BRUSSELS, Oct 29 - Economic growth in the 10 states joining the European Union next May will accelerate to an average 3.8 percent next year and 4.2 percent in 2005, from 3.1 percent this year, the European Commission said on Wednesday. The Commission's Autumn Economic Forecasts cited an expected recovery in the 15 current EU states "and the prospect of enlargement" as the factors driving growth. But six of the 10 will have budget deficits this year above three percent of Gross Domestic Product -- the level governments must achieve to qualify for membership of the euro. The average deficit of the acceding countries will be five percent. The deficit in Poland, by far the largest accession state, accounting for nearly 40 million of the 75 million who will become EU citizens next year, will grow to 5.9 percent of GDP in 2004 from 4.3 percent this year. But by 2005, the Commission said, "the general government balance improves in all acceding countries," and the average deficit across the 10 is set to drop to 4.1 percent. Poland's should fall back to 4.9 percent in 2005. This year's already high growth figures in the accession states are due to rising exports and a pick-up in industrial output, the report said, while private conmsumption was robust, receiving support from lower interest rates. The average figures disguise wide discrepancies across the 10 countries -- eight of which are Eastern European former Soviet satellites, while two, Cyprus and Malta, are Mediterranean islands.
BALTICS AHEAD
The Baltic states of Latvia and Lithuania are far ahead in terms of current and projected GDP growth. Lithuania is set to post 6.6 percent growth this year, dipping to 5.7 percent in 2004 before recovering to 6.0 percent in 2005. Latvia will record 6.0 percent GDP growth this year. At the other end of the scale, Malta's economy will grow by just 0.8 percent in 2003, although growth will pick up to 2.9 percent in 2005, the report said. But economic growth will not necessarily translate into growth in employment. The report said that restructuring to transform the central European states from communist command economies meant employment was still contracting in the Czech Republic, Poland and Slovenia. The employment situation is set to improve, but average job creation will remain at a sluggish 0.6 percent across the 10 countries next year, rising to 1.1 percent in 2005, and leaving average unemployment high at 15 percent in 2005. Inflation across the region is set to rise in 2004, to 3.5 percent from a projected 2.4 percent this year and 2.5 percent in 2002. Slovakia is the poorest performer in terms of inflation, with the Commission forecasting a rate of 7.5 percent in 2004 from 6.8 percent this year, while Latvia is expected to post deflation of 0.9 percent this year. But the Commission sees these differences gradually disappearing, and expects inflation across the 10 to slip to 3.1 percent in 2005, by which time the rates will vary in a narrower band from 1.9 percent in Malta to 4.3 percent in Slovenia.//