Eastern Europe booming six months before EU enlargement

With European Union enlargement six months away, the former communist states of eastern and central Europe set to join the bloc are in an economic boom that contrasts sharply with the slump of their western neighbors.

Poland, the largest economy in eastern Europe, is experiencing a “renewal of growth driven by a rise in exports,” Ivan Fabijancic, an analyst at the Austrian bank Erste Bank, said.

Poland is among eight former communist states expected to join the European Union when it enlarges from 15 to 25 states next May. The eight are the Czech Rebublic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovakia and Slovenia. The Mediterranean states of Malta and Cyprus round out the list.

Polish Economy Minister Jerzy Hausner reported last week a rise of four percent in Poland’s gross domestic product in the third quarter from the same period last year.

Poland’s statistics office, meanwhile, said industrial production in September was up 11 percent from September 2002.

“The 11-percent figure is very, very high” and the economic recovery “is a very good one,” Fabijancic said.

“There is no inflationary pressure, imports are increasing slower than exports and consumption is increasing gradually,” he said.

He predicted the economy would grow 3.5 percent in 2003 and between 4.5-5.0 percent next year, after increases of barely one percent in 2001 and 2003.

“We are seeing a relatively strong recovery in Poland, Slovakia and to a lesser extent in the Czech Republic,” said Peter Havlik, deputy director of the Vienna Institute for International Economic Comparisons (WIIW), a think tank specializing in central Europe’s former communist states.

Havlik said the reasons for the economic upswing, after stagnant growth in 2001 and 2002, were “the continuation of economic reforms, the inflow of foreign investments and the start-up of new factories in central Europe.”

Mojmir Hampl, an economist at Prague bank Ceska Sporitelna, said Slovakia is set to be the region’s fastest-growing economy, with “a rise in gross domestic product of 3.9 percent this year and 4.9 percent in 2004.”

Economic growth has already helped reduce unemployment in Slovakia, with joblessness dropping from 17.7 percent at the beginning of 2003 to 13.9 percent in September, Hampl said.

The Czech Republic and Hungary have slower rates of growth, respectively 2.5 percent and 2.7 percent in 2003, against 3.5 percent in 2002, Hampl said.

But this is still far superior to western Europe.

Officials in Brussels predict growth in the 15 nations of the EU to be 0.8 percent in 2003, while the 12-state euro zone will post a 0.4-percent rise.

Hampl said that while eastern and central European states’ economic performance “is good in comparison with the EU, we should not compare ourselves to low-growth economies such as France and Germany.”

He said the higher growth came because these weaker economies were catching up to the levels of the West.

Salaries are still three to four times lower in formerly communist states of central Eurpoe in relation to their Austrian and German neighbors, and this draws foreign investment, Hampl said.

Meanwhile, the central and eastern states are making gains in productivity as they modernize old machines from the communist era.

This increases both salaries and consumption. Salaries in Hungary, for instance, are set to rise by nine percent in 2003, while prices will only increase five percent.