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Central European c.bankers downbeat on growth

  Poland’s central bank will cut its 2.6% forecast for growth of ex-communist Central Europe’s biggest economy, a bank official said on Wednesday, as concerns rose over the fate of the previously fast-growing region.

Central bankers from Romania and the Czech Republic also said their economies would perform worse than earlier thought as the European Union sinks into a recession, domestic demand wanes and domestic credit dries up. All, however, remained optimistic their economies could avoid recession after a month that has seen protests over growing economic pain among young people and the middle class in Lithuania, Bulgaria and Latvia bubble over into violence.

Some analysts have warned recession is on the cards for most of the EU’s eastern members, who have sharply outgrown their more developed neighbors in recent years as they close the prosperity gap left by half a century of central planning.

Zbigniew Hockuba, a member of the Polish central bank’s management board, told a conference it would be forced to cut the 2.6% forecast for this year, from an expected 5% in 2008, when it makes its new forecast next month.

“We know that the February projection that we are just preparing, ... will be lower,” said Hockuba, who is responsible for the bank’s inflation projection but is not on the rate-setting Monetary Policy Council. He said price growth, which has sunk in recent months making it easier for the bank to cut official borrowing costs to support the economy, was not a serious problem.

Brussels earlier this week forecast Poland’s growth at 2% this year, while deputy Finance Minister Ludwik Kotecki told a parliamentary committee on Wednesday that GDP rose 4.8% for all of last year.

FORECASTS FALLING

Inflation is rapidly slowing across the region. The export-heavy region is also seeing a fall in production, while domestic demand has been hit by a contraction in bank lending and the prospect of layoffs.

EU non-members are also feeling squeezed. Serb central bank chief Radovan Jelasic said the governments fresh forecast of 3.5% growth for this year may not be realistic. “It (the projection) looks rather optimistic,” Jelasic told Reuters. “We definitely see that the risks are growing regarding the ability of Serbia to have 3.5% GDP increase this year.”

Czech central bank Governor Zdenek Tuma offered a similar assessment and said that new growth forecasts, due next month, will be lower than its latest ones. Made in October and released in November, those projected a base scenario for 2009 growth of 2.9% and an alternative, more pessimistic scenario of 0.5. “All I can say is that growth will be lower than expected in October,” Tuma said.

The European Commission this week forecast Czech growth at 1.7% for this year.

In Romania, one of the economies in the region seen most at risk due to a high current account deficit, the central bank expects growth to slow sharply. But Deputy-Governor Cristian Popa said: “We do not believe that Romanian growth will enter negative territory.” He said that unlike most central banks in the region, his remained preoccupied with inflation, although the bank forecast price growth to slow down in the “foreseeable future.”

The European Commission this week forecast Romanian gross domestic product growth (GDP) will slow to 1.8% this year, from some 8% in 2008. Popa added that a sharp drop in the leu (RON) currency, which hit record lows against the euro this month at 4.3530 per euro, was more a feature of pessimism towards the region, rather than the Romanian economy. (Reuters)