Central and Eastern Europe:
Rising investments are driving the economy
- GDP growth at high level of 5.4 per cent in the third quarter of 2004
- Growth driven by fixed capital formation
- Foreign direct investment expected to increase substantially
While real GDP growth in the eight new EU member states from Central and Eastern Europe declined from 5.3 per cent (yoy) in the second quarter of 2004 to 4.5 per cent in the third quarter, economic growth in the CEE-11 countries1) reached 5.4 per cent in the same period. A strong contribution to this growth came from the particularly strong economic performance of Romania, where GDP grew by 9.9 per cent (yoy). In the euro area, economic growth was 1.8 per cent in the same period. These figures have been published by the Economics Department of Bank Austria Creditanstalt (BA-CA) in its most recent "CEE Commentary" .
In the CEE-11 countries, the engine of growth, previously foreign trade, is now domestic demand. Private consumption is growing at a robust rate and investments have picked up considerably. While fixed capital formation in the euro area increased by only 1.6 per cent in real terms in the third quarter, investments in Central and Eastern Europe grew at considerably higher rates: the strongest growth was seen in Romania, where gross fixed capital formation increased to a rate of 13.7 per cent, following substantial progress in the restructuring and privatisation of state-owned enterprises.
In the third quarter of 2004, growth in fixed capital formation in Hungary accelerated to 12.7 per cent (yoy). The Czech Republic was in third place with 9.6 per cent, followed by Poland, where investment in fixed assets rose by 4.1 per cent in real terms, corresponding to 7.8 per cent on a seasonally-adjusted and annualised basis. Fixed capital formation in Slovakia also continued to grow, at a rate of 5.5 per cent, a trend which started in the second quarter of 2004.
BA-CA's economists expect the growth of investment in fixed assets in the new EU member states to climb to over 7 per cent (yoy) for 2004 as a whole, and to exceed 8 per cent in 2005. The comparative figures for 2003 were as low as 2.5 (CEE-8) and 3.5 per cent (CEE-11), respectively.
"This development means that there are good opportunities available to investors. Moreover, the growth of investment in fixed assets also ensures that countries in Central and Eastern Europe will remain attractive," says Marianne Kager, Chief Economist of Bank Austria Creditanstalt.
Central and Eastern Europe is also a promising region in terms of GDP growth. Bank Austria Creditanstalt's experts estimate economic growth in the CEE-11 countries to remain well above 4 per cent in the coming year. This compares with expected GDP growth of 1.5 per cent in the euro area, 3.2 per cent in the USA and 3 per cent worldwide. "On this basis, direct investment in Central and Eastern Europe will probably rise to over EUR 20 billion annually in the coming years, despite the fact that most privatisation transactions with substantial inflows have been completed,“ says Marianne Kager.
1) CEE-11 = new EU member states from Central and Eastern Europe incl. Croatia, Romania, Bulgaria
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