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| OECD cuts emerging EU growth fcasts, Poland resilient |
| Paris, 22.05.2012 |
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| ReutersThe OECD cut its growth forecasts for most of emerging central Europe on Tuesday and urged Hungary to reach a fast deal with international lenders to restore investor confidence and create room for rate cuts to boost its ailing economy.
The Organisation for Economic Co-operation and Development said Hungary would join the Czech Republic by sliding into recession this year, while it raised its growth projections for Poland, the region's largest and most resilient economy.
Following are the main points from the OECD's Economic Outlook on its member states in the EU's eastern wing.
HUNGARY
The OECD said Hungary would shrink by 1.5 percent this year, worse than a previous forecast of a 0.6 percent contraction. The country is seen growing 1.1 percent next year, with budget cuts weighing on economic activity both this year and next.
Hungary hopes to start talks with the International Monetary Fund and the European Union on financial assistance next month to help rein in its high borrowing costs, and government officials have said a deal could be signed in the autumn.
The OECD said fiscal measures and new taxes by Hungary's government would help lower its budget deficit to below the EU's 3 percent ceiling next year, which should prevent Hungary losing access to vital development funds from the bloc.
It said a rapid agreement with the IMF and the EU would restore investor confidence and create conditions for monetary easing. It assumed that a deal with lenders would allow rate cuts of 75 basis points to 6.25 percent by the end of 2012.
POLAND
The OECD sees Poland's economy growing 2.9 percent both this year and next, slightly faster than a forecast of 2.5 percent from November of last year.
But growth will slow from 2011's robust rate of over 4 percent due to softer external demand, uncertainty related to the euro zone crisis, fiscal consolidation and the leveling off of EU funds in 2013.
The OECD said Poland would meet its budget target this year, but would have to take further measures to reduce the deficit to its current goal of 2.2 percent of GDP in 2013.
It added that a potentially bigger-than-expected economic slowdown could create room for the central bank to reverse its recent path of tighter monetary policy.
"Under a scenario of a significantly sharper slowdown, Poland would have policy space to cushion the shock by easing monetary conditions, although substantial weakening of the zloty could be destabilising," the OECD noted.
CZECH REPUBLIC
The Czech Republic, mired in a recession that began in mid-2011, is seen contracting 0.5 percent for all of this year. The OECD sees growth picking back up to 1.7 percent next year.
These numbers are well below earlier projections of 1.6 percent and 3.0 percent growth in the November report.
The OECD said fiscal consolidation should continue at a "reasonable pace", keeping in mind the objective of balancing the budget and also exiting from recession.
It said inflation would increase temporarily this year, but given the weakness of the economy, it is expected to come back to the central bank's 2 percent target in 2013. The bank should use the available room for interest rate cuts, the OECD said.
ESTONIA
Growth in Estonia, which outpaced the region by expanding close to 8 percent last year, will slow to 2.2 percent in 2012, mainly due to weaker exports. Growth will accelerate to 3.6 percent next year as world trade growth improves, the OECD said.
It said a key risk for the country's economy was a potential intensification of the euro zone sovereign debt crisis, which, combined with a slowdown in Nordic countries, could push the economy into recession in 2012.
SLOVAKIA
Slovakia, where car production has a major role, is seen growing by 2.6 percent this year and 3 percent in 2013. The OECD urged structural reforms and said fiscal consolidation should be carefully designed to preserve the economy's growth potential.
(Reporting by Krisztina Than. Editing by Jeremy Gaunt.)
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