Identifier
Created
Classification
Origin
09VIENNA296
2009-03-12 15:35:00
UNCLASSIFIED
Embassy Vienna
Cable title:  

Austrian Outlook on Central/ Eastern

Tags:  ECON EFIN ELAB EUN XH TU RS KZ CH 
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VZCZCXRO7804
RR RUEHKW RUEHLN RUEHLZ RUEHPOD
DE RUEHVI #0296/01 0711535
ZNR UUUUU ZZH
R 121535Z MAR 09
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 2149
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHXE/EASTERN EUROPEAN POSTS COLLECTIVE
RUEHBS/USEU BRUSSELS
RUEHFR/AMEMBASSY PARIS 0969
UNCLAS SECTION 01 OF 04 VIENNA 000296 

SIPDIS

TREASURY FOR FTAT, OCC/SIEGEL, AND OASIA/ICB/ATUKORALA
TREASURY PASS FEDERAL RESERVE, FINCEN, AND SEC/JACOBS
USDOC FOR 4212/MAC/EUR/OWE/PDACHER
USDOC PASS OITA
PARIS ALSO FOR USOECD

E.O. 12958: N/A
TAGS: ECON EFIN ELAB EUN XH TU RS KZ CH
SUBJECT: Austrian Outlook on Central/ Eastern
European Economies

UNCLAS SECTION 01 OF 04 VIENNA 000296

SIPDIS

TREASURY FOR FTAT, OCC/SIEGEL, AND OASIA/ICB/ATUKORALA
TREASURY PASS FEDERAL RESERVE, FINCEN, AND SEC/JACOBS
USDOC FOR 4212/MAC/EUR/OWE/PDACHER
USDOC PASS OITA
PARIS ALSO FOR USOECD

E.O. 12958: N/A
TAGS: ECON EFIN ELAB EUN XH TU RS KZ CH
SUBJECT: Austrian Outlook on Central/ Eastern
European Economies


1. SUMMARY: As leading investors and bankers in
Central/Eastern/Southeastern Europe (CESEE),
Austrians have developed broad expertise on the
region. The latest forecast by the Vienna Institute
for International Economic Studies (WIIW) paints a
negative but differentiated picture. As a group,
the ten new EU members will stagnate in 2009 (in
November, they were projected to grow by 2.7%) but
some will grow even in this crisis year. This cable
includes WIIW capsule forecasts for each of the
twenty CESEE economies. Countries projected to grow
in 2009 are Albania, Czech Republic, Kazakhstan,
Poland, Russia and Slovakia. Bosnia/Herzegovina,
Bulgaria, Montenegro, Romania, Serbia and Slovenia
are expected to stagnate; the economies of Croatia,
Estonia, Hungary, Latvia, Lithuania, Macedonia,
Turkey and Ukraine will shrink. The CESEE region is
expected to grow again from next year (2010: 1.5%,
2011: 3.3%). END SUMMARY.

Mixed Outlook in CESEE
- - - - - - - - - - - -


2. The Vienna Institute for International Economic
Studies (WIIW) recently published its new economic
forecast for the CESEE countries plus Ukraine,
Russia, Kazakhstan and China. All are experiencing
a marked economic slowdown for well-known reasons --
credit crunch, collapse in industrial/export demand
-- but only some are dealing with high current
account deficits (particularly in Latvia, Lithuania,
southeast Europe),a high government debt level,
currency devaluations, and related refinancing
problems. As a result, the outlook for individual
countries varies considerably. In 2009, the so-
called NMS-5 (new member states Czech Republic,
Hungary, Poland, Slovakia, Slovenia) on average will
grow modestly at about 0.6% (2010: 2.1%, 2011: 3.6%)
and the NMS-10 (NMS-5 plus Bulgaria, Estonia,
Latvia, Lithuania and Romania) will stagnate in 2009
(2010: 1.5%, 2011: 3.3%). Both groups will still
outperform the Eurozone (Commission's January 2009

forecast: -1.9% in 2009 and 0.4% in 2010) and EU-27
(1.8% in 2009 and 0.5% in 2010).


3. WIIW identifies three groups of CESEE
performers:

FORECAST TO GROW IN 2009:
Albania, the Czech Republic, Kazakhstan, Poland,
Russia and Slovakia.
FORECAST TO STAGNATE IN 2009:
Bosnia/Herzegovina, Bulgaria, Montenegro, Romania,
Serbia and Slovenia.
RECESSION IN 2009:
Croatia, Estonia, Hungary, Latvia, Lithuania,
Macedonia, Turkey and Ukraine.

COUNTRY OVERVIEWS
- - - - - - - - -


4. Following are brief WIIW analyses of CESEE
economies.

- - - - - - - - - BULGARIA - - - - - - - - -


5. Bulgaria's economic prospects have quickly
deteriorated due to falling export demand, a
shortage of external funds and a domestic credit
crunch. As a result, Bulgaria will stagnate in 2009
and show only modest growth in 2010. WIIW expects
the current account deficit to shrink. Government
stimulus measures will draw down fiscal reserves and
lead to a higher budget deficit. Much will depend
on global economic developments, particularly in the
Eurozone economies as Bulgaria's main export market.
Absent any improvement in western Europe, the
Bulgarian economy could well dip into recession.

Bulgaria 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 0.0 1.0 3.0

VIENNA 00000296 002 OF 004


Unemployment rate (%) 8.0 9.0 8.0
Current account (% of GDP) -13.0 -11.7 -10.2

- - - - - - - - - CZECH REPUBLIC - - - - - - - - -


6. At a projected growth rate of 0.4% in 2009, the
Czech economy will approach stagnation despite
strong macroeconomic fundamentals and a sound
financial system. The reasons are substantially
weakening exports; an expected contraction of
investment; and modest private consumption growth,
given the constraints on expanding household debt.
A fiscal stimulus package now under consideration
should prevent the country from slipping into
recession. Given the low public debt level, the
Czech government has room for fiscal maneuver. For
2010, recovery with growth of 2.4% is forecast.

Czech Republic 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 0.4 2.4 3.8
Unemployment rate (%) 6.0 6.0 5.5
Current account (% of GDP) -1.7 -1.3 -1.8

- - - - - - - - - HUNGARY - - - - - - - - -


7. Hungary's modest recovery was interrupted by the
international financial crisis and its economy will
be in deep recession in 2009 (-3.0%) since under the
IMF stand-by agreement, Hungary cannot use fiscal
stimulus measures or relax monetary policy. Private
household consumption will be affected by declining
real wages; the investment outlook is bleak. For
2010, the significantly weakened exchange rate will
spark an export-led recovery.

Hungary 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -3.0 1.4 3.0
Unemployment rate (%) 9.0 8.8 8.0
Current account (% of GDP) -4.9 -5.5 -5.1

- - - - - - - - - POLAND - - - - - - - - -


8. WIIW sees the Polish economy growing by 1.5%
(2009) and 2.3% (2010),benefiting from a weaker
currency. Despite efforts to restrict budget
expenditures, the government may not be able to
prevent an increase in the deficit. Private
consumption is expected to grow moderately in view
of relatively low household debt. Poland's export
performance will largely depend on the further
development of major EU economies, particularly
Germany.

Poland 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 1.5 2.3 3.8
Unemployment rate (%) 12.0 11.0 10.0
Current account (% of GDP) -3.9 -4.4 -4.3

- - - - - - - - - ROMANIA - - - - - - - - -


9. A sharp drop in industrial production, declining
investments and modest consumption growth will lead
to stagnation of the Romanian economy in 2009 and
modest growth (1.0%) in 2010. Romania remains
highly exposed to external shocks and a hard landing
cannot be ruled out, but financial support from the
EU and a stand-by agreement with the IMF should help
to prevent recession.

Romania 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 0.0 1.0 3.0
Unemployment rate (%) 8.0 9.0 8.0
Current account (% of GDP) -8.0 -6.5 -6.3

- - - - - - - - - SLOVAKIA - - - - - - - - -


10. Adoption of the Euro in January 2009 has eased
the impact of the global financial crisis. However,

VIENNA 00000296 003 OF 004


the high conversion rate has undermined Slovakia's
export competitiveness vis-a-vis its NMS neighbors.
Despite the drop in export demand, Slovakia should
be able to achieve modest growth of 2.0% in both
2009 and 2010, driven by domestic demand and an
expansionary fiscal policy.

Slovakia 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 2.0 2.0 3.0
Unemployment rate (%) 11.0 12.0 12.0
Current account (% of GDP) -6.6 -6.8 -6.8

- - - - - - - - - SLOVENIA - - - - - - - - -


11. The Slovenian economy is projected to slow
markedly, with stagnation in 2009 followed by 2.0%
growth in 2010, primarily due to shrinking
investment (until now a key growth driver). The
government's stimulus package, at more than 2% of
GDP, will dampen crisis impacts.

Slovenia 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 0.0 2.0 4.0
Unemployment rate (%) 5.5 5.0 4.5
Current account (% of GDP) -5.8 -4.9 -4.6

- - - - - - - - - RUSSIA - - - - - - - - -


12. Despite strong fundamentals, the Russian
economy has been hit severely by the global crisis
with a near-collapse in the fourth quarter of 2008.
The Russian government's various rescue measures and
stimulus packages will not prevent a marked slowdown
of the economy from previous strong growth rates.
Export revenues will be considerably lower,
shrinking trade and current account surpluses. A
sharp slowdown in economic growth is inevitable.
WIIW's projected recovery for 2010 is based on a
modest rise in energy prices.

Russia 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 1.1 3.7 4.6
Unemployment rate (%) 6.7 6.6 6.3
Current account (% of GDP) 1.0 -0.9 -1.8

- - - - - - - - - UKRAINE - - - - - - - - -


13. After several boom years, the Ukrainian economy
fell into recession in October 2008 and is in the
midst of an economic meltdown from the global credit
crunch, the sharp drop in steel prices/demand, and
Ukraine's renewed political crisis. Even the
forecast contraction of -5% in 2009 has downside
risks. WIIW questions whether the Ukrainian
government can meet IMF conditions for further
assistance.

Ukraine 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -5.0 1.5 4.5
Unemployment rate (%) 7.5 7.5 7.2
Current account (% of GDP) -2.2 -0.4 -0.3


14. Statistical Annex

Below are WIIW forecasts for other CESEE countries:

Estonia 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -

GDP growth (real terms) -7.0 -3.5 0.5
Unemployment rate (%) 10.5 13.0 15.0
Current account (% of GDP) -5.8 -5.5 -6.3

Latvia 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -8.0 -4.0 0.0
Unemployment rate (%) 12.0 15.0 16.0
Current account (% of GDP) -7.0 -5.7 -7.9

VIENNA 00000296 004 OF 004



Lithuania 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -5.0 -3.5 1.0
Unemployment rate (%) 8.5 13.0 15.0
Current account (% of GDP) -7.3 -6.3 -7.9

Croatia 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -2.0 1.0 4.0
Unemployment rate (%) 10.5 11.0 10.0
Current account (% of GDP) -7.0 -8.0 -8.0

Macedonia 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -1.0 0.0 2.0
Unemployment rate (%) 34.0 33.0 33.0
Current account (% of GDP) -7.0 -8.0 -8.0

Albania 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 3.0 4.0 6.0
Unemployment rate (%) 13.0 12.0 11.0
Current account (% of GDP) -9.9 -11.4 -12.3

Bosnia and Herzegovina 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -1.0 -1.0 0.0
Unemployment rate (%) 27.0 27.0 26.0
Current account (% of GDP) -11.0 -9.0 -8.0

Montenegro 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -2.0 0.0 2.0
Unemployment rate (%) 19.0 20.0 20.0
Current account (% of GDP) -10.0 -10.0 -10.0

Serbia 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -2.0 0.0 2.0
Unemployment rate (%) 18.0 20.0 20.0
Current account (% of GDP) -10.0 -10.0 -12.0

Turkey 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) -2.5 1.0 3.0
Unemployment rate (%) 13.0 13.0 12.0
Current account (% of GDP) -3.6 -3.3 -3.1

Kazakhstan 2009 2010 2011
- - - - - - - - - - - - - - - - - - - - - - - - - -
GDP growth (real terms) 1.0 3.0 4.5
Unemployment rate (%) 7.5 7.0 6.5
Current account (% of GDP) -6.8 -4.4 -3.9

YAP