Central and Eastern European countries and the New Independent States of the former Soviet Union - includes related article - Developments in Selected Non-OECD Countries

OECD Economic Outlook, June, 1993

This year may mark the resumption of growth in some countries of Central and Eastern Europe. Modest growth is projected for Poland, consolidating a recovery which started in 1992; in Hungary and the Czech Republic, the recovery has been hesitant but may get under way in the second half of the year. Growth is, however, expected to be fragile, subject to downside risks from both exports and wage formation. For other countries of the region, the situation is expected to be difficult. In Bulgaria and Romania, the situation remains precarious, especially with respect to the balance of payments; basic structural reforms are still incomplete in these two countries, complicating the task of stabilisation. The Slovak Republic is likely to face severe adjustment problems following the dissolution of the Federation. In all countries of the region, unemployment is projected to continue increasing this year before beginning to fall in some countries in 1994. In the New Independent States (NIS), economic decline is continuing amid hyper-inflationary conditions. Nevertheless, structural reforms are proceeding, particularly in the Russian Federation. Western assistance needs to be effectively deployed and could make an important contribution by supporting adjustment in intra-NIS trade.

Overview

Although output fell a further 5 per cent on average in 1992 in the economies of Central and Eastern Europe(1), the first signs of recovery have appeared in some of them. Poland may have registered a small increase in GDP for the year. In both Hungary and the CSFR, industrial production rose slightly during the second half of 1992; in what is now the Czech Republic, GDP may have increased some 4 per cent over the same period. Positive growth is projected for Poland in 1993 while in both Hungary and the Czech Republic, zero growth is projected for the year as a whole. However, in these two countries, 1993 is expected to be marked by a downturn in the first half of the year, followed by a resumption of the positive developments apparent in the second half of 1992. The dissolution of the Federation is the main factor retarding recovery in the Czech Republic in the first half of 1993; these adjustments are more severe in the Slovak Republic where recovery may not occur until 1994. In Hungary, the first half of 1993 was dominated by a sharp reduction of exports which more than offset the recovery of the domestic economy: exports appear to have fallen by around 25 per cent in the first quarter. The contraction was much more pronounced than in other countries of the region and was driven in part by a drought-induced fall of agricultural exports. The decline is expected to stabilise in the second half of the year so that the negative contribution to the growth of output may be increasingly offset by positive growth factors. Consumer price inflation in Poland, Hungary and the Czech Republic, though still in double digits -- and likely to be boosted in 1993 by the introduction or modification of value-added taxes -- is nevertheless edging downwards.

Table 22. Output of Central and Eastern European countries and
the NIS
Percentage changes over previous year
                                                 Projections
                       1990    1991      1992    1993   1994
Bulgaria               -9.1    -12         -8      -4      2
CSFR(a)                -0.4    -16         -7      ..     ..
Czech Republic          ..      ..         -7       0      2
Slovak Republic         ..      ..         -6      -5      0
Hungary                -3.3    -10       -4.5       0      3
Poland                -11.6     -9          1       2      4
Romania                -5.6    -15        -15      -9     -4
Total of the above     -6.5    -12.1       -5      -1      2
USSR/NIS               -4.0    -17        -18     n.a.   n.a.
a) Weights of .7 and .3 were assigned to the Czech and Slovak
Republics, respectively, in order to derive an aggregate growth
rate for 1992.
Sources: The Vienna Institute for Comparative Economic Studies
database, national sources, and OECD projections. Figures refer
to GDP; pre-1991 figures for Bulgaria, CSFR and the USSR refer
to net material product. Weights for the aggregation are 1990
purchasing power parity estimates of output adjusted yearly by
output growth rates.
Table 23. Inflation in Central and Eastern European countries
and the NIS
Percentage changes in average level of consumer prices over
previous year
                                                 Projections
                       1990    1991      1992    1993    1994
Bulgaria                 26     334        90      90      60
CSFR                     10      58        11      ..      ..
Czech Republic           ..      ..        11      16      10
Slovak Republic          ..      ..        10      20      20
Hungary                  28      35        23      21      12
Poland                  585      70        43      40      30
Romania                   4     165       210     165      70
USSR/NIS                  5      91     2 000     n.a.   n.a.
Sources: National sources and OECD estimates.