Poland takes off

The article sums up the main findings of the Commission’s autumn economic outlook for the Central and Eastern European countries.

The European Commission has just released its autumn economic outlook. Compared to the last forecasts published in the spring, growth has been revised appreciably downwards for the Member States, whereas it is unchanged for Central and Eastern European Countries. Recovery in the European Union remains however a pre-condition for the readjustment of the growth components.

• Recovery in Poland masks a slight downturn in the other CEEC.

  Growth in the CEEC has been resilient for two years now, despite the slowdown in the global economy. The main engine of growth has been private consumption, which benefited from a boom in lending to households, an expansionist fiscal policy and a strong rise in wages. In 2003, the average growth of the 10 acceding countries is expected to reach 3.1%, a level unchanged compared to the spring forecasts, whereas it has been revised downward by 0.6% in the eurozone. This leads to an acceleration in the real convergence, since the difference between the average growth in the acceding countries and the EU should increase from 1.2% in 2002 to 2.3% in 2003. However, this robustness comes mainly from a rebound in activity in Poland, higher than previously expected (forecast at 3.3%, compared with 2.5% in the spring) after two years of stagnation. In most of the other countries, growth should be close to its 2002 level, and should even decelerate in Hungary, Slovakia and Slovenia. It should be weakest in those economies which are highly dependent on tourism (Cyprus and Malta) and highest in Romania-Bulgaria and in the Baltic States, the latter being on the fast track after having suffered from the Russian crisis.

   

• Export performances differ significantly

  Differences in growth performances in the first half of 2003 largely reflect the shift in the business cycle. Hence investment increases strongly in those countries where the reorganisation of the production capacity has been slow (Bulgaria, Romania, Latvia and Lithuania). Among the 4 Visegrad countries, the divergence observed over the first 6 months of 2003 lies mainly in foreign trade achievements. Poland and Slovakia recorded a dynamic rise in exports (+15% and +24% in volume yoy in the second quarter). Poland is starting to benefit from the continuous weakening of the zloty since mid-2002, whereas Slovak exports are supported by the automotive sector. In Slovenia, Czech R. and especially in Hungary, Estonia and Bulgaria, imports progress more rapidly than exports, leading to a deterioration in the trade balance (and a negative contribution to growth). A radical improvement in trade balances thus remains conditioned by a steady recovery in the EU.

   

• The rebound in 2004 will greatly depend on the developments in the EU member economies

  Still according to the Commission, growth should accelerate to 3.8% on average for the 10 acceding countries in 2004 and to 4.2% in 2005, which means a gradual return to the potential path (the growth trend, once corrected from cyclical variations) but at a lower pace than for the Member States (2.0% on average in 2004 against 0.8% in 2003). The stimulation of the economy through the positive effect of exports will indeed occur, but later. On the domestic side, public and private consumption should slow down, as households have already dipped into their savings, and investment should take over in the Visegrad countries. In Poland, in particular, investment should increase by 9% in 2004, after the dramatic drops in 2001 and 2002. The European Structural Funds should also encourage investment, even if their full effects cannot be expected by next year.

For more analyses of the EU’s enlargement process, see the

enlargement website of DREE.