Vienna- Eastern Europe's slowing economies face growing risks from the global credit crunch, but most of the ex-communist region will post faster growth than western Europe in 2009, the International Monetary Fund said Wednesday. Slovakia, which is slated to switch to the euro on January 1, was tipped to lead growth next year - 5.6 per cent - followed by European Union newcomers Romania, 4.8 per cent, and Bulgaria, 4.2 per cent.
With part of the Baltics already believed to be in recession, the IMF noted that southern Europe's continuing boom is based on much the same mix of consumer spending, loans and capital investment driven by western banks and companies. Inflation, while likely to ease in 2009, is eating into people's spending power.
Overall, the region from the Baltics to Bulgaria is headed for a third year of slowing growth, down to 3.5 per cent in 2009 from a predicted 5.0 per cent in 2008, the IMF said in a report released in Washington.
And the risk that the region's financial imbalances will spook investors is rising at a time of tighter credit, the semi-annual World Economic Outlook said.
"Growth is expected to continue to decelerate markedly, including on account of diminishing capital inflows and tighter financial constraints," the survey said.
Soaring food and energy prices are slowing consumer spending, while the global credit crunch and sickly growth in western Europe - eastern Europe's main market - is weighing on investment and exports, the IMF said.
While banks operating in emerging Europe have little direct exposure to the US subprime mortgage market, they and their foreign parents are affected by the widening turmoil in western Europe, the IMF said.
"The policy challenge is how to engineer a soft landing" while keeping the region on track toward western European living standards, IMF analysts said.
They foresee a clear three-way split for the European Union's emerging economies in 2009: the three Baltic nations ailing after a long spending and investment boom, with Latvia's economy shrinking by 2.2 per cent; central Europe growing an average 3.6 per cent; and Romania and Bulgaria still going strong.
"Like the Baltics several years ago, these countrie
