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...the region. Lower output growth in the energy sector (Russia, Kazakhstan), political and economic uncertainties that undermined investment (Ukraine, Kyrgyz Republic), and an increasingly negative contribution from the external sector (Ukraine, Russia) all contributed to this weaker growth.
At the same time as growth has slowed, the composition of demand has been very unbalanced, raising concerns about the sustainability of growth going forward. Investment has remained weak, averaging just under 21 percent of GDP in 2005, the lowest of any emerging market and developing country region (Figure 1.17). Consumption, oil the other hand, has expanded strongly, particularly in Russia, Ukraine, and Kazakhstan, underpinned by large hikes in wages and public pensions and increased access to credit. Indeed, credit has grown extremely strongly in number of countries in the region, and in Ukraine and Kazakhstan has increasingly been directed at households and a significant share is denominated in foreign currency. While the ongoing process of financial deepening in the region is welcome--the ratio of bank credit-to-GDP is still low in many countries--rapid credit growth poses a risk to financial stability, given banks' generally weak abilities to assess borrower creditworthiness...
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