| The Vienna Institute for International Economic Studies - WIIW |
The economic situation deteriorated substantially in the course of the
last several months. The escalating financial crisis and the continuing
run on banks resulted in a virtual collapse of the banking system. The
real economy is declining and GDP growth for the year will be negative.
The high inflationary pressures have not been arrested and CPI inflation
for the year may be expected to approach 150%.
Croatia: weak economic performance
Croatia's economy is slowly recovering. During the first seven to eight
months industrial output grew only slightly, foreign trade contracted and
the number of jobless was steadily on the rise. Prices and the exchange
rate remained stable. For the whole year 34% GDP growth seems feasible
and the current account may close with a lower deficit than a year earlier.
Czech Republic: restrained growth dynamics
Industrial production and domestic demand are growing strongly. Low
export growth contrasts with rapidly increasing imports. This foreign trade
development is curbing GDP growth and causing a high trade deficit and
also a considerable deficit on the current account. Also, there were some
disturbances in the financial sphere. In the longer run, some intervention
like imposing an import surcharge or devaluation might become unavoidable.
The positive development of the real GDP will probably continue.
Hungary: recovery only in the second half of the year
Hungary's economic performance in the first seven to eight months of
1996 was still determined by the March 1995 stabilization package. The
improvement of fiscal and external balances continued, but in terms of
economic growth the price paid for stabilization was higher than expected
by the government. Although net exports developed favourably, the increase
in foreign demand was unable to compensate for the considerable drop in
domestic demand.
Poland: steady performance
Strong growth in investment and real wages is accompanied by growing
manufacturing output. Disinflation continues, interest rates go down, the
zloty continues to appreciate in real terms. The budget is firmly under
control. The deterioration in the trade balance is not yet alarming.
Romania: muddling through the election year
Rising industrial production fuelled by domestic consumption and investment
keeps the Romanian economy on its growth trajectory (GDP +4.5%) despite
recurring problems in the financial sector, a bad harvest and the decline
in the foreign trade turnover. Inflation is not diminishing and the malfunctioning
of the exchange rate system harms both exports and imports.
Slovakia: remarkable growth, high trade deficit
Despite shrinking exports the GDP grew by 7.1% in the first half of
1996 due to the strong increase in domestic demand. On the supply side,
not industry but services became the most important growth-driving force.
The GDP will likely increase by 6% in the full year 1996. Inflation and
the unemployment rate continued to decrease. The inflow of FDI has so far
remained meagre. The most conspicuous development in the first half
of 1996 was the turn in the current account balance to a considerable deficit,
accounting for 7% of the GDP.
Slovenia: only moderate growth
Economic developments during the first seven to eight months were less
encouraging than envisaged at the beginning of the year. Production declined
due to a weakening of foreign and domestic demand; the current account
turned to a deficit. Inflation exceeded the target rate and the level of
unemployment remained high. For the whole year Slovenia may expect GDP
growth of a moderate 2%.
Russia: politically unstable, economic recovery delayed
The Russian economy continues to decline. Inflation has been substantially
reduced, but the budgetary situation considerably worsened in the course
of 1996 due to the collapse of revenues. Political uncertainties together
with prohibitively high interest rates still hinder investment. The draft
budget for 1997 does not provide enough room for economic recovery, the
current depressed and fragile equilibrium is likely to persist.
Ukraine: currency reform to lock in progress on inflation
Much lower inflation since early 1996 gave the Ukrainian authorities
their chance at last to introduce the long-awaited hryvnia. The new currency
remained stable in its first six weeks, at some cost in reserves. Output
has continued to disappoint, however. Dragged down by very low investment,
low FDI, uncertainty stemming from the Russian elections, and bad weather,
Ukrainian GDP in January-June was some 8% below first-half 1995, and the
grain harvest was the worst in recent memory.