Building up a head of steam

Economies in the new EU members in Central and Eastern Europe have grown this year, despite hikes in oil prices, says a quarterly report on the ex-communist countries by the World Bank.

"Growth proved to be robust and resistant to both domestic political uncertainty and difficult external conditions resulting from relatively weak output growth in the EU-15 and surging oil prices," the lender said.

The region is floating on a wave of political uncertainty. Poland's minority government just recently nailed down a majority coalition that includes fringe parties, Slovakia and the Czech Republic hold general elections next month, and Hungary elected its new parliament last month.

Although lagging behind its neighbors, Poland is gradually gaining pace, the bank said. The country has the biggest of the region's economies and accounts for almost half of the 10 newcomers' output and population. "Poland's economic growth is disappointing, but the country has been catching-up from quarter to quarter and the revival of economic activity should be sustained in 2006," said Thomas Laursen, lead economist for the region.

Latvia, Slovakia and the Czech Republic expanded at a record pace in the final quarter of 2005 and early this year. Estonia and Lithuania also continued to grow briskly and growth was solid in Hungary and Slovenia.

The bank said that fiscal balances improved or remained healthy in most of the region in 2005, with the exception of Hungary. However, it warned that the three biggest countries - Poland, Czech Republic and Hungary - needed more efforts to eliminate structural weaknesses built into their public finance systems.

"These efforts are needed not only in order to comply with European fiscal rules, but also to create the necessary fiscal space for lower labor taxes, increased productive spending, and absorption of EU funds," the bank said. (Reuters)