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CHAPTER 3
THE TRANSITION ECONOMIES
3.1 Introduction
conflict; in contrast, the average rate of growth in the
central European transition economies (3.1 per cent)
remained almost unchanged from that in 1998 (3.2 per
cent).
The growth of GDP in the Russian Federation in
1999 (3.2 per cent) was not only the highest achieved
during the past decade but was also much higher than all
the forecasts, including the official ones (table 3.1.1).
As discussed below, in sections 3.2 and 3.3, it would be
premature to draw general conclusions about Russia’s
growth prospects on the basis of one year’s outcome,
which reflects to a large extent a cyclical upturn after
the output collapse of 1998. At the same time the
performance in 1999 marks a notable departure from
Russia’s past record in several important respects: apart
from the notable recovery of output (especially in
industry), total employment also increased for the first
time in a decade and there were also signs of the steep
decline of investment demand coming to an end.
The transition economies are still undergoing – to
varying degrees – deep structural changes accompanied
by large-scale reallocation of resources. The new
corporate sector, now dominated by private actors
(combining new private firms and privatized, former
state owned enterprises), is already the main engine of
growth in many transition economies, especially those
which are the more advanced with reforms. Largely
operating in accordance with the principles and norms
of the market economy, and capable of facing
competitive pressures, the new corporate sector serves
at the same time as a shield that increases the overall
resilience of the economy to external disturbances,
provided it is supported by efficient policy mechanisms.
But in many transition economies, the prolonged
existence of an unrestructured sector of inefficient, large
state owned firms continues to be a major handicap for
the transition economies, which increases their
vulnerability to external shocks. Moreover, the slow
process of closing down (or downsizing) unviable firms
is itself a persistent (albeit diminishing) source of
transformational recession in those economies that are
lagging behind in the reform process. In turbulent
periods (such as that between mid-1998 and mid-1999)
it may be difficult to differentiate between the cyclical
and transformational components of recession; however,
it seems plausible that the unrestructured part of the
enterprise sector – among other factors – has amplified
the negative repercussions of external shocks in some of
the less advanced transition economies.
(i) Expectations and outcomes
Aggregate GDP in the ECE transition economies
increased by some 2¼ per cent in 1999, the highest
average annual rate of growth for the transition
economies as a group during the first decade of their
economic and political transformation. However, the
average figure for 1999 masks an unusual degree of
volatility during the year as well as considerable
differences between the individual economies.
Performance was very weak in the first half of the year,
and especially the first quarter when more than half of
the transition economies plunged into recession; in
contrast, there was a marked recovery of output in most
of these countries in the second part of the year.
The uneven pace of output growth in the transition
economies was predominantly driven by external
factors: the widespread recessionary pressures during
the first half of the year – which followed the sharp
weakening of output during the second half of 1998 –
were largely the aftershocks of the global financial
turmoil and the Russian crisis, coupled with the
economic fallout from the Kosovo conflict; conversely,
the upturn in west European import demand in the
second half of 1999 was an important factor behind the
recovery in eastern Europe as well while commodity
exporters, especially in the CIS, benefited from
generally rising demand and better prices for some
commodities. The vulnerability of most of the
transition economies to external disturbances is yet
another sign both of their high dependence on their
external markets and of the absence of efficient policy
mechanisms to counterbalance negative developments
from abroad.
The recent volatility of output as well as the
generally high, although varying degree of susceptibility
to external shocks led to large discrepancies between ex-
ante expectations and actual outcomes in many
transition economies in 1999 (table 3.1.1). These
differences were greatest in the three Baltic economies
where the actual GDP growth rates were several
percentage points lower than the official forecasts.
GDP growth was generally less than expected in most
of eastern Europe but the dismal figure for the increase
in their aggregate GDP (1.4 per cent) largely reflects the
poor performance in south-eastern Europe which was
weakened by the economic consequences of the Kosovo
42 _______________________________________________________________ Economic Survey of Europe, 2000 No. 1
TABLE 3.1.1
Basic economic indicators for the ECE transition economies, 1997-2000
(Rates of change and shares, per cent)
GDP (growth rates)
Industrial output
Inflation (per cent
Unemployment rate
1999
(growth rates)
change, Dec./Dec.)
(end of period, per cent)
1997
1998
Ex-ante
forecast Actual
2000
official
forecast 1997
1998
1999
1997
1998
1999
2000
official
forecast a
1997
1998
1999
Eastern Europe ...................
2.1
1.8
2.9
1.4
4
4.9
0.8
-0.2
..
..
..
..
11.9
12.6
14.6*
Albania ............................... -7.0
8
8
8
8
2.8
21.8
16.0
42.0
7.8
-1.0
3
14.9
17.6
..
Bosnia and Herzegovina b .
..
..
..
..
12
35.7
23.8
10.6
12.2
2.2
-0.4
..
39*
38.5
39.1
Bulgaria .............................. -7.0
3.5
3.7
2.6
4 -10.0 -12.7 -12.5 578.7
0.9
6.2
2.8
13.7
12.2
16.0
Croatia ...............................
6.8
2.5 1.5-2
-0.3
2.6
6.8
3.7
-1.4
4.0
5.6
4.6
2-3
17.6
18.6
20.8
Czech Republic .................. -1.0
-2.2
-0.8
-0.2
1.5
4.5
1.6
-3.1
9.9
6.7
2.5 3.3-4.4
5.2
7.5
9.4
Hungary .............................
4.6
4.9
5
4.5
5
11.1
12.5
10.5
18.4
10.4
11.3
6-7
10.4
9.1
9.6
Poland ................................
6.9
4.8
4.5
4.1
5.2
11.5
3.5
4.4
13.2
8.5
9.9
5.7
10.3
10.4
13.0
Romania ............................. -6.1
-5.4
-2
-3.2
1.3
-7.2 -16.8
-8.0 151.7
40.7
54.9 25-30
8.8
10.3
11.5
Slovakia .............................
6.5
4.4
3
1.9
2
2.7
3.8
-3.4
6.5
5.5
14.4
14.1
12.5
15.6
19.2
Slovenia .............................
4.6
3.9
4
4.9
3¾
1.0
3.7
-0.5
8.8
6.6
8.1
4-5
14.8
14.6
13.0
The former Yugoslav
Republic of Macedonia ....
1.4
2.9
6
2.7
6
1.6
4.5
-2.6
4.5
-1.0
2.4
..
41.7
41.4
47*
Yugoslavia c .......................
7.4
2.5
7 -19.3
14
9.5
3.6 -23.1
10.3
45.7
54.0
–
25.6
27.2
27.4
Baltic states .........................
8.4
4.5
4.5
-1.7
3
8.2
5.6
-8.2
..
..
..
..
6.3
7.3
9.1
Estonia ............................... 10.6
4.0
4
-1.4 3.8-4.0 14.6
2.3
-3.9
12.3
6.8
3.9
4.0
4.6
5.1
6.7
Latvia .................................
8.6
3.9
4
0.1
3.5
13.8
3.1
-8.8
7.0
2.8
3.3
3.0
6.7
9.2
9.1
Lithuania ............................
7.3
5.1
5
-3.0
2
3.3
8.2
-9.9
8.5
2.4
0.3
4.1
6.7
6.9
10.0
CIS ........................................
1.1
-3.0
-1.1
2.9
2¼
2.5
-3.0
7.2
..
..
..
..
7.6
9.0
8.4
Armenia ..............................
3.3
7.2
4
3.0
5.6
8.2
-2.7
5.2
21.8
-1.2
2.1
10
11.0
8.9
11.5
Azerbaijan ..........................
5.8
10.0
9
7.4
8
0.3
2.2
3.6
0.3
-7.6
-0.5
..
1.3
1.4
1.2
Belarus ............................... 11.4
8.4
4-6
3.4
2-3
18.8
12.4
9.9
63.4 181.6 251.3
60
2.8
2.3
2.0
Georgia .............................. 11.3
2.9
8
3.0 4.2-4.8
8.2
-2.7
4.8
7.3
10.8
11.1
..
8.0
4.2
5.6
Kazakhstan ........................
1.7
-1.9
1.5
1.7
3
4.1
-2.4
2.2
11.3
1.9
18.1
7.1
3.9
3.7
3.9
Kyrgyzstan .........................
9.9
2.1
2.8
3.6
4-5
39.7
5.3
-1.7
14.7
18.3
39.8
20
3.1
3.1
3.0
Republic of Moldova d ........
1.6
-8.6
-3
-4.4
2
– -15.0
-9.0
11.1
18.2
43.8
15
1.7
1.9
2.1
Russian Federation ............
0.9
-4.9
-2.5
3.2 1.5-2.5
2.0
-5.2
8.1
11.0
84.5
36.7
18 e
11.2
13.3
12.3
Tajikistan ............................
1.7
5.3
..
3.7
..
-2.0
8.2
5.0 159.9
2.7
30.1
..
2.8
2.9
3.1
Turkmenistan ..................... -11.4
5.0
..
16.0
12 -32.3
0.2
15.0
21.5
19.8
..
..
..
..
..
Ukraine ............................... -3.0
-1.7
-1
-0.4
1
-0.3
-1.0
4.3
10.1
20.0
19.2
19
2.8
4.3
4.3
Uzbekistan .........................
5.2
4.4
4.4
4.4
5
4.1
5.8
6.1
27.5
25.9
..
..
0.3
0.4
0.5
Total above ..........................
1.6
-1.1
0.7
2¼
3
3.7
-1.2
3.6
..
..
..
..
Memorandum items:
..
CETE-5 ..............................
4.5
3.2
3.6
3.1
4.1
8.4
4.5
2.8
..
..
..
..
9.8
10.2
12.5
SETE-7 .............................. -3.4
-1.6
1.3
-2.9
3.6
-3.9
-9.7 -10.0
..
..
..
..
14.3
15.4
16.6*
Former GDR .......................
1.7
2.0
..
..
..
7.0
7.6
4.8
2.3
1.1
0.2
..
19.4
17.4
17.7
Source: National statistics; CIS Statistical Committee; direct communications from national statistical offices to UN/ECE secretariat.
Note: Aggregates are UN/ECE secretariat calculations, using PPPs obtained from the 1996 European Comparison Programme. Output measures are in real terms
(constant prices). Forecasts are those of national conjunctural institutes or government forecasts associated with the central budget formulation. Industrial output refers to
gross output, not the contribution of industry to GDP. Inflation refers to changes in the consumer price index. Unemployment generally refers to registered unemployment
at the end of the period (with the exceptions of the Russian Federation, where it is the Goskomstat estimate according to the ILO definition, and Estonia where it refers to
job seekers). Aggregates shown are: Eastern Europe (the 12 countries below that line), with sub-aggregates CETE-5 (central European transition economies: Czech
Republic, Hungary, Poland, Slovakia, Slovenia) and SETE-7 (south-east European transition economies: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania,
The former Yugoslav Republic of Macedonia and Yugoslavia); Baltic states (Estonia, Latvia, Lithuania); and CIS (12 member countries of the Commonwealth of
Independent States).
a Annual averages unless otherwise indicated.
b Data reported by the Statistical Office of the Federation; these exclude the area of Republika Srpska.
c The unemployment rate in 1999 excludes Kosovo and Metohia.
d Excluding Transdniestria.
e December/December.
In 1999, the economic performance of three central
European countries – Hungary, Poland and Slovenia –
stands out against that in the rest of the transition
economies: the negative impact of the external
disturbance was notably weaker compared with other
transition economies; on average GDP continued to grow
steadily in all the three countries despite the unfavourable
external conditions; and final domestic demand (both
consumption and investment) remained buoyant (section
3.3). In addition, the situation in the labour markets also
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The Transition Economies __________________________________________________________________________ 43
improved in Hungary and Slovenia (section 3.5). The
growing “maturity” of economic performance in these
countries is the most conspicuous indication of their
progress in systemic transformation and of their capacity
to pursue prudent macroeconomic policies during the
course of transition: arguably, a critical mass of
successfully implemented reforms is both the source of
higher living standards of the population and a safeguard
against external shocks.
However, progress in systemic transformation
differs widely among countries and the majority of the
ECE transition economies still have a long way to go
before they reach an adequate level of maturity and
resilience. Those economies less advanced in the reform
process are still prone to severe crises due both to the
accumulation of macroeconomic imbalances and their
vulnerability to external shocks. Thus, for example, the
collapse of the Russian rouble in August 1998 set in
motion a domino-like series of currency cries in a number
of CIS countries that instigated a wave of instability and a
general upsurge of inflation.
In general, the increased turbulence of 1998-1999,
which combined an external demand shock with
unexpected fluctuations in world commodity prices, was
a major challenge and test for economic policy in the
transition economies. The sudden and sharp cyclical
downturn in some of the transition economies was quite
unexpected and policy makers were not always prepared
with the right response at the right time. In particular, the
failure to recognize – and a reluctance to take into
account – the increasing downside risks associated with
the abrupt demand shock led to delays in fiscal
adjustment; when initiated, the fiscal policy response was
not always adequate and was often implemented in an ad
hoc manner (section 3.2(iii)). It is also possible to argue
that there was some overreaction by monetary policy to
externally induced deviations in the long-term trend of
domestic prices, caused by the fluctuations in world
commodity prices (section 3.2(ii)). However, given the
inherent vulnerability and the immature institutional
infrastructure of the transition economies, it is not at all
clear – even with the benefit of hindsight – whether policy
makers in these countries had at their disposal sufficient
policy instruments to counter the negative disturbances. In
the event, the ongoing process of economic restructuring
and reallocation of resources, coupled with the inherent
fragility of these economies, imply a high probability of
frequent and painful macroeconomic adjustments (and
this is still the case even in the more advanced reform
countries), in the course of which various economic
agents are burdened with unduly high shares of the
adjustment costs (section 3.2(ii)).
The susceptibility of the transition economies to
external turbulence eventually gave rise to greater price
volatility in 1999 (section 3.4). The process of steady
disinflation which had been underway for several years
was reversed and in the majority of the transition
economies price increases in 1999 were larger than those
in 1998 (table 3.1.1). This was especially the case in
those CIS countries that were victims of the “domino”
currency crises triggered by the devaluation of the rouble.
However, inflation rates were also higher in many other
transition economies, largely because of the sharp
increase in the world price of crude oil and the
appreciation of the dollar. In turn, persistent wage inertia
and increases in some regulated prices created additional
cost pressures during the period of weak output.
The weakening of output in the transition
economies in 1999 had adverse consequences for their
labour markets: thus the modest recovery in the level of
employment in the ECE transition economies as a whole in
1997 and 1998 came to a halt (section 3.5), and
unemployment increased in most of them (table 3.1.1). In
fact, in a number of transition economies unemployment
rates reached record levels in the course of 1999; the
average rate of unemployment in eastern Europe in
December (14.6 per cent) was also at its highest since the
start of the transition. The strain on the labour markets
persisted throughout the second half of the year in most
countries; Russia was the major exception as the 1999
recovery was accompanied by some easing of the
situation on the labour market, thus reversing the chronic
deterioration during the past decade.
The impact of weak foreign demand was especially
manifest in the trade performance of many of the transition
economies. The dollar value of total east European trade
(both exports and imports) in 1999 was lower than in 1998,
the first time it had fallen since 1991 (appendix tables B.10
and B.11); in the Baltic states, the fall in the value of total
exports and imports was particularly large (table 3.1.2); the
value of exports and imports also fell in most of the CIS
countries (table 3.1.2). It should be borne in mind that the
change in dollar values also reflects the significant
appreciation of the dollar during 1999; but, even so, the
general weakening of merchandise trade was significant
and had serious repercussions for a number of transition
economies, notably in the first half of the year. At the
same time it should also be borne in mind that the trade
figures for 1999 largely reflect the lagged effects of the
1998 crisis; during the course of the year there was in fact
a marked improvement in external conditions as compared
with 1998.
Borrowing conditions on the international financial
markets, which had deteriorated considerably during
1998, eased somewhat in 1999 but some transition
economies continued to face serious difficulties in
obtaining access to international finance. Consequently
the emerging balance of payment constraints forced a
reduction in domestic demand in a number of transition
economies, notably among the CIS countries other than
Russia. The generally weaker domestic demand in
eastern Europe (often the result of tighter policy) also led
to smaller current account deficits in some of these
countries in 1999. At the same time, it should be pointed
out that the leading reformers among the transition
economies continued to enjoy normal access to the
international capital markets, even during the period of
global financial turmoil, and did not face problems in
44 _______________________________________________________________ Economic Survey of Europe, 2000 No. 1
TABLE 3.1.2
International trade and external balances of the ECE transition economies, 1997-1999
(Rates of change and shares, per cent)
Merchandise exports in
dollar s (growth r ates)
Merchandise imports in
dollars (growth rates)
Trade balances
(per cent of GDP)
Current account
(per cent of GDP)
1997
1998
1999 a
1997
1998
1999 a
1997
1998
1999 a
1997
1998
1999 a
Eastern Europe b ......................
6.4
9.3
-0.8
6.5
9.0
-2.2
-10.4
-10.0
-9.7
-4.3
-4.6
-5.5
Albania .................................... -35.6
50.9
28.3
-32.1
28.2
11.3
-21.1
-19.2
-17.2
-11.9
-1.5
-4.3
Bosnia and Herzegovina ......... 232.1
82.7
47.3
29.2
36.4
14.7
-40.8
-42.0
-42.5
-31.7
-26.1
..
Bulgaria ...................................
1.0
-15.1
-5.6
-2.8
0.5
9.9
0.1
-6.2
-12.3
4.2
-0.5
-5.5
Croatia ....................................
-7.6
8.9
-6.0
16.9
-7.9
-7.2
-24.3
-17.7
-17.4
-11.5
-7.1
-7.2
Czech Republic .......................
2.7
15.7
1.9
-1.3
4.4
0.3
-9.1
-4.4
-3.8
-6.1
-2.4
-2.0
Hungary ..................................
21.6
20.4
8.7
17.0
21.1
9.0
-4.7
-5.7
-6.1
-2.1
-4.9
-4.3
Poland .....................................
5.4
2.6
-3.1
13.9
10.9
-2.5
-11.6
-12.0
-12.0
-3.0
-4.4
-7.5
Romania ..................................
4.3
-1.5
2.4
-1.4
4.9
-12.2
-8.1
-8.5
-5.5
-6.1
-7.2
-3.8
Slovakia ..................................
0.2
11.8
-4.9
-8.0
11.9
-13.5
-10.2
-11.0
-5.3
-10.0
-10.1
-5.7
Slovenia ..................................
0.7
8.1
-5.6
-0.6
7.8
-1.4
-5.5
-5.4
-7.2
0.2
–
-3.0
The former Yugoslav
Republic of Macedonia .........
2.8
11.0
-11.5
7.8
9.0
-8.8
-15.5
-17.2
-17.0
-7.5
-8.2
-4.1
Yugoslavia ..............................
45.0
6.8
-47.2
17.3
0.5
-30.5
-10.9
-11.9
-10.4
-9.3
-10.2
..
Baltic states ..............................
23.1
3.5
-12.6
26.7
7.5
-13.9
-21.9
-22.4
-18.7
-9.5
-11.1
-9.6
Estonia ....................................
41.1
10.3
-9.2
37.4
7.8
-14.0
-32.5
-29.8
-23.1
-12.2
-9.2
-4.9
Latvia ......................................
15.9
8.3
-4.9
17.4
17.1
-7.6
-18.6
-21.5
-18.4
-6.1
-11.1
-12.1
Lithuania .................................
15.1
-3.9
-19.3
23.8
2.6
-17.3
-18.6
-19.4
-16.9
-10.2
-12.1
-10.3
CIS c ...........................................
0.8
-15.2
-9.0
8.5
-14.1
-32.6
5.2
6.0
13.5
-0.4
-1.4
6.7
Armenia ................................... -19.9
-5.2
-2.2
4.3
1.1
-8.4
-40.4
-36.0
-32.8
-18.8
-20.6
-14.7
Azerbaijan ...............................
23.8
-22.4
21.9
-17.3
35.6
-1.2
-0.3
-11.4
-10.8
-23.1
-33.1
-25.4
Belarus ....................................
29.2
-3.2
-19.5
25.2
-1.6
-28.7
-10.4
-12.9
-5.1
-5.9
-7.5
-0.4
Georgia ...................................
20.5
-19.7
12.4
37.3
-6.3
-35.4
-14.2
-14.1
-13.7
-7.6
-8.5
-0.5
Kazakhstan .............................
9.9
-17.8
-16.0
1.4
-1.4
-22.4
9.9
5.0
9.3
-3.6
-5.4
-3.4
Kyrgyzstan ..............................
19.6
-15.0
-10.2
-15.4
18.7
-28.8
-5.9
-20.5
-8.4
-7.8
-23.2
-12.1
Republic of Moldova ...............
10.1
-27.8
-40.3
9.3
-12.6
-52.9
-15.4
-23.1
-9.8
-14.8
-20.4
-1.2
Russian Federation .................
-0.3
-16.3
-8.2
13.1
-17.9
-40.7
7.7
10.3
20.7
0.9
0.7
11.2
Tajikistan .................................
-3.1
-20.0
20.3
12.3
-5.2
-11.5
-0.4
-8.7
3.2
-6.1
-8.1
-7.5
Turkmenistan .......................... -55.3
-20.9
102.3
17.0
-14.9
25.9
-16.1
-15.1
-1.1
-21.6
-34.2
-24.4
Ukraine ....................................
-1.2
-11.2
-13.7
-2.7
-14.3
-25.1
-5.8
-4.9
-0.8
-2.7
-3.1
3.3
Uzbekistan d ............................
-4.4
-20.1
3.8
-11.2
-25.4
3.3
-1.1
0.7
0.1
-4.0
-0.3
-2.4
Total above b ............................
3.9
-3.5
-5.6
8.1
0.3
-14.4
-1.5
-2.7
-0.2
-2.1
-3.2
-0.2
Memorandum items:
CETE-5 ................................... 6.8 11.6 0.6 6.7 11.1 -0.6 -9.5 -9.1 -8.8 -3.7 -4.2 -5.6
SETE-7 b ................................. 4.7 0.2 -7.2 6.0 2.3 -8.0 -13.0 -12.7 -12.4 -6.4 -6.0 -5.1
Source: National statistics; CIS Statistical Committee; direct communications from national statistical offices to UN/ECE secretariat; IMF; UN/ECE secretariat
calculations.
Note: Foreign trade growth is measured in current dollar values. Trade and current account balances are related to GDP at current prices, converted from national
currencies at current dollar exchange rates. Current-price GDP values for 1999 are in some cases estimated from reported real growth rates and consumer price indices.
On regional aggregates, see the note to table 3.1.1.
a Full year for eastern Europe and Baltic states; January-September for CIS countries and for the aggregate "Total above". Current account balances for the Baltic
states are based on extrapolations of January-September trends (see table 4.1.1).
b Aggregates of current account balances exclude Bosnia and Herzegovina and Yugoslavia.
c Including intra-CIS trade.
d The 1999 trade data are based on Interfax Agency, Statistical Report , 20 January 2000.
financing their current account deficits. Overall, current
account balances improved in most of the transition
economies in 1999 (table 3.1.2). Poland was the major
exception, booming domestic demand resulting in a
record deficit in 1999. 120
120 In 1999, Poland’s current account deficit increased by some $5
billion while the aggregate deficit of the rest of eastern Europe fell by
some $2.5 billion (table 4.1.1).
Total capital flows to the transition economies were
also lower in 1999: the net inflow to eastern Europe and
the Baltic states was less than in 1998 while there was a
considerable increase in the capital outflow from Russia
(chapter 4.3). It is worth underlining, however, that
foreign direct investment (FDI) in the transition
economies was practically unaffected by the financial
crisis of 1998 (with the exception of Russia where it fell
slightly in 1999).
924937.007.png 924937.001.png 924937.002.png
The Transition Economies __________________________________________________________________________ 45
(ii) Short-term outlook
The short-term prospects for the transition
economies at the beginning of 2000 are now considerably
better than they were in the middle of last year. Both
domestic conditions (notably the recovery of output and
the improvement in domestic demand) and the external
environment (dominated by the cyclical upturn in western
Europe) are much more favourable than they were in
1999. The available official forecasts suggest that the
governments in practically all the transition economies
expect positive GDP growth in 2000 and in most cases an
acceleration of the economic recovery (table 3.1.1). GDP
in the ECE transition economies as a whole should
increase on average by some 3 per cent in 2000, which
would represent a record rate of growth for the region as a
whole. Growth in eastern Europe is expected to average
close to 4 per cent; in the Baltic states the expectation is for
an average 3 per cent; and in the CIS countries as a whole,
GDP could increase by more than 2 per cent.
The official GDP forecasts shown in table 3.1.1 are
in many cases (especially in eastern Europe and the Baltic
states) those incorporated in the draft budgets for 2000 and
in most cases were prepared in late 1999 when the strength
of the incipient recovery was still not clear; consequently,
some of these forecasts may now be somewhat
conservative. Indeed, the acceleration of the recovery of
output in some countries during the first months of 2000
(particularly in Hungary and Poland) has already led to
upward revisions of some of the forecasts. 121
In any case, strong and steady economic growth can
be expected to continue in Hungary, Poland and
Slovenia, and these economies are likely to preserve their
leading positions in the ranking of east European growth
rates. The expected 2 per cent GDP growth in Slovakia
reflects the continuation of a cautious adjustment effort
after the authorities abandoned an unsustainable
expansionary course in late 1998. The new policy has so
far been generally successful as the government has
managed to accomplish the change in direction while at
the same time avoiding a recession. In recent years,
similar adjustments in Croatia and especially in the Czech
Republic have led to economic downturns. The
authorities in both these countries expect positive rates of
GDP growth in 2000, although these are likely to remain
relatively low. An economic upturn is expected in the
three Baltic states as well, but their rates of growth are
unlikely to return to those prevailing before the Russian
crisis.
After a generally weak performance in recent years,
the governments in a number of south-east European
transition economies (Albania, Bosnia and Herzegovina,
Bulgaria, The former Yugoslav Republic of Macedonia
and Yugoslavia) expect relatively high rates of GDP
growth in 2000. But even if these forecasts materialize,
in most cases they will only reflect recovery from a very
low base; the return of this region to sustained and high
rates of economic growth still requires major
restructuring and large-scale new investment. In
Romania, economic activity is likely to remain weak in
2000 (the government expects only 1.3 per cent GDP
growth). The persistent macroeconomic imbalances in
this country leave little room for economic policy to
manoeuvre, making strong growth unlikely in the short
run.
The current recovery in Russia hinges on a fragile
equilibrium which is based on the post-crisis gains in
competitiveness (thanks to a large depreciation in the real
exchange rate and a fall in real wages) coupled with
favourable external conditions (in the first place, high oil
prices). As discussed in sections 3.2(iii) and 3.3(i), the
economy remains highly vulnerable to a reversal in any
of these conditions (for example, a fall in oil prices);
hence, the short-term economic outlook for Russia still
remains rather uncertain. Nevertheless, at present the
Russian authorities are quite optimistic as regards the
short-term economic outlook. According to the
budgetary projections, GDP is expected to grow by some
1.5 to 2 per cent in 2000, although some Russian officials
have recently suggested that the rate of growth could be
even higher. 122
Recovery in Ukraine has been underway since the
third quarter of 1999 and has continued during the first
months of 2000. However, in Ukraine, the uncertainties
regarding the short-term outlook are probably even
greater than in Russia: if the authorities manage to avert a
looming foreign debt crisis, GDP might grow faster than
envisaged in the official forecast (1 per cent for 2000);
but in the event of a debt crisis, the economy is more
likely to sink back into recession. In Belarus, after the
setback caused by the Russian crisis, the authorities have
set a relatively modest growth target for 2000, which they
hope to support with a new, export-oriented policy. 123
The return of the Republic of Moldova’s economy to
growth will largely depend on the success of a policy
adjustment initiated by the government, the
implementation of which will also be a pre-condition for
the resumption of IMF financing.
In general, the authorities in most of the other CIS
countries have set rather ambitious targets for 2000: GDP
growth is envisaged to accelerate in all the Caucasian
economies as well as in most of the central Asian CIS
121 Thus, in Hungary, both the Ministry of Finance and the Ministry of
Economics have stated that the rate of GDP growth in 2000 may reach 5
per cent or more. Reuters News Service , 21 March 2000. In particular, it
is expected that the new government programme to encourage house
building and motorway construction may give a further boost to economic
growth. Statement by Minister of Economic Affairs, G. Matolcsy,
reported by Reuters News Service , 24 January and 2 March 2000.
122 Deputy Prime Minister M. Kasyanov stated in February that
Russia’s GDP could increase in 2000 by 2.5-3 per cent. Reuters Business
Briefing , 23 February 2000. A forecast prepared by the Ministry of
Economics at the beginning of the year put the rate of growth of GDP in
2000 in the range of 1.5-3.0 per cent. ITAR-TASS news agency, 10
March 2000.
123
Reuters Business Briefing , 21 March 2000.
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