With the region’s economies — many of them small but also open— dependent on exports to euro zone countries, and with the prospect that even the German economy, Europe’s largest, could slow markedly in the coming months, analysts across Central Europe are bracing themselves for some tough times ahead.
“The euro crisis is affecting Central Europe in a number of different ways,” said Maciej Krzak, economist at the Center for Social and Economic Research, an independent research institute in Warsaw. “For one thing, it impacts on trade flows and growth in Central Europe. And there is a kind of contagion: risk aversion and capital flights.”
The European Bank for Reconstruction and Development, or E.B.R.D., which supports the development of market economies and democracies in countries stretching from Central Europe to Central Asia, says the euro zone’s sovereign debt troubles will inevitably cloud the growth prospects of its eastern neighbors for the coming year.
“Until the resolution of the euro zone crisis, a period of continued market instability, constrained credit as well as the resulting near standstill in Western Europe is expected to seriously affect the outlook for the E.B.R.D. region,” the bank warned in a report on regional economic prospects, published in October.
“Recovery and growth will be thrown off track” in many countries of the region, “although none of them is projected to see negative growth in 2011 or 2012,” the report said.
Take the case of Estonia.
“We suffered a huge amount during the global financial crisis,” said Marje Josing, director of the Estonian Institute of Economic Research, based in Tallinn.
Mrs. Josing recalled how in 2009, the Estonian government introduced a huge savings program, cutting its budget 10 percent while private companies cut salaries 20 percent.
“We knew what we had to do if we wanted to survive, attract investment and become competitive,” Mrs. Josing said. “And we did. Our companies became more productive and competitive. We brought the budget deficit under control, and we joined the euro.”
That was at the start of this year — just as the sovereign debt crisis on the euro zone’s southern flank came to a head and growth bogged down across Europe.
Estonia’s exports to other euro zone countries make up a quarter of its gross domestic product, with its close neighbor and fellow euro member Finland, one of its most important trading partners. Finnish companies are a major source of work for Estonian subcontractors.
“Of course we are feeling the pressure, with the slowdown in growth sweeping across the euro zone countries,” Mrs. Josing said.
With a population of just 1.3 million, the country is highly vulnerable to external shocks: and with company order backlogs declining, the slowdown is feeding quickly through to the job market, where the unemployment rate stood at 13.3 percent in the second quarter.
Worse may be to come. The E.B.R.D., in its report this month, revised down its economic forecasts for the Baltic states. It now expects the euro zone crisis to slow growth in the Baltic region to 1.7 percent next year, down from a 3.4 percent growth rate forecast as recently as July.
“The E.B.R.D. is predicting a slow-down in emerging Europe’s economic growth next year with the continuing euro zone sovereign debt crisis posing challenges to recovery from the 2008-2009 global financial crisis,” the bank said in its report.
For all that, the Estonian government does not regret its decision to join the common currency. “Before we joined the euro zone the Estonian crown was pegged in any case to the euro,” Mrs. Josing noted. Adopting the currency, she said, “provided discipline.”
Article source: http://www.nytimes.com/2011/10/31/business/global/31iht-RCE-OVERVIEW31.html?partner=rss&emc=rss