5.5 per cent in January to6 per cent.

    This is still down on last year when the region grew 7.3 per cent, but is far ahead of western Europe, eastern Europe's biggest economic partner. The EBRD blamed the expected slowdown on the global credit crunch, a forecast weakening in export markets in western Europe, and counter-inflationary measures in many countries.Mr Berglof said most countries were responding well to the deteriorating economic conditions. The report said higher commodity prices were supporting above-average growth in Russia and other states exporting energy and raw materials, allowing the EBRD to raise the average forecast GDP increase for the former Soviet Union (minus the Baltic states) up to 7 per cent.

Financial Times