VZCZCXRO7804
RR RUEHKW RUEHLN RUEHLZ RUEHPOD
DE RUEHVI #0296/01 0711535
ZNR UUUUU ZZH
R 121535Z MAR 09
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 2149
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHXE/EASTERN EUROPEAN POSTS COLLECTIVE
RUEHBS/USEU BRUSSELS
RUEHFR/AMEMBASSY PARIS 0969

UNCLAS SECTION 01 OF 04 VIENNA 000296 
 
SIPDIS 
 
TREASURY FOR FTAT, OCC/SIEGEL, AND OASIA/ICB/ATUKORALA 
TREASURY PASS FEDERAL RESERVE, FINCEN, AND SEC/JACOBS 
USDOC FOR 4212/MAC/EUR/OWE/PDACHER 
USDOC PASS OITA 
PARIS ALSO FOR USOECD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB EUN XH TU RS KZ CH
SUBJECT: Austrian Outlook on Central/ Eastern 
European Economies 
 
¶1. SUMMARY:  As leading investors and bankers in 
Central/Eastern/Southeastern Europe (CESEE), 
Austrians have developed broad expertise on the 
region.  The latest forecast by the Vienna Institute 
for International Economic Studies (WIIW) paints a 
negative but differentiated picture.  As a group, 
the ten new EU members will stagnate in 2009 (in 
November, they were projected to grow by 2.7%) but 
some will grow even in this crisis year.  This cable 
includes WIIW capsule forecasts for each of the 
twenty CESEE economies.  Countries projected to grow 
in 2009 are Albania, Czech Republic, Kazakhstan, 
Poland, Russia and Slovakia.  Bosnia/Herzegovina, 
Bulgaria, Montenegro, Romania, Serbia and Slovenia 
are expected to stagnate; the economies of Croatia, 
Estonia, Hungary, Latvia, Lithuania, Macedonia, 
Turkey and Ukraine will shrink.  The CESEE region is 
expected to grow again from next year (2010: 1.5%, 
2011: 3.3%).  END SUMMARY. 
 
Mixed Outlook in CESEE 
- - - - - - - - - - - - 
 
¶2.  The Vienna Institute for International Economic 
Studies (WIIW) recently published its new economic 
forecast for the CESEE countries plus Ukraine, 
Russia, Kazakhstan and China.  All are experiencing 
a marked economic slowdown for well-known reasons -- 
credit crunch, collapse in industrial/export demand 
-- but only some are dealing with high current 
account deficits (particularly in Latvia, Lithuania, 
southeast Europe), a high government debt level, 
currency devaluations, and related refinancing 
problems.  As a result, the outlook for individual 
countries varies considerably.  In 2009, the so- 
called NMS-5 (new member states Czech Republic, 
Hungary, Poland, Slovakia, Slovenia) on average will 
grow modestly at about 0.6% (2010: 2.1%, 2011: 3.6%) 
and the NMS-10 (NMS-5 plus Bulgaria, Estonia, 
Latvia, Lithuania and Romania) will stagnate in 2009 
(2010: 1.5%, 2011: 3.3%).  Both groups will still 
outperform the Eurozone (Commission's January 2009 
forecast: -1.9% in 2009 and 0.4% in 2010) and EU-27 
(1.8% in 2009 and 0.5% in 2010). 
 
¶3.  WIIW identifies three groups of CESEE 
performers: 
 
     FORECAST TO GROW IN 2009: 
Albania, the Czech Republic, Kazakhstan, Poland, 
Russia and Slovakia. 
     FORECAST TO STAGNATE IN 2009: 
Bosnia/Herzegovina, Bulgaria, Montenegro, Romania, 
Serbia and Slovenia. 
     RECESSION IN 2009: 
Croatia, Estonia, Hungary, Latvia, Lithuania, 
Macedonia, Turkey and Ukraine. 
 
COUNTRY OVERVIEWS 
- - - - - - - - - 
 
¶4.  Following are brief WIIW analyses of CESEE 
economies. 
 
- - - - - - - - - BULGARIA - - - - - - - - - 
 
¶5.  Bulgaria's economic prospects have quickly 
deteriorated due to falling export demand, a 
shortage of external funds and a domestic credit 
crunch.  As a result, Bulgaria will stagnate in 2009 
and show only modest growth in 2010.  WIIW expects 
the current account deficit to shrink.  Government 
stimulus measures will draw down fiscal reserves and 
lead to a higher budget deficit.  Much will depend 
on global economic developments, particularly in the 
Eurozone economies as Bulgaria's main export market. 
Absent any improvement in western Europe, the 
Bulgarian economy could well dip into recession. 
 
Bulgaria                        2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          0.0     1.0     3.0 
 
VIENNA 00000296  002 OF 004 
 
 
Unemployment rate (%)            8.0     9.0     8.0 
Current account (% of GDP)     -13.0   -11.7   -10.2 
 
- - - - - - - - - CZECH REPUBLIC - - - - - - - - - 
 
¶6.  At a projected growth rate of 0.4% in 2009, the 
Czech economy will approach stagnation despite 
strong macroeconomic fundamentals and a sound 
financial system.  The reasons are substantially 
weakening exports; an expected contraction of 
investment; and modest private consumption growth, 
given the constraints on expanding household debt. 
A fiscal stimulus package now under consideration 
should prevent the country from slipping into 
recession.  Given the low public debt level, the 
Czech government has room for fiscal maneuver.  For 
2010, recovery with growth of 2.4% is forecast. 
 
Czech Republic                  2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          0.4     2.4     3.8 
Unemployment rate (%)            6.0     6.0     5.5 
Current account (% of GDP)      -1.7    -1.3    -1.8 
 
- - - - - - - - - HUNGARY - - - - - - - - - 
 
¶7.  Hungary's modest recovery was interrupted by the 
international financial crisis and its economy will 
be in deep recession in 2009 (-3.0%) since under the 
IMF stand-by agreement, Hungary cannot use fiscal 
stimulus measures or relax monetary policy.  Private 
household consumption will be affected by declining 
real wages;  the investment outlook is bleak.  For 
2010, the significantly weakened exchange rate will 
spark an export-led recovery. 
 
Hungary                         2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -3.0     1.4     3.0 
Unemployment rate (%)            9.0     8.8     8.0 
Current account (% of GDP)      -4.9    -5.5    -5.1 
 
- - - - - - - - - POLAND - - - - - - - - - 
 
¶8.  WIIW sees the Polish economy growing by 1.5% 
(2009) and 2.3% (2010), benefiting from a weaker 
currency.  Despite efforts to restrict budget 
expenditures, the government may not be able to 
prevent an increase in the deficit.  Private 
consumption is expected to grow moderately in view 
of relatively low household debt.  Poland's export 
performance will largely depend on the further 
development of major EU economies, particularly 
Germany. 
 
Poland                          2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          1.5     2.3     3.8 
Unemployment rate (%)           12.0    11.0    10.0 
Current account (% of GDP)      -3.9    -4.4    -4.3 
 
- - - - - - - - - ROMANIA - - - - - - - - - 
 
¶9.  A sharp drop in industrial production, declining 
investments and modest consumption growth will lead 
to stagnation of the Romanian economy in 2009 and 
modest growth (1.0%) in 2010.  Romania remains 
highly exposed to external shocks and a hard landing 
cannot be ruled out, but financial support from the 
EU and a stand-by agreement with the IMF should help 
to prevent recession. 
 
Romania                         2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          0.0     1.0     3.0 
Unemployment rate (%)            8.0     9.0     8.0 
Current account (% of GDP)      -8.0    -6.5    -6.3 
 
- - - - - - - - - SLOVAKIA - - - - - - - - - 
 
¶10.  Adoption of the Euro in January 2009 has eased 
the impact of the global financial crisis.  However, 
 
VIENNA 00000296  003 OF 004 
 
 
the high conversion rate has undermined Slovakia's 
export competitiveness vis-a-vis its NMS neighbors. 
Despite the drop in export demand, Slovakia should 
be able to achieve modest growth of 2.0% in both 
2009 and 2010, driven by domestic demand and an 
expansionary fiscal policy. 
 
Slovakia                        2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          2.0     2.0     3.0 
Unemployment rate (%)           11.0    12.0    12.0 
Current account (% of GDP)      -6.6    -6.8    -6.8 
 
- - - - - - - - - SLOVENIA - - - - - - - - - 
 
¶11.  The Slovenian economy is projected to slow 
markedly, with stagnation in 2009 followed by 2.0% 
growth in 2010, primarily due to shrinking 
investment (until now a key growth driver).  The 
government's stimulus package, at more than 2% of 
GDP, will dampen crisis impacts. 
 
Slovenia                        2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          0.0     2.0     4.0 
Unemployment rate (%)            5.5     5.0     4.5 
Current account (% of GDP)      -5.8    -4.9    -4.6 
 
- - - - - - - - - RUSSIA - - - - - - - - - 
 
¶12.  Despite strong fundamentals, the Russian 
economy has been hit severely by the global crisis 
with a near-collapse in the fourth quarter of 2008. 
The Russian government's various rescue measures and 
stimulus packages will not prevent a marked slowdown 
of the economy from previous strong growth rates. 
Export revenues will be considerably lower, 
shrinking trade and current account surpluses.  A 
sharp slowdown in economic growth is inevitable. 
WIIW's projected recovery for 2010 is based on a 
modest rise in energy prices. 
 
Russia                          2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          1.1     3.7     4.6 
Unemployment rate (%)            6.7     6.6     6.3 
Current account (% of GDP)       1.0    -0.9    -1.8 
 
- - - - - - - - - UKRAINE - - - - - - - - - 
 
¶13.  After several boom years, the Ukrainian economy 
fell into recession in October 2008 and is in the 
midst of an economic meltdown from the global credit 
crunch, the sharp drop in steel prices/demand, and 
Ukraine's renewed political crisis.  Even the 
forecast contraction of -5% in 2009 has downside 
risks.  WIIW questions whether the Ukrainian 
government can meet IMF conditions for further 
assistance. 
 
Ukraine                         2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -5.0     1.5     4.5 
Unemployment rate (%)            7.5     7.5     7.2 
Current account (% of GDP)      -2.2    -0.4    -0.3 
 
¶14.  Statistical Annex 
 
Below are WIIW forecasts for other CESEE countries: 
 
Estonia                         2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
 
GDP growth (real terms)         -7.0    -3.5     0.5 
Unemployment rate (%)           10.5    13.0    15.0 
Current account (% of GDP)      -5.8    -5.5    -6.3 
 
Latvia                          2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -8.0    -4.0     0.0 
Unemployment rate (%)           12.0    15.0    16.0 
Current account (% of GDP)      -7.0    -5.7    -7.9 
 
VIENNA 00000296  004 OF 004 
 
 
 
Lithuania                       2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -5.0    -3.5     1.0 
Unemployment rate (%)            8.5    13.0    15.0 
Current account (% of GDP)      -7.3    -6.3    -7.9 
 
Croatia                         2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -2.0     1.0     4.0 
Unemployment rate (%)           10.5    11.0    10.0 
Current account (% of GDP)      -7.0    -8.0    -8.0 
 
Macedonia                       2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -1.0     0.0     2.0 
Unemployment rate (%)           34.0    33.0    33.0 
Current account (% of GDP)      -7.0    -8.0    -8.0 
 
Albania                         2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          3.0     4.0     6.0 
Unemployment rate (%)           13.0    12.0    11.0 
Current account (% of GDP)      -9.9   -11.4   -12.3 
 
Bosnia and Herzegovina          2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -1.0    -1.0     0.0 
Unemployment rate (%)           27.0    27.0    26.0 
Current account (% of GDP)     -11.0    -9.0    -8.0 
 
Montenegro                      2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -2.0     0.0     2.0 
Unemployment rate (%)           19.0    20.0    20.0 
Current account (% of GDP)     -10.0   -10.0   -10.0 
 
Serbia                          2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -2.0     0.0     2.0 
Unemployment rate (%)           18.0    20.0    20.0 
Current account (% of GDP)     -10.0   -10.0   -12.0 
 
Turkey                          2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)         -2.5     1.0     3.0 
Unemployment rate (%)           13.0    13.0    12.0 
Current account (% of GDP)      -3.6    -3.3    -3.1 
 
Kazakhstan                      2009    2010    2011 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
GDP growth (real terms)          1.0     3.0     4.5 
Unemployment rate (%)            7.5     7.0     6.5 
Current account (% of GDP)      -6.8    -4.4    -3.9 
 
YAP