EU Sees Baltic Economies, Bulgaria Contracting Again In 2010

LONDON (Dow Jones)--A group of eastern European countries that are among those been hit hardest by the global financial crisis will see their economies contract again in 2010, the European Commission said Tuesday.

In its latest forecasts for the 27 members of the European Union, the Commission said the outlook for next year is better than it had expected earlier in the year, due largely to a pickup in global demand that should aid exporters.

However, for a number of countries that joined the EU in 2004 and 2007 and which have suffered from a withdrawal of foreign capital, growth will not return until 2011, the commission forecast.

Latvia's economy is expected to shrink by 18% this year, and the commission forecast it will contract again in 2010, by 4.0%. That's a deeper contraction than the 3.2% drop predicted in May, when the Commission last published bloc-wide forecasts.

"Despite the massive correction already experienced in domestic demand, it is expected to contract still further due to the deleveraging process in the financial sector, the weakness of the labor market, the downscaling of industries which depended on previously above-potential domestic demand and the ongoing fiscal consolidation process," the commission said.

Lithuania's economy is expected to contract by 3.9% next year, having shrunk by 18.1% this year. That's a smaller 2010 contraction than the 4.7% forecast in May.

Of the Baltic States, Estonia has been least affected by the crisis, but is still expected to suffer an economic contraction of 13.7% this year. The commission now expects its economy to shrink only marginally in 2010, by 0.1% as opposed to the 0.8% drop it forecast in May.

The Commission expects all three Baltic States to recover in 2011, although at a rate that will be dwarfed by the scale of their 2009 collapse. It expects Latvia's economy to grow by 2.0%, Lithuania's to grow by 2.5% and Estonia's to grow by 4.2%.

The Commission said it expects Bulgaria's economy to contract again in 2010, having shrunk by 5.9% this year. It said the country's gross domestic product will decline by 1.1% next year, having previously forecast it would fall by 0.1%.

Romania was also hit hard by the financial crisis, with the commission estimating that its GDP will fall by 8% this year. However, it said Romania's economy will grow by 0.5% next year, having previously forecast it would neither grow nor contract.

"The recovery ... will remain shallow because of a continued need for fiscal adjustment, diminished capital inflows, at least in comparison with the precrisis period, and the continued high rate of unemployment," the commission said.

It expects Bulgaria's economy to grow by 3.1% in 2011, and Romania's to grow by 2.6%.

-Paul Hannon, Dow Jones Newswires, +44 20 7842 9491, paul.hannon@dowjones.com

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(END) Dow Jones Newswires

November 03, 2009 04:52 ET (09:52 GMT)


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