(Updates with Almunia news conference)
By Marcin Grajewski
BRUSSELS, April 28 (Reuters) - The European Union's new
members that have freely floated their currencies seem to be
able to sustain their fast economic growth better than those
with rigid currency regimes, EU forecasts showed on Monday.
The "free-floaters" -- Poland, Slovakia and the Czech
Republic -- are also doing a better job in keeping inflation in
check than Estonia, Latvia and Lithuania, which have pegged
their currencies to the euro.
Controlling inflation is a key requirement for EU newcomers
seeking to join the euro zone. Slovakia is expected to adopt the
euro next year, but other countries are likely to follow suit
well after 2010.
In a twice-yearly forecast issued on Monday, the European
Commission cut its growth projection for Poland, the biggest EU
newcomer, to 5.3 percent in 2008 from 5.6 percent predicted in
November last year. In 2009 Poland is seen growing 5.0 percent.
"The effects of financial turmoil are foreseen to remain
limited due to ample liquidity in the market and strong demand
for housing supported by rising employment and wages," the
Commission said of Poland.
The European Union executive cut its 2008 growth forecast
for the Czech Republic to 4.7 percent -- still relatively strong
in view of the global credit crunch -- from 5.0 percent and saw
5.0 percent growth in 2009.
The Commission's growth forecast for the euro zone in 2008
was lowered to 1.7 percent from 2.2 percent seen in November.
Slovakia is also expected to grow strongly. But Hungary's
expansion is forecast to be weak, which analysts have said
results from the government having let its budget deficit
balloon to the highest level in the EU in recent years.
For Latvia, the Commission slashed its 2008 forecast to 3.8
percent from 7.2 percent and projected growth at 2.5 percent in
2009.
Estonia's and Lithuania's growth forecasts have also been
cut and the three Baltic countries' inflation rates are expected
to soar, confirming analysts' forecasts of a slowdown following
economic overheating.
"Because in these economies investment in the housing sector
was very, very high, the overheating of the economy was more
clear than in other cases and the tightening of credit
conditions is taking its toll," EU Monetary Affairs Commissioner
Joaquin Almunia told a news conference.
SMALLER BUDGET DEFICITS
Latvia's annual inflation is forecast to increase to 15.8
percent this year from 10.1 percent in 2007, before falling to
8.5 percent in 2009.
Poland's inflation is seen increasing to 4.3 percent in 2008
from 2.6 percent in 2007 and declining to 3.4 percent next year.
Many analysts have said those EU newcomers with fixed
exchange rates, which cannot fight inflation by increasing
interest rates independently, often have insufficiently tight
fiscal policies to keep prices in check.
The Latvian economy grew by double digits in 2005-07 thanks
mainly to a credit boom that boosted private consumption and
real estate investment. But inflation is the highest in the EU
at 16.8 percent in March.
Its current account deficit has widened to about 20 percent
of GDP, one of the biggest in the world.
Estonia and Lithuania experienced similar problems, though
to a lesser extent.
The Commission also forecast that with exceptions including
Hungary, most EU newcomers not yet in the euro zone would have a
budget deficit below 3 percent of GDP, meeting one criterion for
joining the euro.
Another exception is Romania, whose deficit is forecast to
grow to 3.7 percent of GDP in 2009 from 2.5 percent estimated
for 2007. Hungary's deficit is seen at 3.6 percent of GDP in
2009, higher than the 3.2 percent agreed with the EU.
Almunia said that in June the Commission would propose
ending its budget discipline procedure against Poland after the
country brought its deficit below 3 percent of GDP.
(Editing by Dale Hudson/Ian Jones)
