Eastern Europe's Era Of Fast Growth Slows

VIENNA -- The era of spectacular economic growth in central and eastern Europe is slowly coming to an end, and high inflation continues to haunt most of the region's reform states, a leading research institute said Friday.

"In 1996 gross domestic product growth will be lower [than in 1995] and disinflation will continue, though without spectacular achievements," the Vienna-based Institute for Comparative Economic Studies said in its latest report on the region's performance.

For Russia, the institute warned that the outlook remained bleak despite last week's re-election of Russian President Boris Yeltsin, who pledged he will plough ahead with economic reforms.

"Output has continued to fall over the first few months of the year," said Leon Podkaminer of the institute. "A decline of 2 percent in growth in 1996 would be at the optimistic end of the forecast."

The institute forecast GDP will grow by an overall average of 4 percent in 1996 and 5 percent in 1997 in the Czech Republic, Hungary, Poland, Slovakia, Slovenia, Bulgaria and Romania. This compares to an average of 5.5 percent last year.

The institute said domestic investment demand was slowly replacing exports as the main engine of growth because the slowdown in western Europe and the appreciation of several eastern European currencies put a damper on export demand.

"The main support for growth is no longer exports but domestic demand. This at least holds out the hope that growth rates will stabilize over time," said Peter Havlik, a senior economist with the institute.

He warned the fight against inflation remained one of the most difficult challenges for the region. "Despite the success of the transformation process none of the reform countries is immune to such problems," he said.

The institute said that it expected 1996 inflation to almost double to 120 percent in Bulgaria, remain steady at 30 percent in Romania, ease to 24 percent in Hungary and 22 percent in Poland.

In rump Yugoslavia, inflation is expected to rise to a steep 120 percent on an annual basis, while in Croatia it should rise to an average of about three percent, the institute said.

Unemployment also remained an important challenge for policy makers throughout the region, Pavlik said. The institute forecast 1996 unemployment will reach as much as 38 percent in Macedonia, 18 percent in Croatia and 14 percent in Poland.

"Growth doesn't generate additional jobs but instead builds on existing productivity reserves, which are rather high in most of the reform economies," Pavlik said.