Structural reforms still needed

RIGA - The recovery of Eastern European economies remains “fragile” even as the worst of the crisis may be over, says rating agency Moody’s Investors Service, reports Bloomberg. The recovery is based on exports, while lagging domestic demand is making the region dependent on growth in Western Europe, notes senior analyst at the rating company’s sovereign group Dietmar Hornung. The countries may also suffer from an increase in interest rates, which will make them “feel” the burden of increased debt, he said.

“We are in a state of a fragile recovery,” Hornung said, adding that “There are risks related to the global economic environment and risks related to the ability to address structural issues.”
Eastern Europe is emerging from the economic crisis that caused demand for the region’s exports to drop sharply and prompted some countries such as Hungary to seek international bailouts. The International Monetary Fund predicted on April 21 that the region is set to expand 2.8 percent this year, while Hungary, Lithuania and Latvia are set to be the worst performers as their economies will probably continue contracting.

The spillover effect of the Greek crisis on the region has so far been “quite subdued,” Hornung said. Central and Eastern European countries have smaller debts levels relative to the size of the economy, which makes them more resilient, he said.

The recession last year, which hit all the countries in the region with the exception of Poland, has widened budget deficits and raised debts. The governments in the region will need to carry out structural reforms to facilitate fiscal consolidation at a time when economic growth is set to be slower than earlier this decade, Hornung said.