| The Vienna Institute for International Economic Studies - WIIW |
SUMMARY
Almost a decade since the start of reforms, the transition economies still remain fragile. After Hungary, Bulgaria, Albania and Romania during 1994-1996, trouble has hit the Czech Republic early this year as well. In mid-1997, devaluation of the Slovak currency appears equally inevitable. Poland could be confronted with similar dilemmas in 1998. The economic recovery was once more delayed in Russia and Ukraine, government finances in both countries are in a precarious state. Only Hungary, Slovenia and, with some reservations, also Croatia display accelerating economic growth in the WIIW revised assessment for 1997 and 1998. On average, the CEEC-5 economies are expected to grow well below 5% per year, and the process of their catching up with Western Europe will be slower. With Bulgaria and Romania dramatically falling back, the average GDP growth for CEEC-7 is projected to drop by some 2 percentage points in 1997, to recover only in 1998. In Russia, and less so in Ukraine, a nearly decade-long economic decline is finally coming to an end.
The main challenge to faster economic growth in the region is in the heavily constrained external positions. The deteriorating cost competitiveness, coupled with the generally sluggish demand in Western Europe, clouds the prospects for export-led growth. In contrast to the first years of recovery after 1993, it is now predominantly domestic absorption which affects the economic performance of the transition countries. With the possible exception of Hungary, private consumption and investment have been the main determinants of the recent economic performance: in the contracting economies like Bulgaria and Romania, both of these demand components plunged in early 1997, while they have been booming in fast growing Poland and Slovakia. In the future, we shall probably see more disappointment in the region, including continuing volatility of prices and exchange rates. The expected launch of negotiations towards full EU membership might have a positive effect on the expectations international investors have of the small group of first round candidates, while affecting negatively both internal and external attitudes towards those countries whose membership prospects will be relegated towards a more distant future. All more advanced CEECs have a good chance of becoming 'normally' functioning European market economies in the medium term, while the outlook for south-east Europe, Balkans and the Commonwealth of Independent States (including Russia) is of course much more bleak.
WIIW Research Report No. 239, P. Havlik et al.: Transition Countries
Outlook Falters in 1997: Some Stumble and Recover, Some Have Problems Ahead,
July 1997, 65 pp. including 29 Tables & Figures, US$ 48.00/ATS
600.00
For orders please contact Ms. Ursula Straka, WIIW, tel: (+43 1) 533
66 10-11, fax: (+43 1) 533 66 10-50, e-mail: straka@wiiw.ac.at