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New EU Member States: Growth will accelerate further

- N.2 - avril 2011

19/04/2011

Réseau Euren

At the beginning of last year our forecast about the growth prospects regarding the New Member States (NMS) of the EU was still considered highly optimistic in the forecasting community, however, economic growth trends in the second half of 2010 have confirmed
our expectations. By end-2010 in all countries of the region there had been a positive turning point in growth trends. We expect a further acceleration of growth both in 2011 and 2012: On a regional average, GDP growth in 2011 could be around 3% and next year 3.5-4%.

Unemployment rates - Impact of the crisis

We expect a further acceleration of growth both in 2011 and 2012: On a regional average, GDP growth in 2011 could be around 3% and next year 3.5-4%. The acceleration will be most pronounced in the Baltic States and the two Eastern-Balkan countries where the fiscal stabilisation measures were the most painful ones in 2009 and 2010. For these countries, we forecast a GDP growth of 4-5% in 2012.

After the crisis, all NMS experienced an increase of unemployment. In most of them the unemployment rates reached double-digit figures, but some of them suffered less and did not exceed the Euro area average – Slovenia, Czech Republic, Romania, and Poland. At the end of 2010 and the beginning of 2011 the labour markets of most NMS show signs of stabilisation. Moreover, the businesses in some NMS (Poland, Czech Republic, Romania and Slovenia) intend to increase employment in the 2nd quarter of 2011. But the return to the pre-crisis level will be very slow and it could take several years.

Although the convergence criteria for Euro adoption proved to be of high motivation for maintaining fiscal budgets under control, none of the NMS outside Euro area looks like being ready to adopt the single currency before 2015. Lithuania seems to be the most realistic candidate. Still, the main problem remains the long-term sustainability of public finances. Structural reforms are needed, defining
more specific measures according to the Stability Programme and also diverting negative effects of demographic ageing, which is expected to be the main obstacle to attain sustainable public finances in the NMS.

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