EASTERN Europe’s economies are likely to return to mild growth next year but downside risks have grown because of China’s slowdown and Europe’s refugee crisis, the International Monetary Fund (IMF) said Friday.

    The fund said in its semi-annual report that Russia would remain in recession in 2016, albeit a milder one than this year while Ukraine would return to growth after a slump this year.

    For all 22 countries in Central, Eastern and Southeastern Europe (CESEE), the IMF left its growth forecast at 1.3 percent for next year. That is a rebound from this year’s 0.6 percent drop, which has been driven mainly by Russia and Ukraine.

    “We now consider that the balance of risks has moved from more balanced in April 2015 to the downside right now,” Joerg Decressin, deputy director at the IMF’s European Department, said at the launch of the report in Vienna.

    The most important new factors include decelerating growth in emerging economies, notably China, and the ongoing refugee crisis in Europe, said Decressin, adding that the latter factor could play out in different ways for the economy.

    “In the widest sense it could affect the extent of trade and cooperation between the economies in the region, but there are also some upside risks. You have more spending in a number of Western economies,” he said, adding this could lead to more growth.

    “In the end how the refugee crisis affects growth prospect really depends as much on policies as it depends on politics.”

    Russia, hit by low oil prices and Western sanctions imposed over the conflict in Ukraine, will see its economy dip 0.6 percent next year after a 3.8 percent drop this year, the report said.

    Central European countries will see smaller European Union subsidies, which will limit growth next year, and are also most vulnerable to a weaker eurozone recovery because they are the most integrated into pan-European global value chains, it said.

    “The potential negative fallout from the Volkswagen emissions scandal could be damaging for the Czech and Slovak economies and, to a lesser extent, for Hungary and Poland.”

    The fund said countries in Southeastern Europe faced the biggest need to consolidate their budgets, which should be done through cutbacks in subsidies and tax incentives, and reforms to welfare programs.

    Decressin said Turkey remained vulnerable to external shocks despite good growth.

    “It is important to let the exchange rate play its role of a shock absorber but also to deploy policies that rein in the very high credit growth rates.”

    Turkey is especially exposed to global liquidity changes because it needs foreign capital to finance its wide, albeit narrowing, current account deficit.

    However, President Tayyip Erdogan has signaled no change in his combative style since the mildly Islamist AK Party he founded more than a decade ago won a Nov. 1 parliamentary election. The victory has stoked worries that Erdogan will renew pressure on the central bank to cut interest rates, exposing the lira to damage from higher U.S. borrowing costs.

    The IMF forecast the overall fiscal balance in central and eastern Europe at -2.9 percent of gross domestic product next year, an improvement from -3.7 percent in 2015.(SD-Agencies)