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World: Economic Growth Rates Decrease In Eastern Europe

Washington, 8 April 1999 (RFE/RL) -- Economic growth rates among the nations of Central and East Europe and Central Asia are expected to decline even further this year to 1.5 percent, while economic output in the Middle East is expected to go up from zero growth last year to three-quarters of a percent this year.

Those very different scenarios emerged Wednesday in the World Bank's annual Global Development Finance report released at a press conference in Washington.

The Director of the bank's Development Prospects Group, Uri Dadush, said that the growth rate for the nations of Central and East Europe and Central Asia expected this year is down nearly half a percent from 1998's 1.9 percent, which was off from the 2.5 percent recorded in 1997.

Still, growth of 1.5 percent is the average the bank forecasts for all the developing and transition nations in the world, said Dadush, because the Asian and Russian financial crises are still with us:

Dadush said: "We anticipate the crisis to be more protracted and deeper than we anticipated even three or four months ago. And that's not trying to be pessimistic or spoil the party. But it's simply trying to convey the message that this continues to be a very difficult situation throughout the emerging world, the emerging markets throughout the developing countries and really there's no room for complacency."

The World Bank report said the Russian crisis had a devastating impact on the nations in Europe and Central Asia, reducing output in the Commonwealth of Independent States (CIS) by 3.4 percent in 1998 while oil producers in the region, especially in Central Asia and the Caucasus, suffered even further from the 32 percent decline in world oil prices.

Dadush says while the more advanced nations in Central Europe weathered the crisis fairly well, all the countries in the region have been hit by Russia's situation, even if they had very little direct trade with Moscow:

"One of the things we've learned in this crisis," he said, "is that even when trade relationships are relatively small and Russia was not a big importer from a lot of these countries, even when you have a situation like that, when the economy that is the object of the crisis contracts its imports by 50 percent then, arithmetically even though it is a small portion of the total, it has a very large effect."

The nations in Central and Eastern Europe have suffered more from the slow down in Western Europe, says Dadush, but can expect growth to recover to around 3 percent next year:

"We are feeling reasonably confident,:" he said, and because we accept the forecasts made by most people with respect to Europe that this slow down that materialized in the 4th quarter of last year, is likely to be a short-lived slow down, largely the result of an inventory correction and the trade effects that I've been talking about which should dissipate in the second half of 1999 and that should help the Central European countries have a better year in the year 2000." The fall in oil prices has hit hardest in the Middle East, dropping the region to zero growth last year. For this year, the World Bank expects growth at a very meager 0.7 percent and rising to an average of about three percent in the following two years.

But per capita income will decline slightly over the same period compared to an average growth rate near one percent between 1996-98.

The bank warns that the slow growth of the region will increase the problem of financing government expenses, with the gap expected to rise substantially in Iran and Algeria.

The bank said that while most countries in the Middle East have been able to get through this period of low oil prices by added borrowing, they will have to take more stringent measures, including draw downs of foreign assets and more general economic reforms, if oil prices don't rise soon.

The economic situation in Kosovo and neighboring countries has not been studied by the bank yet, said Dadush, but there are obvious economic implications:

He said: "Without having done any analysis, I think we should remember that sometimes unfortunately one of the effects of a lot of military activity can actually be to stimulate (economic) demand in other countries, although they are going to have very negative adverse effects in the countries in conflict."

The World Bank is working to help with the humanitarian crisis. It has called a donors conference, tentatively set for next month, to raise money to help Macedonia cope with the rush of refugees out of Kosovo. The bank's International Development Association (IDA) is also putting together an emergency $40 million loan for Macedonia which should be approved soon.