FACTBOX-OECD comments on central Europe members

Nov 28 (Reuters) - Slovakia is set to remain central Europe's growth champion, expanding by around 8 percent this year and next, the OECD said on Tuesday.

The Organisation for Economic Cooperation and Development said in its twice-yearly outlook Poland and the Czech Republic should also report solid growth, while Hungary will slow sharply as its fiscal austerity package kicks in.

Below is a summary of comments by the Paris-based think-tank on the four central European economies.

CZECH REPUBLIC

This year's expansion would match last year's growth of just over 6 percent before slowing next year and in 2008.

Despite the slowdown, inflation is set to rise close to the upper limit of the central bank's 2-4 percent target range, driven in part by demand pressures and mainly by energy markets deregulation, and rises in excise duties and rents.

The OECD said political stalemate after June general elections stalled economic reforms necessary to cut fiscal deficits.

"The slow progress in structural reforms, the signs of weak budget discipline and the postponement of euro entry have contributed to an increased risk of serious fiscal problems with downside impacts on growth in the longer term."

HUNGARY

The economy is expected to grow at around 4 percent this year, near its trend rate, but expansion will slow markedly in 2007 and 2008 when tax and regulated price increases will start to bite, hitting household consumption, the OECD said.

The report said spending cuts were necessary to make the austerity measures work in the longer run.

"For consolidation to break with the Hungarian tradition of missing fiscal targets, permanent expenditure cuts linked to structural reforms are needed."

"There is still a serious risk of a breakdown of confidence in fiscal policy. Although markets have reacted positively to the immediate adjustment measures, any signs of slippage from the consolidation plan could well expose Hungary to a sudden reversal in sentiment."

The OECD said its 2007 budget deficit forecast was broadly in line with the government target, but it expected the 2008 gap 1.4 percentage points above the government plan.

"This is because only about half of the intended saving measures have been detailed and legislated."

POLAND

The economy is set to grow by around 5 percent a year in 2006-2008, slightly above its trend rate, driven by strong investments and exports. With rising wages and moderate productivity gains, the OECD expects the central bank to tighten its policy in 2007 and early in 2008 to keep inflation below its 2.5 percent target.

"These projections embody an increase of 0.25 percentage point at the beginning of 2007, followed by two similar increases in late 2007 and early 2008."

The OECD estimated this year's increase in wages at 5 percent, but saw growth in pay slowing in the years ahead and inflation staying below the target. "With unemployment still high, and its fall partly due to retirement, wages may not accelerate much further, allowing moderate unit labour cost increases."

SLOVAKIA

Growth will reach around 8 percent this year and next, boosted by exports as production builds up at new car factories, before tapering off in 2008. The OECD said the central bank may need to raise interest rates again to squeeze EU-norm inflation to its end-2008 target of 2.1 percent.

"Further monetary policy tightening may be needed to ensure that inflation targets are met. Greater fiscal consolidation in 2007 would both help to damp inflationary pressures and create a larger safety margin for respecting the Maastricht fiscal criteria," it said.

FOR A TABLE WITH OECD FORECASTS CLICK ON [ID:nL27772098] ((Compiled by Tomasz Janowski; editing by Gerrard Raven; Reuters Messaging: tomasz.janowski.reuters.com@reuters.net, tel. +48 22 653 9719))

Keywords: OECD OUTLOOK/EASTEUROPE