| The Vienna Institute for International Economic Studies - WIIW |
The financial crisis that hit Bulgaria has left a grievous legacy to
the new government. 1997 started with a dangerous hyperinflationary surge
in prices. General economic activity was severely affected, reflected by
a drop of 17.7% in manufacturing output in the first quarter. This further
plunge, following the 10.9% GDP decline in 1996, was mostly due to severely
depressed domestic demand. A major test of the economy will be the introduction
of the currency board, expected in July, and its performance during the
first crucial months of operation.
Croatia: The current account, a big question mark
Production growth in Croatia was quite strong in 1996, in a climate
of rising real wages and a parallel steady rise in unemployment, while
prices and exchange rates remained stable. Problems may arise from the
growing trade deficit and its impact on the current account. Earnings from
tourism will play a decisive role in offsetting at least part of the trade
deficit. Led by improving results in industry and a dynamic tourist season,
5% GDP growth is feasible in 1997.
Czech Republic: Has the crisis bottomed out?
As the present crisis suggests, the Czech economy is lacking the microeconomic
fundamentals for maintaining a stable nominal exchange rate. Czech authorities
will have to compromise between going easy on capital market investors,
interested in high interest rates, low inflation and a stable currency,
and limiting the damage to the manufacturing sector that needs cheap money
and access to foreign markets.
Hungary: Growth gains momentum
The signs of an upturn in the Hungarian economy turned robust by early
summer 1997. Industrial output and investment are on the rise, inflation
is slowing down, employment figures are improving, real wages are growing,
private sources of investment and loans to the corporate sector are increasing.
Not less important, there is no indication of imminent danger to the newly
restored stability either in external economic relations or public finance.
1997 GDP growth may attain 3%.
Poland: Firm growth continues, trade gap widens
Very strong investment-driven growth in Poland has been associated with
rising trade and current account deficits. Unexpectedly low inflation however
may moderate the appreciation of the zloty and soften the pressure to devaluate.
Lower tax revenues may result in still higher budget deficits.
Romania: Currency stable, production declining
The price and exchange rate shocks in Romania in the first quarter gave
way to falling inflation and to exchange rate stability in the second.
Production started to slip, which may lead to a 3% GDP decline this year,
while the average inflation rate will be 160%. For 1998 a slow recovery
and moderate inflation can be expected.
Slovakia: Escalating current account crisis
Despite a current account deficit coming in at over 10% of the GDP,
the Slovak koruna has so far held. The reported high GDP growth (5.1%)
in the first quarter of 1997 was mostly driven by domestic demand. Due
to the widening trade deficit, new non-tariff barriers have been introduced.
Nevertheless a devaluation of the currency is very likely in the near future.
In 1997 and 1998 GDP growth will slow to at least 5% annually.
Slovenia: No drama amid moderate growth
Economic developments in Slovenia were unspectacular during the first
months of 1997. Inflation showed a marginal decline, while industrial output
grew slightly and real wages continued to rise. Few new jobs were created
while unemployment remained at a high level. Poor trade performance left
the current account with a slight deficit in the first quarter. However,
with only modest recovery of industrial output, GDP might grow by 3.5%
in 1997.
Russia: Stabilization within reach though budget crisis still looms
The Russian economy has stabilized in early 1997 and the new government
started to tackle the burning problems of tax and fiscal reforms. The budgetary
situation is highly fragile, conflicts with the Duma and regions are likely.
Economic recovery has once more been delayed.
Ukraine: no budget, no recovery, disappointing large privatization
Ukraine's GDP is still declining, the trade deficit continues to gape,
large privatization remains fraught with obstacles. And now, as the deputies
began their 1998 re-election campaigns in mid-June, the budget had still
not been passed and the prime minister had just been fired. The currency
has held nominally stable since early 1996 but is vulnerable to a selloff
now that T-bill yields have fallen and a tax on them is planned for 1 July.