* Most of EU's newer members seen showing marginal growth
* Poland seen leading non-euro states with 2.7 pct growth
* Latvia, Lithuania seen shrinking 3.5 pct, 0.6 pct
* Hungary and Bulgaria seen achieving zero growth
* IMF borrowers seen missing 2010 fiscal targets
(Writes through, adds Romanian IMF comment)
By Michael Winfrey
PRAGUE, May 5 (Reuters) - A stronger than expected global
recovery will help lift most of the European Union's newer
eastern members out of recession in 2010, although they will
struggle to meet budget deficit targets, the European Commission
said.
A report released by the EU's executive on Wednesday showed
Poland, the bloc's only member to avoid economic contraction
last year, would lead the non-euro zone states, with 2.7 percent
growth this year, accelerating to 3.3 percent in 2011.
"The recovery is expected to gain momentum in 2011," the
Commission said.
Slovakia, which adopted the euro in 2009, was seen growing
by 2.7 percent in 2010. The Czech Republic, Estonia and Romania,
would show growth of up to 1.6 percent, while Hungary and
Bulgaria were expected to stagnate.
Forced to tap an EU-led bailout in 2008, Hungary is still
trying to trim its bloated public sector and reduce its budget
deficit, a factor the Commission said would weigh on recovery.
"The output of export-driven industries is expected to
accelerate faster than that of domestic-driven sectors
especially as the latter are heavily affected by the ongoing
fiscal adjustment," the Commission said.
As in the other countries, rising demand for manufactured
products would drive Hungarian growth, but there would be a drag
from the effort to trim the public sector and raise tax
revenues.
The only economies from the former Communist bloc expected
to shrink this year were Lithuania and Latvia, with the former
down 0.6 percent and Latvia, which suffered an 18 percent
contraction in 2009, expected to decline 3.5 percent.
Inflation was seen subdued except in Hungary and Romania,
where it was seen hitting 4.6 percent and 4.3 percent
respectively in 2010.
Central banks in those two countries have been the only two
to continue lowering interest rates to try to counter steep
economic contractions since the rest of the region concluded
their easing cycles last year.
In contrast, Latvia was expected to register deflation of
3.2 percent this year.
FISCAL ADJUSTMENTS
Budget deficits remained a key concern. The Commission saw
Poland's public deficit stabilising at around 7 percent of gross
domestic product through next year ahead of 2011 parliamentary
elections.
But it forecast public debt rising almost three percentage
points to 53.9 percent of GDP this year according to EU
accounting standards, and to 59.3 percent in 2011 if policies
remain unchanged.
That level could potentially trigger steep public spending
cuts due to a Polish constitutional requirement to keep debt
below 55 percent of GDP using local accounting.
The three non-euro members that took EU, World Bank and
International Monetary Fund bailouts at the start of the crisis
-- Hungary, Romania and Latvia -- would also have trouble
meeting their fiscal targets.
In Romania, lower than expected growth, a higher than
forecast deficit in 2009 and a big revenue shortfall in the
first quarter would probably push the fiscal shortfall beyond
the 5.9 percent of GDP agreed under its aid programme.
"Without further measures, the 2010 general government
deficit could reach 8 percent of GDP," the report said.
That meshed a comment from a source with knowledge of talks
between Romanian and IMF officials, who said the IMF would
accept a petition from Bucharest for a higher deficit target.
"For sure we are going to see a revision of the budget
deficit target," the source said.
In Latvia, big cost cuts and tax hikes have still fallen
short of plan and the government deficit will be above the
government's 8.5 percent of GDP deficit target, the report said.
For Hungary, the Commission forecast a 2010 general budget
deficit of 4.1 percent of GDP, higher than the 3.8 percent goal.
It added that further reduction would be needed, which
conflicts with a plan by Hungary's new right-of-centre
government to negotiate a higher ceiling.
"Hungary has to put an end to its excessive deficit by 2011
at the latest, which implies a need for further deficit-reducing
measures at the latest next year of more than 1 percent of GDP,"
the report said.
(Reporting by Michael Winfrey; editing by Jason Webb)
