(Updates with details, quotes, background)
By Marcin Grajewski
BRUSSELS, Jan 19 (Reuters) - The global economic downturn is
set to complicate but not derail efforts of the European Union's
new member states from central and eastern Europe to join the
euro zone, EU forecasts showed on Monday.
The European Commission revised down sharply growth outlook
for the countries and raised forecasts of their budget deficits,
suggesting more difficulty then previously thought in meeting
criteria for adopting the currency now shared by 16 nations.
But in a special forecast, the European Union's executive arm
said Poland, the Czech Republic, Bulgaria and Romania will
escape recession that has hit the euro zone, while some
countries will keep their fiscal shortfalls below the 3 percent
of gross domestic product required to join the euro area.
"The outlook for euro zone enlargement is generally bad,"
said Lars Christensen, chief analyst at Danskebank.
The Commission revised down its growth forecast for Poland,
the biggest country in the region, to 2.0 percent in 2009 and
2.4 percent in 2010, from 3.8 percent and 4.2 percent
anticipated respectively in a previous forecast in November.
"Private consumption is set to slow down in 2009, and again
in 2010, on the back of a worsening situation in the labour
market," the Commission's report said on Poland.
Poland's budget deficit is forecast to grow from 2.5 percent
of gross domestic product in 2008 to 3.6 percent in 2009 and 3.5
percent in 2010, more than its government expects and above the
3.0 percent limit.
Poland hopes to join the euro zone in 2012, meaning its
deficit should be below that level in the preceding year and
forecast to stay that way.
"In theory, the Polish government can still push for the
euro ... but it will be difficult," said Christensen, adding he
believed the Commission's forecasts were too optimistic.
Out of the 12, mostly ex-communist countries that joined the
EU in 2004 and 2007, Cyprus, Malta, Slovenia and Slovakia have
already adopted the euro.
EURO/GROWTH DILEMMA
Poland and other countries will face a dilemma on whether to
try to boost economic growth with fiscal measures or try to trim
the deficit to qualify to join the euro, analysts say.
The EU forecasts showed the Czech Republic might have the
best chance tor meet soon euro entry criteria faster than
others, which also include sufficiently low inflation, long-term
interest rates and currency stability.
Inflation is expected to remain relatively benign in the
region, although it is likely to be markedly higher the Baltic
republics, Bulgaria and Romania than in other countries.
The Czech Republic, which has said it could join the euro
zone in 2013, is expected to keep its deficit below 3 percent in
2009 and 2010 -- at 2.5 percent and 2.3 percent.
The Commission scaled down its growth forecast for the Czech
Republic to 1.7 percent in 2009 and 2.3 percent in 2010 from
previous 3.6 and 3.9 percent.
The euro zone's economy is expected to shrink by 1.9 percent
in 2009 and grow by 0.4 percent in 2010.
Hungary, which only in 2006 had a staggering deficit of 9.3
percent, is forecast to trim its shortfall to 2.8 percent in
2009 and 3.0 percent in 2010.
The Hungarian economy, which has had to seek International
Monetary Fund help to support its markets, is expected to
contract by 1.6 percent this year before returning to 1.0
percent growth in 2010.
The forecast confirmed the financial crisis has hit the
Baltic republics especially hard in central and eastern Europe.
Latvia, which has also sought IMF help, is forecast to see
its economy shrink by 6.9 percent in 2009, the biggest
contraction in the 27-nation EU, and by 2.4 percent in 2010.
Lithuania's GDP is to fall by 4.0 and 2.6 percent in 2009
and 2010 respectively, while Estonia will return to growth of
1.2 percent in 2010 after contracting by 4.7 percent in 2009.
Bulgaria and Romania are both expected to see growth rates
at 1.8 percent and 2.5 percent in 2009 and 2010, but the
previous will have a budget surplus while the latter's shortfall
will shoot to 7.5 and 7.9 percent.
(Writing by Marcin Grajewski, editing by Toby Chopra)
