* Poland to escape recession
* High deficits augur ill for euro adoption
* Inflation seen benign
By Marcin Grajewski
BRUSSELS, Nov 3 (Reuters) - Poland will be the only European
Union country to escape recession in the global economic crisis,
which will hit the Baltic countries especially hard, the EU's
executive forecast on Tuesday.
Although by 2011 all new member states from central and
eastern Europe will return to growth, their budget deficits will
swell, the European Commission said, making clear they would not
qualify to join the euro zone any time soon.
The Commission's bi-annual forecast showed wide differences
among the countries from the region.
Poland, the biggest former communist-ruled country in the
EU, would see its growth increase from 1.2 percent this year to
1.8 percent and 3.2 percent in 2009 and 2010 respectively.
That would make Poland the only EU member to avoid economic
contraction despite the worst economic crisis since World War
Two.
By contrast, the economies of Estonia, Latvia and Lithuania
would contract this year by double-digit figures and still see
negative growth in 2010 before expanding in 2011, with Estonia
expected to stage the strongest rebound.
The Commission said Polish growth had been helped by its
currency depreciation, which boosted exports, and relatively low
interest rates.
"The recovery is however likely to be delayed by
unfavourable labour market developments at the
turn of 2009-10, reflecting a lagged response to the
effects of the economic downturn," the Commission said.
In Hungary, the recipient of a $25.1 billion International
Monetary Fund-led bailout after years of fiscal profligacy, the
economy is expected to contract by 6.5 percent this year, shrink
0.5 percent in 2010 and grow by 3.1 percent in 2011.
The outlook is slightly better for the Czech Republic, which
is forecast to return to growth of 0.8 percent next year. Its
economy should expand by 2.3 percent in 2011 after a contraction
of 4.8 percent this year.
Romania is seen staging a modest rebound next year and in
2011 after an 8.0 percent contraction forecast for 2009.
Bulgaria will start growing only in 2011.
Before the crisis, most EU newcomers had enjoyed fast growth
rates, fuelled by foreign investment and an inflow of aid funds
from the EU.
HIGH DEFICITS
The Commission said that with the exception of Bulgaria and
Estonia, the EU's eastern countries would have budget deficits
above the bloc's cap of 3.0 percent of GDP, which is also a
ceiling for qualifying to join the euro zone.
In Poland, the deficit is expected to balloon from 6.4
percent in 2009 to 7.6 percent in 2011. The country's public
debt is forecast to grow from 51.7 percent of GDP in 2009 to
57.0 percent in 2010 and 61.3 percent in 2011.
There are three debt containment levels in Poland that
trigger various levels of fiscal tightening. Levels of 55 and 60
percent are the most severe because, once breached, the
government is obliged to significantly cut spending and even
present a balanced budget.
"The projected debt figures are subject to significant
uncertainty because of the high volatility of the exchange rate
and the ensuing valuation effects of the foreign-denominated part
of the debt," the Commission said.
It forecast benign inflation throughout the region, with
prices expected to fall in Latvia in 2010 and 2011.
"Lower consumer prices would facilitate coping with lower
nominal wages and encourage the reorientation of the economy
towards external markets," the Commission said of Latvia,
another country struggling to meet tough conditions set by the
IMF-led bail-out.
(Editing by Timothy Heritage)
