While real GDP growth in the eight new EU member states from Central and Eastern Europe declined from 5.3T in the second quarter of 2004 to 4.5T in the third quarter, economic growth in the CEE-11 countries reached 5.4T in the same period.
A strong contribution to this growth from CEE-11 nations – a group that includes the eight new EU member states plus Romania, Croatia and Bulgaria – came from Romania, where GDP grew by 9.9%. In the euro area, economic growth was 1.8% in the same period, according to figures published by the Economics Department of Bank Austria Creditanstalt (BA-CA).
In the CEE-11 countries, the engine of growth, previously foreign trade, is now domestic demand. Private consumption is growing at a robust rate and investments have picked up considerably. While fixed capital formation in the euro area increased by only 1.6% in real terms in the third quarter, investments in Central and Eastern Europe grew at considerably higher rates: the strongest growth was seen in Romania, where gross fixed capital formation increased to a rate of 13.7%, following substantial progress in the restructuring and privatisation of state-owned enterprises.
In the third quarter of 2004, growth in fixed capital formation in Hungary accelerated to 12.7%. The Czech Republic was in third place with 9.6%, followed by Poland, where investment in fixed assets rose by 4.1% in real terms, corresponding to 7.8% on a seasonally-adjusted and annualised basis. Fixed capital formation in Slovakia also continued to grow, at a rate of 5.5%, a trend which started in the second quarter of 2004.
BA-CA’s economists expect the growth of investment in fixed assets in the new EU member states to climb to over 7% for 2004 as a whole, and to exceed 8% in 2005. The comparative figures for 2003 were as low as 2.5 (CEE-8) and 3.5% (CEE-11), respectively.
“This development means that there are good opportunities available to investors. Moreover, the growth of investment in fixed assets also ensures that countries in Central and Eastern Europe will remain attractive,” says Marianne Kager, Chief Economist of Bank Austria Creditanstalt.
Central and Eastern Europe is also a promising region in terms of GDP growth. Bank Austria Creditanstalt’s experts estimate economic growth in the CEE-11 countries to remain well above 4% in the coming year. This compares with expected GDP growth of 1.5% in the euro area, 3.2% in the USA and 3% worldwide. “On this basis, direct investment in Central and Eastern Europe will probably rise to over EUR 20 billion annually in the coming years, despite the fact that most privatisation transactions with substantial inflows have been completed,” says Marianne Kager.