Study: Eastern economies buck slump

  • 2003-02-27

The economies of postcommunist Eastern Europe have bucked a global economic slump thanks to productivity gains, but unemployment should not diminish much in the near future, according to a study released Feb. 20.

The average growth rate of five EU candidates expected to join in 2004 - the Czech Republic, Hungary, Poland, Slovakia and Slovenia - should rise to 2.7 percent this year from 2.3 percent in 2002, according to the Vienna Institute for International Economic Studies (WIIW).

After slowing in 2001, growth picked up again in the second-quarter of last year, largely owing to increased consumption.

Industrial production and exports advanced thanks to increased productivity, but related layoffs have hurt unemployment figures, which are not expected to come down significantly in the medium term, the institute said.

This year will mark the end of those countries' economic independence, the study stressed.

Before joining the EU, all will enact economic reforms likely to hinder short-term growth.

"The removal of customs barriers with the EU and adoption of EU customs tariffs will probably aggravate their trade deficits," the WIIW wrote.

EU membership will probably encourage foreign direct investment in the five nations, however.

"Overall, we feel adhesion to the EU will have a moderately positive effect on growth starting in 2004," the institute said.

It added that fears of a drop in competitiveness because of rises in the value of local currencies remain founded.

A high level of foreign direct investment would be needed, in addition to gains in productivity, to offset such foreign exchange effects, according to the institute.

But it warned such investment could fall by half in the Czech Republic and Slovakia this year, while remaining stable in Hungary, Poland and Slovenia.

For Bulgaria and Romania, which will not join the EU before 2007 at the earliest, the study foresaw a slight increase in direct investment.

Bulgaria's economy should show growth of 4.5 percent in 2003, against 4.3 percent a year earlier, while Romanian growth would slow to 4 percent from 4.5 percent, the WIIW said.