UN Body Expects Western Europe Economic Growth Below 2%

GENEVA: Economic activity in western Europe has slowed in recent months, while the transitional countries of eastern Europe are threatened with a new recession, a United Nations body said May 4. The UN Economic Commission for Europe said in a report that in western Europe growth is not expected to exceed 2% this year, down from 2.7% in 1998 and 3.3% in 1997. It blamed the slowdown on the easing of domestic demand, with both export and import levels falling. Activity should pick up again in the second half of the year, leading to further gains in 2000, it said. In the euro zone, growth should be slightly higher than 2%, compared with 2.8% last year, the commission said, commenting that the interest rate cut decided by the European Central Bank in April was late under the circumstances. Monetary policy should be more flexible if the economic situation does not improve noticeably in the euro zone, it said. For the former communist countries of eastern Europe, the Baltic states and the former Soviet Union the commission noted that the trend had reversed sharply in mid-1998. It blamed the triple blow of the collapse of Russia's imports following its financial crisis, the fall in world demand for raw materials, and a falling-off in orders from western Europe. After 2.8% growth in 1997, the gross domestic product of eastern Europe improved by only 2% in 1998, against an original forecast of 4.5%. A split had developed between the reformist states, generally those likely to be in the first wave of new members of the European Union, and those still struggling to change, the commission said. But the trends in the first half of this year indicated that even those with the highest growth of the last few years were threatened by a deteriorating situation in east Europe. GDP would continue to decrease in Russia, Ukraine, and perhaps Kazakhstan after 1998's 2.8% slump wiped out the slight 1.1% improvement in 1997, the report said. As for southeastern Europe, the commission said the war in Yugoslavia had dealt a further blow to the already battered economies of countries in the region. It urged western aid for these states, particularly to help them sustain their balance of payments.