Strong Growth Forecast for Central, Eastern Europe

ANN ARBOR, Mich.--(BUSINESS WIRE)--Jan. 28, 2004-- New Davidson Institute Forecast Predicts Unemployment, Budget Deficits Will Continue; Russian Fortunes Tied Heavily to Oil Prices

EU Accession countries' growth is projected at two to three times the rate of Western Europe, but no let-up is in sight for those nations' heavy budget deficits, according to the latest quarterly release of the Davidson Institute Emerging Markets Forecasts (DIEMF). Meantime, Russian fortunes will fall in tandem with oil prices, as the impact of price decreases hits harder across the Russian economy than it does in many oil-producing nations. The forecasts are the most frequently-updated economic projections for Central and Eastern Europe and Russia, and are produced by the University of Michigan's William Davidson Institute.

Unemployment will remain high in most of the countries included in DIEMF, which could exacerbate government deficits.

The rise of banks and the relatively new phenomena of significant consumer credit are fueling growth meantime. Other major factors in the projected growth include the continuing positive impact of market reforms and heavy integration with the EU, along with Western Europe's economic recovery. Deficits and other factors may slow the Accession countries' ability to negotiate early adoption of the Euro.

"High unemployment is both a threat and an opportunity," said DIEMF head and Davidson Institute Executive Director Jan Svejnar. "There is significant under-utilized labor capacity throughout the region. This should be attractive to FDI, which has continued to pick up strength. Without more FDI, however, we will see continued run-ups of heavy budget deficits and strains on countries' ability to keep up their social safety nets."

The region's growth is being fueled, in part, by an exceptionally large but smooth transition of labor from old firms to newly created ones.

"In some cases, more than half of labor in these countries has transitioned to new jobs," said Svejnar. "This smooth and successful movement to higher-productivity firms and jobs is an extraordinary achievement and one that should be attractive to foreign investment."

Much of Central and Eastern Europe's growth is tied to its swift and thorough movement toward adopting market reforms.

"The success of the tempered market reform experiment has significant implications for other emerging markets, and is a key factor in future growth projections," said Svejnar.

Ukraine is on track for significant growth, the highest rate among the countries measured by DIEMF. Svejnar points out that this growth comes only after significant decline in the 1990s.

The DIEMF is produced quarterly by the University of Michigan's William Davidson Institute. The Institute has significant expertise in emerging markets, with a network of economists and other researchers throughout the world and continuing on-the-ground business and government assistance experience in emerging markets.

For a full copy of the forecast or further analysis, please contact

Sarah Allen (202-535-7800 or sallen@kearnswest.com) or

Keith Decie (202-535-7800 or kdecie@kearnswest.com).

Keith Decie