Regional slowdown as smoke clears one year after EU accession
Poland has not taken advantage of a post-accession boom to implement necessary fiscal reforms, according to the World Bank.
Unlike some its neighbors, Poland missed its window of opportunity last year, and an economic slowdown has now cooled the country's economy.
In its quarterly report on the ex-communist countries, the development bank said that Poland, Slovenia and Hungary were feeling the pinch the worst, Estonia had bucked the trend, and the Czech Republic, Slovakia, Lithuania and Latvia had maintained "quite robust" growth. General elections have taken their toll, with politicians fearful that the voters won't have the stomach for fiscal reform so close to polling day. "The reform momentum remained weak at best with prospective elections and political maneuvering in several countries," it said.
"The pre-accession period created a crucial window of reform opportunity that may be closing quickly after EU entry. Companies, individuals and governments that did not take adequate advantage of this opportunity may take longer now to catch up to average EU living standards," said the principal author of the study, Thomas Blatt Laursen.
"Catching up will require more than an infusion of EU transfers. Further efforts to secure macroeconomic stability and continued structural reforms to boost the investment climate and enhance labor market flexibility are also needed," Laursen stressed.
Although real GDP growth was weak across the region in the first quarter of 2005, fiscal and inflation targets for 2005 are on track in most countries. The failure of the EU budget also took its toll on member states' economies and made financial planning even trickier.
The International Monetary Fund (IMF) reiterated many of these comments in a separate report. It said that although Poland's economic recovery had started to produce jobs, its employment worryingly remains the lowest in the EU. "The employment rate, which was close to the euro area average until 1998, is now 52 percent - the lowest in the EU," it said. It also pointed out that annual growth of 5.5 percent in the run up to EU accession had largely dissipated after May 2004.
However, the IMF executive board congratulated the government on a "successful first year in the EU," and praised the "positive market reactions to the government's efforts to contain the budget deficit and gain parliamentary approval of fiscal reforms, reinvigorate privatization and improve debt management ... Many strengths of Poland's macroeconomic position provide a basis for sustained high growth in the future."
However, the IMF adds that the "immediate post-election period offers a window of opportunity for fiscal consolidation and expenditure reform." Furthermore, the "challenge for the next government would be to set clear medium-term fiscal policy goals and secure parliamentary support for them ... The proposals for single-rate personal and corporate income and value-added taxes provide a good starting point."
Unlike some its neighbors, Poland missed its window of opportunity last year, and an economic slowdown has now cooled the country's economy.
In its quarterly report on the ex-communist countries, the development bank said that Poland, Slovenia and Hungary were feeling the pinch the worst, Estonia had bucked the trend, and the Czech Republic, Slovakia, Lithuania and Latvia had maintained "quite robust" growth. General elections have taken their toll, with politicians fearful that the voters won't have the stomach for fiscal reform so close to polling day. "The reform momentum remained weak at best with prospective elections and political maneuvering in several countries," it said.
"The pre-accession period created a crucial window of reform opportunity that may be closing quickly after EU entry. Companies, individuals and governments that did not take adequate advantage of this opportunity may take longer now to catch up to average EU living standards," said the principal author of the study, Thomas Blatt Laursen.
"Catching up will require more than an infusion of EU transfers. Further efforts to secure macroeconomic stability and continued structural reforms to boost the investment climate and enhance labor market flexibility are also needed," Laursen stressed.
Although real GDP growth was weak across the region in the first quarter of 2005, fiscal and inflation targets for 2005 are on track in most countries. The failure of the EU budget also took its toll on member states' economies and made financial planning even trickier.
The International Monetary Fund (IMF) reiterated many of these comments in a separate report. It said that although Poland's economic recovery had started to produce jobs, its employment worryingly remains the lowest in the EU. "The employment rate, which was close to the euro area average until 1998, is now 52 percent - the lowest in the EU," it said. It also pointed out that annual growth of 5.5 percent in the run up to EU accession had largely dissipated after May 2004.
However, the IMF executive board congratulated the government on a "successful first year in the EU," and praised the "positive market reactions to the government's efforts to contain the budget deficit and gain parliamentary approval of fiscal reforms, reinvigorate privatization and improve debt management ... Many strengths of Poland's macroeconomic position provide a basis for sustained high growth in the future."
However, the IMF adds that the "immediate post-election period offers a window of opportunity for fiscal consolidation and expenditure reform." Furthermore, the "challenge for the next government would be to set clear medium-term fiscal policy goals and secure parliamentary support for them ... The proposals for single-rate personal and corporate income and value-added taxes provide a good starting point."
