EU10 output returned to pre-crisis levels but policy action needs to sustain recovery and foster job creation
Warsaw, April 21, 2011 - Two and a half years after the global financial crisis broke, the economic activity in the EU10[1] returned to pre-crisis levels in early 2011, according to the World Bank’s new EU10 Regular Economic Report presented today in Warsaw.
EU10 growth strengthened in 2010, in parallel with the EU15[2], supported by restocking, a double-digit expansion of industry, and a rebound in consumption, states the report. The economic sentiment in the EU10 exceeded its long-term average in December 2010 for the first time in 26 months. The pace of the recovery in the EU10 is set to accelerate in 2011 and 2012. Firms are expected to raise investment with higher capacity utilization and strong global demand for capital goods and durables, and households to step up consumption with improving confidence about future prospects.
Projected GDP growth in EU10 countries:
2010 |
2011 |
2012 |
|
EU10 |
2.1 |
3.1 |
3.8 |
Poland |
3.8 |
4.0 |
4.2 |
Bulgaria |
0.2 |
2.5 |
3.4 |
Czech Republic |
2.5 |
2.2 |
2.7 |
Estonia |
3.1 |
3.7 |
3.9 |
Hungary |
1.2 |
2.8 |
3.0 |
Latvia |
-0.3 |
3.3 |
4.0 |
Lithuania |
1.3 |
4.3 |
3.2 |
Romania |
-1.3 |
1.5 |
4.4 |
Slovak Republic |
4.0 |
4.1 |
4.3 |
Slovenia |
1.2 |
2.2 |
2.5 |
Growth in Poland, the highest in the region along with Slovakia, is set to strengthen thanks to low pre-crisis imbalances and deep integration into European production networks. Estonia, Lithuania, and Latvia are likely to build on the export-led upswing as domestic demand continues to recover. Romania and Bulgaria, where the crisis hit later than elsewhere, are set to see the biggest improvements in growth in 2011, aside from Latvia and Lithuania. Growth in Slovenia, the Czech Republic, and Hungary is set to increase at a more measured pace, in part because these countries have already converged more to EU income levels.
“Poland remains one of the top performers in the region,” said Peter Harrold, the World Bank Country Director for Central Europe and the Baltic Countries. “Main reasons for that are solid consumption, deep integration with the EU markets and the good absorption of EU funds,” added Harrold.
However, EU10 growth prospects are subject to risks. And about one and a half years after the resumption of growth, labor markets continue to be slack.
“To sustain growth beyond the recovery phase and to create jobs, it’s crucial to make sure that financial market confidence remains strong, to implement fiscal adjustments, and to tackle structural bottlenecks.” – said Kaspar Richter, Senior Economist in the World Bank’s Europe and Central Asia Region and lead author of the report. “With policy focus on those three factors, we are convinced that Poland’s economic prospects remain bright.”
Shoring up financial market confidence and making progress on fiscal consolidation remains high on the policy agenda. Most EU10 countries initiated fiscal consolidation already in 2010, but more adjustment is needed in the coming years. Even with stepped-up fiscal tightening, public debt burdens in the EU10 countries are likely to stay higher than prior to the crisis. Beyond financial and fiscal measures, structural policies can help to spur growth and job creation. The reform agenda is vast, ranging from absorbing EU funds and FDI flows, increasing labor force participation, strengthening skills, and improving technology.
The EU10 Regular Economic Report is published three times a year. It monitors macroeconomic and reform developments in the EU10 countries, and provides in-depth analyses of key policy issues.
[1]The EU10 countries include Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.
[2]The EU15 countries include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.
