By Marcin Grajewski
BRUSSELS, May 4 (Reuters) - The global crisis will end years
of economic growth in the EU's eastern countries this year,
causing their budget gaps to swell and undermining their efforts
to join the euro, the bloc's executive forecast on Monday.
The European Commission's twice-yearly forecast said that
Poland, the Czech Republic and Bulgaria would see the smallest
economic contraction in the region while the Baltic republics
would shrink by more than 10 percent this year.
In Poland, the European Union's biggest ex-communist
country, the economy will shrink this year for the first time
since 1992, by 1.4 percent, compared with growth of 4.8 percent
in 2008 and a previous Commission forecast of 2 percent growth.
The country is expected to be one of the few in the region
to return to growth in 2010, at 0.8 percent.
The Polish government's worst case scenario is still for 1.7
percent growth this year, but the International Monetary Fund
and many bank analysts are now forecasting a contraction.
"Compared with other countries in the region this is a
relatively mild recession thanks, among other factors, to the
lower share of trade in GDP," the Commission said on Poland,
which accounts for about half of the region's output.
The sharp depreciation of the Polish zloty currency will
ease pressure on exporters, but it may dampen demand from
households which had taken foreign currency loans, it said.
Poland's budget deficit will soar from 3.9 percent of gross
domestic product in 2008 to 6.6 percent this year and 7.3
percent in 2010, much higher that the 3 percent ceiling required
for a country that wants to join the euro zone.
EURO SHORTFALLS
If the figures materialise, Poland would find it hard to
meet its goal of joining the euro in 2012, exacerbating expected
problems with meeting an exchange rate stability criterion.
Among 10 ex-communist countries that joined the EU in 2004
and 2007, the Czech Republic and Bulgaria are also forecast to
experience a relatively small contraction, compared with the
euro zone's expected 4.0 percent this year.
Czech growth is seen at -2.7 percent while that in Bulgaria
-1.6 percent this year and 0.3 percent and -0.1 percent
respectively in 2010.
Hungary, which has been granted massive aid from the
International Monetary Fund after years fiscal profligacy, will
shrink by 6.3 percent in 2009 and -0.3 percent in 2010.
Budapest's government has forecast the economy to shrink by
5.5-6.0 percent this year.
The Baltic republics of Estonia, Latvia and Lithuania, are
forecast to be the hardest hit by the crisis after years of
double-digit growth fuelled by easy credit and a construction
sector boom.
Estonia is to contract by 10.3 percent this year, Latvia by
13.1 percent and Lithuania by 11 percent. The economies will
also shrink in 2010, although much less.
Like in many other countries, inflation rates are to fall in
central and eastern Europe in 2010 while unemployment will grow.
The countries' budget deficits will increase above the euro
zone entry level of 3 percent of GDP in most cases, although
unlike in Western Europe, they do not plan large fiscal stimulus
programmes. Their debt servicing costs are bound to growth.
"Higher risk aversion towards emerging markets and quickly
mounting debt are expected to result in an increase
in interest expenditure," the Commission said.
(Editing by Patrick Graham)
