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EU: Worsening Economic Outlook Ahead For Candidate Countries

Brussels, 21 November 2001 (RFE/RL) -- The latest European Commission economic forecasts for European Union candidate countries predict a sharp downturn of growth in 2001 and 2002.

However, average growth rates between 2001 and 2003 are estimated at 4 percent, which should allow candidates some further catching up with the EU.

A report released in Brussels today says this is due mostly to the deteriorating international economic environment but also to domestic problems in some countries.

When presenting the forecasts, EU Economic and Monetary Affairs Commissioner Pedro Solbes said the expected slowdown in economic activity will not jeopardize the candidates' chances of accession to the EU: "When you analyze the different situations, some of them are better prepared than others, but I think that in general terms they are advancing even if they have to go on with the process of improving the economic situation. But as I have said before, this has nothing to do with the structural reform, with the changes, with the adaptation to the acquis [EU law], with the openness of the market -- all these elements which are crucial to the capacity to become members of the [European] Union."

Solbes said the EU -- by far the candidates' biggest trading partner -- will experience an even steeper slowdown, with 2001 to 2003 growth averaging below 2 percent. This, he said, is mainly due to political uncertainty following the September attacks on the United States, and the resultant increases in risk assessments.

Solbes said he could not rule out a brief contraction of the European economy in early 2002 but added that he is confident the contraction will not extend to two consecutive quarters of the year -- the classical definition of a recession.

Solbes said he expects the EU economy to pick up later next year after the U.S. economy emerges from its current slump.

The forecasts say that although most of the candidate countries are small, open economies and highly exposed to loss of EU-related trade, they will benefit from continued growth in Russia, as well as continuing international investor confidence in their ongoing structural reforms.

The biggest candidate economies, Turkey and Poland, will be the worst affected. The Turkish economy is expected to contract by nearly 7 percent this year, while Poland's growth will sink to below 2 percent in 2001 and 2002.

A European Commission official, speaking on customary condition of anonymity, said both countries' problems were largely domestically induced. Turkey has gone through a series of damaging crises, while Poland's extremely restrictive monetary policy has pushed down domestic demand.

Latvia and Estonia lead the predictions table with above 5 percent expected annual growth average. They are followed by Romania and Lithuania at slightly above 4 percent, and Bulgaria, the Czech Republic, Hungary, Slovenia, and Slovakia with expected growth slightly below 4 percent.

Today's forecasts also predict that aggregate unemployment levels will increase in the candidate countries in 2001. Nearly 20 percent of the working-age population of Poland, Slovakia, and Bulgaria are expected to remain unemployed between 2001 and 2003. Hungary and Slovenia, on the other hand, will stick to their good job-creation record, which has allowed unemployment to be kept under 7 percent.

Inflation is expected to decline in most candidate countries, due to the expected easing of energy and commodity prices on world markets. The outlook for two countries -- Turkey and Romania -- will continue to predict high inflation figures.

The relatively high aggregate trade deficits in Eastern and Central Europe will remain at their current levels in 2001-03, but the report says the negative effect of high import volumes will be largely compensated for by their falling prices, and in many cases also by sustained investment flows.

Government budget deficits will widen in most countries as a result of slower growth, counter-cyclical measures, and -- in some cases -- pre-election spending pressures. The Czech Republic will remain the worst offender with budget deficits consistently expected to exceed 5 percent between 2001 and 2003, whereas Estonia is considered the only accession candidate likely to eliminate its existing small deficit completely by next year.