Gloom lingers in Central Europe's economies

17th August 2009, Comments 0 comments

Despite some signs of optimism in the region, many say it is still "too early" to talk about a recovery.

Bucharest -- While countries in western Europe have begun to snap out of recession, the economic decline has continued across much of central and eastern Europe despite some optimistic signs, analysts said.

"Eastern Europe's recovery from recession will be slow but encouraging figures are beginning to appear," said Bogdan Baltazar, a Romanian analyst.

Baltazar underlined that economic contraction in almost the whole region was less sharp in the three months to June than it had been in the first quarter.

The only exception so far has been Lithuania, where the economy shrank by 12.3 percent in the second quarter compared to minus 10.2 percent in the first.

On the other end of the scale, the Czech Republic last week said it had emerged from recession, clocking growth of 0.3 percent in the second quarter.

"We'd already hit the bottom in the first quarter of this year," said Helena Horska, a Prague-based analyst with Austrian lender Raiffeisenbank.

Slovakia did even better, growing 2.2 percent in the quarter in large part thanks to cash-for-clunkers programmes in its main car export markets.

Juraj Valachy, an analyst with Tatra Bank in Slovakia, said the economic results had been "better than we expected."

"It's good news, in line with the good news that we hear from Germany and France," he said.

In a sign of how deep the crisis has been, however, the Czech economy still showed a drop of 4.9 percent compared to the second quarter of last year while that figure for the Slovak economy was 5.3 percent.

Official data meanwhile showed that the economies of Hungary and Romania contracted by 2.1 percent and 1.2 percent respectively, better than their first quarter contractions of 2.6 percent and 4.6 percent.

France and Germany said on Thursday they had rebounded from recession by growing 0.3 percent between the first and second quarters of this year, while the eurozone said its economy shrank just 0.1 percent -- less than expected.

Portugal and Sweden also exited their recessions in a slew of results that have boosted stock markets and the value of the European single currency.

The picture in central and eastern Europe is more varied, economists said.

"Poland and Slovakia have fared better than their neighbours. The Baltic countries are facing the worst situation, while Romania, Bulgaria and Hungary are somewhere in-between," Romanian economic analyst Aurelian Dochia told AFP.

Dochia said that Poland had benefited from solid economic structure as well as a large domestic market that could compensate for the steep fall in exports.

Poland is forecasting gross domestic product (GDP) growth of 1.0 percent this year, which would make it an incredible exception in the economic crisis.

The International Monetary Fund is more pessimistic, however, and has said Poland's economy will likely shrink by 0.7 percent.

Slovakia on the other hand "managed to stay competitive" by keeping salaries relatively low as part of its bid to join the eurozone, Dochia said.

Bulgaria and Romania meanwhile are faced with huge budgetary constraints and are struggling to pay salaries and pensions.

In a bid to keep its budget balanced, Bulgaria has announced measures to cut public spending by 15 percent and crack down on customs fraud to raise revenue.

Romania for its part has said it is cutting the public deficit by 0.3 percent of GDP by forcing state employees to take 10 days of unpaid leave.

Despite some signs of optimism in the region, Baltazar said it was still "too early" to talk about a recovery but he forecast that the next few months would see "a stabilisation of the decline" as the crisis bottoms out.


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