Yearender: Eastern European economy stumbles forward in 2009

by Xinhua writer Ding Yi

BEIJING, Dec. 25 (Xinhua) -- Eastern and Central Europe, the high-speed economic locomotive in Europe and in emerging markets, was forced to take a brake in the past year due to the global economic downturn.

Most of the countries in the region suffered a sharp decline in gross domestic product (GDP), and took on huge fiscal deficits and high unemployment rates. A Chinese analyst says the regional economy stumbled forward in a slow way in 2009.

Meanwhile, an improved economic environment in the European Union (EU) and an increase in exports would help lift clouds of recession in those countries, but at different speeds, analysts told Xinhua.

WORST-HIT COUNTRIES

After years of growth, Latvia, Estonia and Lithuania saw a decline from 2008 that continued until 2009. The Baltic countries and Hungary have become the worst-hit countries in the region by the crisis, said Zhu Xiaozhong, an expert at the Chinese Academy of Social Sciences.

The above countries run "higher external debt levels and have limited fiscal and exchange rate responses to the slowdown," UniCredit Group's analysts said.

The Baltic countries' GDP shrank 19 percent, 15.6 percent and 14.2 percent, respectively, in the third quarter of this year, according to EU's statistics agency, Eurostat.

On one hand, the governments of the Baltic countries have been forced to slash expenditures, including reducing employees' wages, educational and medical funds, relief payment and pensions. On the other hand, the three governments carried out tax reforms that would help increase government revenues in a bid to restrain the deficits.

The Latvia government sought international donations under the premise of reining in its ballooning deficit.

In December 2008, the EU, International Monetary Fund (IMF), World Bank and Nordic countries agreed to back Latvia with rescue financing worth 7.5 billion euros (11 billion U.S. dollars). Meanwhile, Latvia committed to slashing 500 million lats (1.06 billion dollars) each year until 2012 to meet EU-set rules on public deficits.

In Lithuania, the government has implemented new tax reforms and launched a 1.5-billion-dollar bond to raise funds.

However, the measures brought heavy burdens to the enterprises and led to poorer living standards for people, analysts said.

Latvia's unemployment rate reached 15.3 percent in November, the highest figure in the EU, and Estonia 12.8 percent, Lithuania 11.7 percent, according to data released by the countries' labor and employment sectors.

Hungary was another country hard hit by the crisis, although a combination of rescue packages from the IMF and EU eased the financial difficulties there. Still, the country's public sector debt rose above 80 percent in 2009 and the private sector was heavily indebted in foreign currencies.

Not even Christmas shopping has the power to compensate the Hungarian retail sector for a year of losses, with household consumption expected to drop by 7 percent for 2009, economic thinktank GfK Hungaria reported recently.

Households have been trading down -- buying lower-cost products, and replacing highly processed ready-to-eat meals with food made from scratch, GfK Hungaria reported, adding that the downshift in quality was true for the entire economy, not just the retail sector.

UniCredit Group analysts predicted two consecutive years of contraction for Hungary's economy, with positive prospects only in2011.