Die acht mittel- und osteuropäischen neuen Mitgliedstaaten der EU (die Tschechische Republik, Estland, Ungarn, Lettland, Litauen, Polen, Slowakei und Slowenien) können für 2005 ein hohes Wirtschaftswachstum erwarten, obgleich die Rate niedriger sein wird als noch im Jahr 2004. Zu diesem Schluss kommt ein Vierteljahresbericht von ICEG European Center. Während steuerpolitische Probleme weiterhin bestehen bleiben werden, können sich die Länder über eine sich verbessernde makroökonomische Stabilität freuen.
Overview
Economic Growth
The New Member States 1 of the European Union are expected to grow in 2005 somewhat slower than in 2004, when they experienced a simultaneous boom in their exports and domestic demand. The growth of exports and the rising contribution of net exports to GDP were driven by the positive effect of the entry to the Single Market and the improving competitiveness of tradable sector. The expansion of domestic demand was determined by sizeable income and wage increases, growth of household sector borrowing and improving profitability of enterprise sector, which together with increased inflow of foreign direct investments led to sometimes sizeable growth of private sector gross capital formation.
In 2005 economic growth may slow down in the New Member States by around 0,5% on average, with significant differences among the countries (and with the Baltic States still growing much faster than the Central European ones). On average these countries are expected to grow by 5%, which is almost 2,5 times higher than the average of EU-15. The slight slowdown in the NMS countries growth performance is partly due to the worsening growth prospects in the EU-15, which accounts for the most of their foreign trade. This and the gradually vanishing effect of the one-off rise in exports due to the entry to the EU will result in a slower export growth and weaker contribution of net exports to GDP growth. Most countries seem to experience also a slowdown in the growth rate of their domestic demand, as incomes and fiscal policies become somewhat tighter in 2005 compared to 2004.
Monetary Conditions
With the notable exception of Slovenia and Slovakia, NMS countries saw their inflation rates accelerating in 2004. The faster rise in consumer prices was mainly driven by one-off factors, including changes in indirect taxes and administrative prices. Beyond them, country-specific factors contributed to higher inflation, among others the weakening of Zloty in Poland, fast increase of regulated prices and public sector wages in the Baltic States.
In 2005 the reversal of this trend is expected as all countries are likely to experience disinflation except Estonia and Lithuania, where the combination of fast productivity growth with pegged exchange rate results in significant increase in non-tradable prices and the price level. Inflation in most of the NMS will decline to low levels with the exception of Latvia, where the above mentioned one-off factors seem to last longer.
Monetary policy will follow disinflation and loosening monetary conditions are expected to prevail in 2005. Central banks in the region have either already low interest rates (the Czech Republic, Estonia) or allow their policy rates to decline with disinflation (Hungary, Poland), while in countries that entered ERMII keep them at unchanged levels. The loosening of monetary conditions is also driven by the general trend of currency depreciation in those countries, which remain outside the ERM-II, while the ones that have entered ERM-II in 2004 or in 2005 have so far experienced exchange rate stability.
Fiscal Policy
Fiscal balances remain the major macroeconomic problem for most of the NMS with the exception of Estonia, which has a budget surplus. While in 2004 most countries were able to reduce general government deficits, this seems to be no longer the case in 2005, as most countries will experience rising imbalances. Smaller deficits in 2004 were mainly caused by very good revenue performance (due to fast real GDP growth, temporary surge in inflation), while in some cases (Hungary, Slovakia, Poland) discretionary policy adjustments have also played a role.
Our expectations for 2005 imply that all countries seem to record worsening general government balance due to various reasons. First, growth and especially the expansion of domestic demand are to slow down in most countries, which reduce indirect tax revenues. Second, the effect of the EU entry on fiscal expenditures (co-financing requirements, the adjustment to the acquis, and other discretionary expenditure increases), the rise in public sector wage bills lead to higher fiscal expenditures. Finally, most countries face elections and the impact of the political cycle should also be accounted for.
As an outcome, fiscal deficits are expected to grow and to increase the already high imbalances in Poland, Czech Republic or Hungary. While fiscal deficits are growing, the public debt to GDP ratio is expected to either stabilize or decline slightly, thanks to fast increase of real GDP.
Balance of Payments
Trade and current account balances move very closely in most of the New Member States. After deteriorating in 2004, they are expected to improve with the exception of Slovenia, Slovakia and Poland, where the rise in domestic demand (partly investment driven as in Slovakia and Poland, and partly consumption one as in Slovenia) leads to different trend. In other NMS countries last year saw a worsening trade and current balance due to the rise in import demand associated with fast increases in private consumption and investments. Worsening trade balances let to deteriorating current account balances especially where the incomes balance worsened too due to higher profit repatriation or increased debt service expenditures.
In 2005 the forecast for current account and trade balance developments is very similar, as all countries will improve their balances with the exception of Poland, Slovakia and Slovenia. In these countries the rate of import growth will remain sizeable and they will record worsening trade balances leading to higher current account deficits. On the other hand other countries will have much lower rates of import growth in 2005 than in 2004 (thanks partly to the vanishing effect of the entry to the EU markets, somewhat tighter fiscal and incomes policies, etc.), which will reduce both their trade and current account deficits. Current account deficits are high in the Baltic states and Hungary, while are comfortably low in other New Member States.
Unemployment and labour market
Unemployment rates declined in most NMS in 2004, though the average of the rate was 11,2% compared to 7.9% of the EU-15. The decline was driven by the expansion of output and increased demand for labour in most countries. On the other hand that fast rise of output was not associated with sizeable increase in employment as both employment rates and unemployment improved only marginally. There were country-specific reasons behind this including the ongoing restructuring and corporate sector adjustment, structural changes in the public sector and related lay-offs, and generally rigid labour market conditions.
In 2005 a further gradual decline in unemployment rates is likely, though some countries (notably Hungary) may experience temporary increase. Notwithstanding the mentioned rigidities and restructuring at corporate and public sectors, 2005 will see declining unemployment rates and rise in employment. The differences in the level of unemployment of individual countries will however remain almost unchanged.
To read the report in full, visit the ICEG European Center website.