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East: EU Forecasts Steady Growth For Candidate Economies

Despite concerns of a global economic downturn, a report issued today by the European Commission says that the economic forecast for most EU candidate countries remains positive.

Brussels, 25 April 2001 (RFE/RL) -- A European Commission report released today in Brussels says that regardless of the global economic downturn, the outlook for the majority of European Union candidate countries remains good.

The report says that for the first time since the start of economic transition, all candidates recorded positive growth in 2000. With the exception of Poland, economic developments in all candidate countries were above the ommission's last forecast in autumn 2000.

In Poland, domestic demand growth declined significantly in the third quarter of last year, which meant that the estimated Polish GDP growth for 2000 was revised downward by almost a full percentage point to 4.2 percent. Given the size of Poland's economy -- around 40 percent of all Eastern European candidates -- this significantly reduces aggregate growth rates for Eastern Europe as a whole.

As for the candidate economic prospects in 2001 and 2002, the assessment by EU Commissioner for Economic and Monetary Affairs Pedro Solbes was one of guarded optimism.

"For all countries, except Turkey, the perspectives are of reasonable growth and relative stability. The risks are however [associated with a possible downturn] in the European Union, the candidate countries' main economic partner. Consolidation and reform in the financial sector, together with an improvement in the regulatory and financial supervision frameworks, should be among the economic policy priorities of candidate countries."

According to the report, the slowdown in the U.S. is unlikely to affect the EU economy significantly. Today's report predicts the EU economy will grow 2.8 percent in 2001 -- a modest downward revision compared to the 3 percent the commission estimated last autumn.

The report says that although candidate export markets in the EU, Russia, and the United States will contract somewhat, strong domestic demand will ensure that aggregate GDP growth rates in Eastern Europe remain around 4 percent in 2001 and 2002.

The report says growth in 2000-2002 will be strongest in Estonia -- averaging 6 percent a year -- followed by Bulgaria, Latvia, and Hungary -- which all are expected to exceed the 5 percent mark.

The exception here is Turkey, whose outlook, after its two recent financial crises, the commission calls "highly uncertain."

The report praises Bulgaria, the Czech Republic, Lithuania and Slovakia, which have started to benefit from structural reforms undertaken in the past few years.

However, the report notes, the budgetary position of the Czech Republic remains a source for concern, as the Czech government appears reluctant to initiate pension and health care reforms necessary to free funds for unavoidable expenditures in education and infrastructure.

Today's report says average inflation in candidate countries accelerated in 2000 and is likely to remain relatively high in 2001-2002, mostly due to ongoing relative price adjustments with the global environment.

The report also notes that aggregate employment levels continue to drop in candidate countries. Although employment grew in Hungary and Slovenia in 2000, it remains a serious challenge for economic policy in a number of countries like Slovakia, Bulgaria, and Poland, where unemployment reaches 15-20 percent.