PARIS, June 24 (Reuters) - The European Union's eastern wing
will contract with the rest of the bloc this year, but Poland,
the Czech Republic, Slovakia and Slovenia will recover in 2010,
the Organisation for Economic Cooperation and Development said
on Wednesday.
The contraction will be accompanied by unemployment rising
to double digits in most countries and ballooning budget
deficits that the OECD said would require swift correction once
growth resumes to avoid longer-term stagnation.
Following are the OECD's gross domestic product forecasts
and assessments of risks, and policy tasks for the region.
GDP FORECASTS 2009 2010 2011
OECD members
Czech Republic -4.2 1.4
Hungary -6.1 -2.2
Poland -0.4 0.6
Slovakia -5.0 3.1
non-OECD countries
Estonia -13.9 -0.7
Slovenia -5.8 0.7
CZECH REPUBLIC
Falling investment and recession in the Czechs' major export
markets, the euro area and particularly Germany, will produce a
sharp contraction this year, followed by weak recovery in 2010.
Inflation is set to fall sharply and there may be scope for
further monetary easing if the crown currency remains stable.
Unemployment is expected to spike to 9.2 percent in 2010,
from 4.4 percent in 2008. The government fiscal deficit is
expected to rise to 4.9 percent of GDP in 2010.
ESTONIA
One of the hardest hit EU members in the crisis, Estonia is
expected to see its GDP fall 13.9 percent in 2009 before
creeping back up to just under zero growth next year, although
slowing foreign investment and weak export markets remain risks.
Tallinn's fiscal shortfall is expected to expand to 5.6
percent of GDP this year, although the government has undertaken
significant budget cuts to keep its goal of 2011 euro zone entry
on track, and confirmation of a clear euro adoption date could
help revive confidence and investment.
HUNGARY
Hungary will experience a deep recession this year, also
mainly due to the contraction in the euro zone, but will shrink
less dramatically in 2010. Inflation is expected to rise this
year due to tax hikes and a weaker forint currency.
Unemployment is seen jumping to double digits, and the
economy remains vulnerable due to a high level of foreign
currency debt in households.
Fiscal consolidation -- the deficit is seen at 4.2 percent
of GDP this year and next -- is needed to boost investor
confidence, which could also take a hit if 2010 elections
trigger higher public spending. The OECD projects that the
central bank will not lower interest rates until next year.
POLAND
The largest ex-communist EU member is expected to contract
the least among European OECD members in 2009 before recovering
with slight growth in 2010, outperforming due to less dependence
on euro zone demand, income tax cuts, and other factors.
The fiscal outlook has worsened and is expected to
deteriorate over the next two years, pushing the total public
deficit to 7.6 percent of GDP and public debt close to the
Maastricht and Polish constitutional limit of 60 percent of GDP.
That will require significant fiscal consolidation later,
while weak price growth should create room for interest rate
cuts. A $20.6 billion International Monetary Fund credit line
has reduced problems rolling over debt but sentiment among
foreign investors could reverse if the growth outlook worsens.
SLOVAKIA
A collapse in exports will force this euro zone member into
a sharp contraction in 2009 but Slovakia will recover to lead
growth among the OECD's European members in 2010 due to a
projected uptick in world trade.
A drop in tax revenues, plus fiscal stimulus measures, will
push the government deficit wider to 6.3 percent of GDP in 2010.
The weak global outlook and tight credit conditions will
likely force foreign firms to put investment plans on ice, while
unemployment is expected to top 13 percent next year, the
highest level among the EU's newer members in the OECD.
SLOVENIA
Euro zone member Slovenia is expected to contract by 6
percent this year before rebounding to slight positive growth
next year. The 2009 fiscal deficit is expected to jump to 5.7
percent. Budget consolidation, including pension reforms, should
take place once the economy picks up.
(Compiled by Michael Winfrey; Editing by Andy Bruce)
