Eastern Europe

Eastern Europe

Bulgaria

Bulgaria, a former Communist country, joined the EU on January 1, 2007. Between 2004 and 2008, it experienced impressive economic growth averaging over 6%, driven by foreign direct investment and consumer spending.

While successive governments remained committed to economic reform and sound fiscal policies, the global financial crisis sharply reduced:

• Domestic demand
• Exports
• Capital inflows
• Industrial production

GDP contracted by approximately 5% in 2009 and remained stagnant in 2010, despite a rebound in exports. Modest growth was expected by 2011.

Key challenges include corruption in public administration, a weak judiciary, and persistent organized crime.

Romania

Romania began its transition from Communism in 1989 with an outdated industrial base and poor economic alignment. EU accession on January 1, 2007 gave the country new momentum.

Following a harsh recession, Romania rebounded in 2000, driven by strong EU export demand and rising domestic consumption and investment. However, this growth caused large current account deficits and widened income inequality.

Inflation in 2007–08 was driven by:

• Strong consumer demand
• High wage growth
• Rising energy costs
• Food inflation caused by drought

Romania’s GDP fell over 7% in 2009 due to the global downturn, and again contracted 1.9% in 2010 amid IMF-mandated austerity. Recovery was expected in 2011.

The government secured a $26 billion emergency package from the IMF, EU, and international lenders in 2009.

Poland

Poland is widely seen as a success story among post-Communist transition economies. Since embracing economic liberalization in 1990, it averaged nearly 5% annual GDP growth prior to the 2009 crisis.

Growth was supported by:

• Private consumption
• Corporate investment
• EU structural funds

EU membership since 2004 has significantly boosted development. Unemployment hit a low of 6.4% in 2008, but rose to 11.8% by 2010. Inflation decreased from 4.2% in 2008 to 2.4% in 2010.

Challenges holding back full private sector potential:

• Underdeveloped road and rail infrastructure
• Rigid labor laws
• Bureaucracy and red tape
• Burdened tax system
• Persistent low-level corruption

The public sector deficit rose to 7.9% of GDP in 2010 due to increased spending on healthcare, education, and pensions.

The ruling PO/PSL coalition (since 2007) has pledged to reduce the deficit, enact pro-business reforms, encourage workforce participation, and accelerate privatization. Some reforms passed, including limits on early retirement, but progress has been slow.

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