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East: EBRD Report Says Economic Growth Set To Revive Next Year

The European Bank for Reconstruction and Development (EBRD) published its annual report today. A decade after the fall of the Berlin Wall, it assesses the economic progress of East and Central European countries, the Baltic states and CIS nations.

London, 8 November 1999 (RFE/RL) -- The London-based EBRD says average growth in central and eastern Europe and the Baltic states should increase to over three percent in the year 2000 -- almost double the predicted growth rate of 1.6 percent this year.

The nations of Central and Eastern Europe and the Baltic states lead the tables in 1999 with predicted output growth strongest in Hungary (3.7 percent), Poland (3.3 percent), Slovenia (2.9 percent) and Lithuania (2.1 percent).

The EBRD report says that the picture is less satisfactory in southeastern Europe which was badly hit by the Kosovo conflict which put a heavy refugee burden on neighboring countries and severely disrupted trade.

The negative effect of the Kosovo crisis is reflected in modest or negative growth forecasts for much of southeastern Europe. The EBRD report says that Romania is expected to record negative growth of minus 4.3 percent in 1999, and Bulgaria growth of just 0.4 percent.

Surprisingly, Albania's economy performed strongly in 1999 with predicted growth of more than five percent despite having hosted the largest number of Kosovo refugees. Still, the EBRD says its rapid rate of growth must be seen in the context of a low starting base.

As in previous annual Transition Reports, the short-term forecasts of growth for both the current and following year represent an average of forecasts by 11 leading institutions. They include the EU, OECD, IMF, and UN bodies.

Recent figures suggest that the recession in the Czech Republic may be coming to an end; that the decline in output in Romania was less than expected; while Hungary and Poland have slowed down.

But inflation across Central and Eastern Europe has halted its decline partly as a result of the increasing prices of energy imports. The picture is mixed for the CIS countries which have been slower to adopt reforms since the 1991 collapse of the Soviet Union.

Five CIS countries -- Belarus, Kazakhstan, Moldova, Russia and Ukraine -- are expected to record negative growth this year. But all CIS countries -- except Belarus and Ukraine -- should have positive growth in 2000. The report predicts the average CIS growth rate rising from minus 0.1 percent in 1999 to 1.1 percent next year.

Some of the strongest performing CIS countries are the three Caucasus countries -- Armenia, Azerbaijan and Georgia -- which are all predicted to see real growth both this year and next. The Central Asian nations are also expected to do better next year.

The report says developments in much of the region continue to be influenced by the economic crisis in Russia. In the first half of 1999, growth rates slowed considerably in countries with strong trade links with Russia, including the Baltic states and Azerbaijan.

The report says that Ukraine, Kazakhstan and Moldova -- the three economies in the CIS in addition to Russia where output fell last year -- were mired in recession, a situation exacerbated by the Russian crisis.

But the report says that recent developments in Russia point towards recovery, although its sustainability remains in question in the absence of any renewed commitment to reform. Still, the rouble exchange rate has returned to relative stability and inflation is coming down rapidly. Similar trends started to emerge in other CIS countries.

Looking ahead to 2000, the report says that prospects for most CIS countries, are "generally quite favorable." The report says the recessions should be overcome in Kazakhstan and Moldova. Most forecasters expect the decline in output in Ukraine to stop finally in 2000.

What are the prospects for the medium-term? The report says the transition economies across the region are well-placed for rapid growth because of the high skill level of workers and new technology. The report says these factors point to long-term average annual growth rates in the range of 4 to 7 percent for most countries.

But the report says that all the elements of a sound investment climate -- including peace, order, stability, and market-oriented government -- must be in place. Moreover, it will be necessary to create institutions that create incentives for high investment and productivity growth.

The report says that two factors -- EU accession and Balkans reconstruction -- will be crucial to the region in the next decade. Five transition countries -- the Czech Republic, Estonia, Hungary, Poland and Slovenia -- have already entered formal negotiations for EU membership. The report says this may come as early as 2003, but is more likely to take place toward the middle of the next decade.

The report says that for some of the countries in southeastern Europe, EU membership remains a distant prospect, but they can expect new opportunities to arise -- including closer ties with the west -- from the post-Kosovo reconstruction and stability pacts.

As for the CIS countries, the report says that their main challenge is to break out of the cycle of political instability and poor governance that has delayed recovery until now. Still, the report says that for most CIS countries, "positive growth throughout the next decade should be feasible."