* Recovery underway, Poland, Estonia seen leading growth
* Inflation subdued in most countries, domestic demand weak
* Israel seen rebounding strongly
PRAGUE, May 26 (Reuters) - Emerging Europe will show a solid
recovery in 2010 and accelerate next year, the Organisation of
Economic Cooperation and Development said on Wednesday, although
it said fiscal consolidation was expected to weaken demand.
Following are excerpts from the OECD's Global Economic
Outlook on Poland, the Czech Republic, Hungary and Israel.
POLAND
After ending 2009 as the only EU country not to contract,
Poland is expected to accelerate this year to grow 3.1 percent
on the back of exports, public consumption, preparations for the
2012 European football championship and inventory restocking.
There are no concrete plans to reduce the fiscal deficit
from around 7 percent of GDP and it is expected it to stay above
6 percent of GDP in 2011, implying a "backloaded consolidation
path" to the target of 3 percent of GDP in 2012, the OECD said.
Poland may be able to avoid constitutionally-mandated
spending cuts by keeping its debt below 55 percent of GDP
according to local accounting standards but the risk of
breaching that is high. The OECD said harmonising Polish
standards with the EU's would help motivate budget tightening.
The OECD said central bank intervention to counteract
appreciation in the zloty would be inconsistent with inflation
targeting unless the inflation forecast were to undershoot the
target by a large margin.
CZECH REPUBLIC
The OECD expects the Czech economy to grow 2 and 3 percent
in 2010 and 2011 with inflation rising gradually to about 2
percent next year. The government to emerge from a May 28-29
election must create a plan to rein in spending on pensions,
healthcare and welfare benefits, it said.
The Czech banking system is showing resilience despite a
rise in non-performing loans. Unemployment is projected to be
stable this year at almost 8 percent but fiscal tightening is
expected to limit domestic demand.
HUNGARY
A weak recovery of 1.2 percent growth should take place in
2010 and gather pace in 2011 as external demand offsets weak
domestic demand. Inflation should fall to below the central
bank's 3 percent target by the end of next year.
The OECD said that to maintain investor confidence and
provide scope for further rate cuts, the government should
continue fiscal consolidation in line with Hungary's medium-term
fiscal framework.
The government should take new thrift measures to offset
overspending in the election year and risks from Hungary's main
trading partners in the euro zone and other factors meant the
growth outlook could be better or worse than forecast, the OECD
said.
ESTONIA
Estonian growth will rebound from a 14 percent economic drop
in 2009 to be flat this year and almost 5 percent in 2011,
driven by higher exports and investment. The global recovery and
high confidence could push growth beyond that, the OECD said.
Expected to join the euro zone in 2012, Estonia should now
try to re-employ job seekers in the export sector. Unemployment
is still rising and policymakers should take measures to control
any potential rise in consumer prices linked to euro adoption.
ISRAEL
After a mild downturn, Israel should return to 3.8 percent
growth in 2010 and 4.2 percent, near potential, next year, the
OECD said. Price growth should stay within the upper half of the
Bank of Israel's 1-3 percent target band through 2011.
It said the Bank of Israel should look towards ending its
policy of frequent market intervention through purchasing
foreign currencies and the bank is expected "to raise its policy
rate substantially by the end of 2011".
Israel's fiscal targets for 2010 look reasonably assured and
the government should focus on achieving its 2011 deficit target
by raising spending less than that implied in its spending rule
or delaying tax cuts, it said.
External risks to GDP growth are balanced but a surge in
housing prices raised the possibility of a speculative bubble
that could dampen the effect of further monetary tightening.
(Reporting by Michael Winfrey)
