By Karin Strohecker

LONDON, June 29 (Reuters) – The European Bank for Reconstruction and Development (EBRD) raised its growth forecast for the 37 countries in its region on Tuesday, saying the economic recovery was gathering steam though tourism and foreign direct investment were still bumpy.

The EBRD, which covers economic trends across Europe, Asia and Africa, expects region-wide growth this year of 4.2% compared to its September forecast of 3.6%, it said in a report. This follows a contraction of 2.3% last year.

South-eastern Europe and the Western Balkans enjoyed the biggest upward revisions, with nearly 2 percentage points added.

High global demand for commodities and manufactured goods had provided a boost to some economies in the region, said Beata Javorcik, EBRD chief economist.

“Industrial production is above or has at least has caught up with pre-pandemic levels, retail sales have recovered and exports have bounced back,” Javorcik told Reuters.

However, with tourism still in the doldrums and the outlook for leisure travel highly uncertain, countries heavily dependent on the sector – such as Croatia, Georgia, Egypt or Tunisia – still felt the pain, Javorcik added.

Foreign direct investment added to the drag, remaining at around 80% of pre-pandemic levels, the report found.

At a regional level, only the Southern and Eastern Mediterranean suffered a downward revision of growth predictions, with Jordan, Tunisia and Lebanon all seeing their prospects slashed.

Lebanon, which is engulfed in an economic and political crisis, is expected to see its economy contract by 5% in 2021 – the only country to suffer shrinking output out of the 37 covered by the lender.

Turkey, the EBRD’s biggest country of operation, saw half a percentage point added to its forecast, expected to now grow at 5.5% this year.

While the recovery looked broadly on track, economies overall were struggling to return to pre-2020 levels.

“The recovery is taking us parallel to that pre-pandemic trend,” Javorcik said. “In other words: we are not catching up at the moment, and what we are seeing is … a few points of GDP growth permanently lost.”

(Reporting by Karin Strohecker; editing by John Stonestreet)

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