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East: ECE Predicts Growth For Transition Area, Amid Major Uncertainties

Prague, 22 April 1998 (RFE/RL) -- The United Nations Economic Commission for Europe says that good rates of economic growth can be expected this year across much of the transition region. But at the same time it sounds a warning that there are big disparities developing between the more successful states and those in South East Europe which are being left behind. And it also says the Asian financial crisis casts a cloud of uncertainty over the whole world.

First, let's look at the positive side. The ECE's annual survey forecasts a wide spectrum of growth with -- perhaps surprisingly -- Albania and the Caucasian republic of Georgia topping expectations. Albania, which is recovering from civil turmoil, is expected to have a gross domestic product growth rate of 12 per cent. Georgia is expected to gain between 11 and 13 percent. In that same region, Armenia is forecast to have healthy growth of up to 6 percent of GDP. No figures are available for Azerbaijan, which however has newly-tapped oil wealth to boost its prospects.

Another surprise is Belarus, which is predicted for growth of 8 percent this year, despite its refusal to embrace reform policies. And Yugoslavia, despite similar problems, is slated for 10 percent growth.

There are also positive expectations for the Baltics, with 7 percent expected in Lithuania, and up to 6 percent in both Estonia and Latvia. Of the Baltic area generally the survey says that a strong recovery appears to be established there.

Turning to Central Asia, the ECE survey foresees growth in Kyrgyzstan of 7 percent, in Uzbekistan of 6 percent, and in Kazakhstan of 3.5 percent. Figures for the other Central Asian republics are not available.

The Czech Republic, once a star performer, is expected to languish with about 2 percent growth, Ukraine will grow only half of one percent, and Russia can look forward to up to 2 percent growth. In Russia's case the survey says a very significant development is the apparent end to seven years of falling output. It says however that Russia remains a vulnerable giant. It points out that a significant strengthening of recovery there will be difficult if monetary policy remains as tight as at present. Also, an important constraint on Russian growth is the big decline over years of fixed investment in productive capacities.

Turning to South East Europe, the ECE also finds grounds for disquiet. Romania, Bulgaria, Yugoslavia, Bosnia-Herzegovina, as well as Albania, are described as countries which have a long and probably difficult road ahead. It says Bulgaria has made considerable progress towards overall stability, particularly since the creation of a currency board, but much structural adjustment lies ahead.

The ECE says the increasing contrast between economic development in South East Europe, and in the Central Europe/Baltic areas, is a matter of growing concern. That's not only because of the heavy social costs to people of South East Europe, but also because of the risks to economic and political stability in the region as a whole.

The Asian economic meltdown is seen as a "wild card" in the whole pack. The ECE says that much depends on how serious the global implications of the 1997 Asian crisis are likely to be. So far, the crisis has led to a modest downward revision of growth rates elsewhere in the world. But the survey points out that the Asian crisis has many variables, not all of which are easy to calculate.

The initial direct impact of Asia on the transition economies is through its impact on import demand in west Europe, which is the key market for goods from the transition economies. And the survey warns that as the Asian countries try and export their way back to health, the increased competitiveness of their exports may have a more dramatic effect on the developed markets than has yet been foreseen.

Turning to the issue of joblessness, the survey says unemployment remains high in East Europe generally. It notes Poland's success in cutting unemployment, but says that the number of jobs there continued to decline for a full two years after the recovery in output had started. This underlines the importance of sustaining the highest feasible growth rates over a number of years.