* World bank sees Poland, Czechs growing 0-2 pct this year
* Risks are to the downside
* Latvia seen contracting 7 pct, Hungary 3 pct
(Adds country forecasts, analyst)
WARSAW, Feb 20 (Reuters) - The World Bank said on Friday
that six of the EU's ten newest member states could see growth
of zero to plus 2 percent this year, even though they have been
hit especially hard by the global crisis, a more optimistic view
than some of the countries' own governments.
"Forecasts are subject to very high degrees of uncertainty,
mostly on the downside." the bank said.
East European markets have clawed back some ground after
taking a hit on Monday and Tuesday when concern over the health
of the banking sectors and a string of worsening economic data
caused investors to dump Polish, Czech, Hungarian and other
assets.
The World Bank said growth was possible in the Czech
Republic, Poland, Bulgaria, Romania, Slovakia and Slovenia, but
it warned that the outlook may deteriorate. It forecast Hungary
will shrink by 3 percent and the Baltic states by 5-7 percent.
The forecasts were more optimistic than those of some
analysts, governments and central banks in the region. The Czech
government said this week its economy could contract by up to 2
percent, while Latvia's expects a drop of 12 percent in 2009.
"It looks pretty much a fantasy scenario for the region. In
our view no country in the region will see positive growth in
2009," said Lars Christensen, emerging Economist at Danske Bank.
"A drop in GDP of 7 percent in Latvia for example would be a
miracle."
The bank said that after a collapse in foreign demand,
capital inflows were drying up, especially intrabank lending
between Western EU-based banks and their subsidiaries in the
east, as well as foreign borrowing by firms.
It said the countries faced a dearth of international
liquidity, exposure to vulnerable banks, and collapsing export
markets. Policymakers' options to deal with the crisis were
limited due to monetary and budget constraints that also left
little or no room for fiscal stimulus.
"The impact will now be felt strongly in the real sector as
defaults spread and foreclosures creep up, and as unemployment
rises sharply," it said.
Among other risks, there is a high level of foreign currency
borrowing in the Baltic states, Hungary, and Romania.
But a persistent large stock of external debt and an outflow
of funds across the region was also weighing.
It said governments must focus on measures to stabilise the
financial sector and improve spending. It also said the crisis
should deepen European integration, rather than spur a return to
nationalism.
(Reporting by Michael Winfrey and Jan Lopatka; editing by Ian
Jones)
