by Xinhua writer Ding Yi     

    BEIJING, Dec. 25 (Xinhua) -- Eastern and Central Europe, the high-speed economic locomotive in Europe and in emerging markets, was forced to take a brake in the past year due to the global economic downturn.

    Most of the countries in the region suffered a sharp decline in gross domestic product (GDP), and took on huge fiscal deficits and high unemployment rates. A Chinese analyst says the regional economy stumbled forward in a slow way in 2009.

    Meanwhile, an improved economic environment in the European Union (EU) and an increase in exports would help lift clouds of recession in those countries, but at different speeds, analysts told Xinhua.     

    WORST-HIT COUNTRIES

    After years of growth, Latvia, Estonia and Lithuania saw a decline from 2008 that continued until 2009. The Baltic countries and Hungary have become the worst-hit countries in the region by the crisis, said Zhu Xiaozhong, an expert at the Chinese Academy of Social Sciences.

    The above countries run "higher external debt levels and have limited fiscal and exchange rate responses to the slowdown," UniCredit Group's analysts said.

    The Baltic countries' GDP shrank 19 percent, 15.6 percent and 14.2 percent, respectively, in the third quarter of this year, according to EU's statistics agency, Eurostat.

    On one hand, the governments of the Baltic countries have been forced to slash expenditures, including reducing employees' wages, educational and medical funds, relief payment and pensions. On the other hand, the three governments carried out tax reforms that would help increase government revenues in a bid to restrain the deficits.

    The Latvia government sought international donations under the premise of reining in its ballooning deficit.

    In December 2008, the EU, International Monetary Fund (IMF), World Bank and Nordic countries agreed to back Latvia with rescue financing worth 7.5 billion euros (11 billion U.S. dollars). Meanwhile, Latvia committed to slashing 500 million lats (1.06 billion dollars) each year until 2012 to meet EU-set rules on public deficits.

    In Lithuania, the government has implemented new tax reforms and launched a 1.5-billion-dollar bond to raise funds.

    However, the measures brought heavy burdens to the enterprises and led to poorer living standards for people, analysts said.

    Latvia's unemployment rate reached 15.3 percent in November, the highest figure in the EU, and Estonia 12.8 percent, Lithuania 11.7 percent, according to data released by the countries' labor and employment sectors.

    Hungary was another country hard hit by the crisis, although a combination of rescue packages from the IMF and EU eased the financial difficulties there. Still, the country's public sector debt rose above 80 percent in 2009 and the private sector was heavily indebted in foreign currencies.

    Not even Christmas shopping has the power to compensate the Hungarian retail sector for a year of losses, with household consumption expected to drop by 7 percent for 2009, economic thinktank GfK Hungaria reported recently.

    Households have been trading down -- buying lower-cost products, and replacing highly processed ready-to-eat meals with food made from scratch, GfK Hungaria reported, adding that the downshift in quality was true for the entire economy, not just the retail sector.

    UniCredit Group analysts predicted two consecutive years of contraction for Hungary's economy, with positive prospects only in2011.

    "SECOND GROUP"

    The economies of Bulgaria and Romania also suffered bad hits in2009, but fared better than the Baltic countries and Hungary, analysts pointed out.

    "Countries such as Bulgaria and Romania belonged to the second group in emerging Europe," said Zhu.

    The Bulgarian government revised the forecast of its GDP for 2009 to a decline of 4.9 percent from the previous estimate of a 6.3-percent drop, attributing the revision to the quick curbing of the state's fiscal problems.

    The IMF expected the Balkan country's GDP to fall 6.5 percent this year and 2.5 percent next year. The EBRD forecast that Bulgaria's GDP would fall by 1.5 percent next year, following a 6-percent drop this year.

    In view of the good results, officials believed that 2009 would end with a small deficit of up to 500 million leva (382 million dollars) or 0.75 percent of GDP. The government has also approved an austerity budget for 2010 and will target a zero gap in a bid to speed up euro zone entry and to beat the recession.

    However, the World Bank painted a gloomy picture of the Bulgarian economy for 2010 in a recent report.

    "Although more modest than the expected impact in other countries, the (Bulgarian) labor market is again an important transmission channel, particularly among workers in the construction sector," the report said.

    Declining remittances underpin about a quarter of the overall poverty increase, and a much larger share of the rise in extreme poverty, the report noted, adding that the unemployment rate would reach 12 percent from this year's 9 percent.

    From January to November, new car sales had a 52 percent decline than the same period last year, and the price fell down 25percent, said the Union of the Importers of Automobiles in Bulgaria.

    Some say Bulgaria is going through its first recession in 12 years after a three-year lending boom stalled and foreign investment dried up,

    In Romania, the economy has shown signs of a gradual recovery with good industrial production performance and a slight increase in exports.

    The country's industrial production grew 0.2 percent in October compared with September, while the annual decline moderated to 1.5percent, driven by strong performances of capital goods and the current use goods industries and by growing demand from Western Europe.

    "The industry started to recover and there are clear signals that the decline halted," Lucian Croitoru, adviser to the central bank's governor, told Xinhua. "The main part of Romania's exports came from manufacturing industry and there are positive signals in Western economies."

    With economic activity picking up for Romania's main trading partners, the performance of the industrial sector was likely to continue improving, said Nicolaie Alexandru Chdesciuc, senior economist at ING Bank Romania.

    "The EU consolidated its share in Romania's foreign trade to 75percent of total exports and 73 percent of total imports, pointing to the important role played by a gradual economic recovery of the major European markets in Romania's 2010 economic growth," Chdesciuc said.