Growth forecast for Central Europe

WARSAW, Poland -- Central Europe and Baltic countries are forecast to enjoy strong growth this year despite global economic gloom.

The prediction was made by the European Bank for Reconstruction and Development, the London-based development bank for the former Soviet bloc.

They said it expected growth in the more advanced countries in eastern Europe to stay "relatively resilient," slowing to 3.7 percent in 2001 from 4.1 percent in 2000.

Their prospects are underpinned by approaching European Union membership, the EBRD said.

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The bank said these nations will be insulated from economic turbulence as its main export market is western Europe, where economies have not weakened as much as the United States.

"There is wide consensus regarding continued robust growth in CEB (Central Europe and Baltic) states, driven by EU accession prospects and strong domestic demand," the bank said in a report.

But the bank highlighted continued problems facing the 10 ex-communist EU candidates in the Baltics and eastern Europe in bringing inflation down and reducing and refocusing government spending as they try to meet EU entry standards.

"There is an urgent need to put government finances on a more sustainable footing by cutting current expenditures," the report said of the Czech Republic, where the planned 9.4 percent of GDP fiscal deficit for 2001 was particularly worrying.

The report, released before the EBRD's 10th annual meeting, comes as the bank prepares to reduce lending to more advanced countries like Poland and Hungary and shift its focus further east to states with little access to international funds.

With Estonia, Hungary, the Czech Republic, Slovenia and Poland likely to be EU members by 2004, perhaps along with Slovakia, Lithuania and Latvia, they face fewer and fewer problems borrowing at reasonable cost to fund reforms.

The EBRD stressed that approaching EU membership would generate significant growth even if western European economies slow more than anticipated.

The report noted that while exports to the EU were some 50 percent of GDP in Estonia, Hungary and the Czech Republic in 2000, that was still below the levels of EU states Belgium and Ireland.

Counting GDP in terms of purchasing power rather than market exchange rates suggested there was even more room for the EU hopefuls to increase exports to current Union members, it said.

The bank cautioned that its forecasts for Polish growth were uncertain and warned Polish monetary policy makers to respond quickly to signs of weak domestic demand lest their high interest rate policy suffocate the economy.

The EBRD noted that the three largest central European countries all had politicians reluctant to reduce spending as elections approach, impeding the fight against inflation and making it hard to lower interest rates and raise growth.

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European Bank for Reconstruction and Development
European Union

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