RIGA - A recent World Bank survey of the EU's new East European members claims that economic growth in the eight countries should slow down in the near future now that they've exhausted the period of rapid, postcommand economic growth.
Thomas Blatt Laursen, leading author of the survey, told journalists last week that the previous spurt of fast growth in the Baltics pointed to the region's relatively low level of income. "This is a rule 's the lower level of income, the faster growth expected," he said.
Other EU new members have had lower growth rates than the Baltics, but this was mainly due to an overall higher level of income after the collapse of their command economies some 15 years ago, Laursen said. Key roles are an increase in capital and productivity, as well as inflow of foreign investment, and a sizable transfer of resources from manufacturing to the service sector, the survey noted.
According to the report, Estonia's economy grew 51 percent between 1996 and 2003, Latvia's 59 percent and Lithuania's 52 percent. Growth in all three countries has largely been fueled by growing exports and a surge in local consumer demand, World Bank analysts wrote, but these rates should slow down.
Analysts also suggested that the Baltics continue improving their investment environment. Laursen told journalists that competition had grown particularly tough among all new member states in terms of foreign direct investment.
He also said that low taxes and lower labor costs in the East European member states were putting significant pressure on old members to spur new members to raise taxes.
The survey, which did not include Cyprus and Malta, the two Mediterranean countries that also joined the EU in May, noted that the reform tempo had slowed down in the new member states. This could be explained by the time consuming EU accession process.
Looking toward the future, the Baltics may encounter a dire economic problem with a shortage of labor as the population ages in all three countries. One solution could be raising the quality of labor, with productivity growth serving as the best guarantor of the development of a knowledge-based economy.
The World Bank reports on the economic development in new EU member states from Central and Eastern Europe on a quarterly basis.
