Wednesday, February 28, 2007

Bulgaria, Romania consume more than produce

Focus Information Agency

About 88% of the EU total gross domestic product belongs to the EU old member states, 9% - to the ten states that joined the bloc in 2004, and only 3% to Bulgaria and Romania. In spite of that, the share of nine of the states is growing. Data of the Vienna Institute for International Economic Studies shows that the economic growth in these countries in 2006 reached 6.5% and will maintain a level of 5.4% in 2007, which is almost twice higher than the expected growth in the other part of the EU.

Hungarian tourists can stay home

In spite of the positive trends in Eastern Europe, the economic growth in Hungary marked a growth of only 2.6%, that is, only a few percentage points above the economic indices in the Western European countries, Peter Havlik, economic analyst from the Vienna Institute said. He added that the reason for the downward trend was the “package of restrictive measures” of the Liberals-led government, which resulted in a drastic reduction of consumption. Prognoses about the negative impact of the Hungarian economy’s trend on the Austrian economic development are hardly likely to materialize, said Markus Scheiblecker. According to him, Austria, which compared to most of the new EU members has a positive trade balance, will increase its export, to make up for the danger. There is a negative trend only in the sphere of tourism because the majority of Hungarians prefer to spend their vacations in Austria.

Bulgarians and Romanians buy on credit

The Vienna Institute for International Economic Studies says that foreign trade in the last few years has been the major reason for the economic growth in the new member states. There seems to be a change now: on the one hand, there is an upward trend in domestic consumption due to the purchasing capacity and the rising wages. On the other hand, the Bulgarian and Romanian households are resorting more and more frequently to consumer credits allotted by banks. They spend the credits on products, most of which are imported.

The trend is observed mostly in countries such as Bulgaria and Romania, which registered a huge negative trade balance. That is why, any prognoses about the economic development of the two countries are very risky, according to Havlik and Scheiblecker. Closed economies, such as the Romanian and Bulgarian ones, would better spend the accumulated money on investments, not on consumption.
Another trend, which Havlik describes as dangerous for the economic development of the two countries, is the possible drastic increase of wages, which can have a negative effect on the size of foreign investments. On the one hand, the local currencies have been recently overvalued, which results in a rise in the investors’ expenses for taxes and wages. On the other hand, however, the rise in wages is due not only to the economic growth of Bulgaria and Romania, but also to the difficulties, which foreign investors experience when they hire specialized labor force.
The labor market is making a progress. The unemployment rate in almost all the EU member states is falling and employment rising. Poland and Slovakia, where the unemployment rate in 2005 reached correspondingly 17.8% and 16.3%, managed to reduce the negative trend thanks to their economic indices.

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