OECD comments on central Europe

...outlook report.

It warns of rising inflation in Poland and the Czech Republic and said that in Hungary, spending reforms were needed to regain lost economic competitiveness.

Following is a summary of the OECD's views.

CZECH REPUBLIC - Inflation will spike up in the first half of next year, taking the consumer price index (CPI) to 4.6 percent in 2008 from 2.7 percent in 2007, triggering a tightening of monetary conditions.

- Real economic growth will be hit by increases in indirect taxes and administered prices. The OECD sees gross domestic product (GDP) at market prices growing 3.8 percent in 2008 and 2.7 percent in 2009, down from a forecast 6.1 percent in 2007.

HUNGARY - Economic growth is likely to recover, but the main challenge is to implement public expenditure reforms, which will allow taxes to be cut.

- Economic growth is forecast to rise to 2.6 percent in 2008 and 3.8 percent in 2009 from a projected 1.8 percent this year. Sees the budget deficit at 4.3 percent of GDP in 2008 and 3.5 percent in 2009, down from a projected 6.4 percent in 2007.

- CPI will fall to 4.7 percent in 2008 and 3.4 percent in 2009 from a forecast 7.8 percent this year and the OECD sees further monetary easing to the middle of 2008.

POLAND - The inflation outlook has worsened due to capacity constraints and rising unit labour costs caused by labour shortages, although the fiscal outlook has improved. Fiscal stance is still pro-cyclical, putting burden on monetary policy.

- Economic growth is forecast to slow from 6.5 percent of GDP in 2007 to 5.6 percent in 2008 and 5.2 percent in 2009.

- CPI will accelerate from a projected 2.6 percent to 3.6 percent in 2008 and 4.2 percent in 2009, with an upside risk due to wage inflation. Sees the central bank's policy rate at 6.5 percent by mid-2008, up from 5 percent at present.

- Sees the unemployment rate dropping to 7.7 percent in 2009 from a forecast 9.7 percent this year.

SLOVAKIA - Stellar economic growth of a projected 9.3 percent this year is expected to ease to 7.3 percent in 2008 and 6.9 percent in 2009 as the effect of new foreign direct investment wanes. Even so it will be the highest growth by far in the European countries which are OECD members.

- Fiscal policy needs to remain tight to ensure Slovakia meets Maastricht criteria for euro adoption. Sees CPI rising to 3.2 percent in 2008 from 2.7 percent in 2007, but falling again to 2.8 percent in 2009. Main risk to CPI outlook is energy prices.

(Reporting by David Chance; Editing by Ruth Pitchford)

Keywords: OECD/CENTRALEUROPE

[Reuters/Finance.cz]