Russia’s Troubles to Slow Down Growth in Cent & East Eur

[HenryTo]

Fits in well with my current scenario of a slowing down in the world economy for the rest of this year. A declining oil price will exuberate the process in Russia, IMHO. For people who want a declining domestic trade deficit: Be careful what you wish for!
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Russia’s Economic Troubles to Slow Down Growth in Central and Eastern Europe — Report
Created: 24.05.2005 11:47 MSK (GMT +3), Updated: 12:28 MSK, 8 hours 59 minutes ago

MosNews

A weaker business climate in Russia and investor confidence dented by the dismantling of the Yukos Oil Company should further slow down economic growth in Central and Eastern Europe, a global banking lobby group said on Monday, May 23.

In a regional overview, the Washington-based Institute of International Finance said aggregate real gross domestic product in Central and Eastern Europe was likely to ease to 5.0 percent this year from 6.2 percent last year.

Next year, recovering Euro zone demand should support a pickup in growth in Central Europe, but Russia’s business climate will combine to slow regional growth further to 4.5 percent, the report, quoted by Reuters, said.

The IIF, whose members include large international banks and investment institutions, said the business conditions in Russia had deteriorated since its government jailed Mikhail Khodorkovsky, the founder and former CEO of Russia’s largest private oil firm Yukos, and ordered the company to pay about $27.5 billion in back taxes.

The IIF said stronger foreign direct investment will help sustain output and export growth in most of Central and Eastern Europe this year, despite faltering external demand. Where foreign direct investment inflows are smaller, growth will slow as weaker foreign demand coincides with competitiveness pressures, the IIF added. It said economic policies will be influenced by looming parliamentary and general elections scheduled in Bulgaria, Poland and Hungary later this year and next.

Political backing for fiscal reforms was weak in most of the Central European countries that joined the European Union in 2004, it said. Among these, only Slovakia had implemented spending reforms ambitious enough to make EMU entry likely before 2010. “In most of Central Europe, opposition to social spending reforms will continue to limit scope for the fiscal adjustment needed to facilitate early eurozone entry,” the IIF said. “Exceptions are likely to include Slovakia where ambitious tax and spending reforms have put government finances on a sounder footing, and Bulgaria, where a solid political consensus favors fiscal prudence.”

The group added that economic prospects will be brightest where foreign direct investment inflows are largest and budgets give less cause for concern