European Commission: Strategy Paper and Report 2003

Overall development

This year's Regular Reports' assessments of candidates' progress towards meeting the Copenhagen economic criteria take a broader look than in previous years. They look at progress achieved since the last Regular Reports, and take stock of achievements in meeting these criteria over the period since 1997, when the Commission drafted its Opinion for most candidates. A summary of main developments is presented below and selected economic indicators per country are presented in Annex 7.

Over the period 1997-2001, most candidate countries registered average rates of economic growth well above the EU average of 2.6%. The global slowdown that started in late 2000 also affected the EU, and with it, the candidates. As a result, growth slowed down in a number of candidate countries in 2001, but over the first half of 2002, the aggregate economic development has been fairly stable. GDP per capita measured in Purchasing Power Standards reached, on average for the ten transition economies, 39.3% of the EU average in 2001, up from 38.5% in 2000. Over the five year period, most candidates witnessed some catching up.

Candidate countries have continued to adjust their production structures. They saw their agricultural sector's share in GDP decline over the period, and the service sector further increase, although not yet reaching EU levels.

Inflation in most candidate countries has been on a downward trend over the period. This trend towards lower inflation continued in 2001 with single digit inflation in most countries. Over the past 5 years, most candidates have established an independent central bank, many of which have adopted inflation targeting strategies aiming at price stability.

On average for all candidate countries, the period has been marked by falling employment, mainly driven by the ongoing restructuring of domestic industries and partly by some structural deficiencies in labour markets. Unemployment rates are still high in many countries. In 2002, a number of countries appear to be ending a period of labour shedding and are recording employment growth.

All candidates reported general government deficits over the period. In 2001 the average deficit of the 10 Central and Eastern European countries rose from 3.2% to 3.8%, as a result of the economic slowdown, loosening of fiscal policy, transition related one- off expenditures and better measurement.

Over the period, the trade and current account deficits have remained relatively high in most countries but they stay within sustainable levels. Most countries have been able to attract sufficient inflows of foreign direct investments to finance these deficits. In general, the trade and current account deficits improved somewhat in 2001.

Privatisation of the economy has made impressive progress since 1997, reaching levels comparable to the EU, but efforts are required to complete the restructuring of a number of sectors.

Financial intermediation has strengthened. Almost all countries now have a more efficient and stable banking sector. The average of the transition economies' domestic bank lending to the private sector is still low at nearly 27% of GDP in 2001.

Market entry and exit conditions have reached sufficient degrees of efficiency and legal certainty. Property rights are well established and important progress has been made on bankruptcy legislation and procedures. However, in most countries, implementation of the legal framework needs to be further enhanced.

The European Union is the main trading partner and foreign investor for all candidates. A high degree of economic integration of candidates with the EU has been achieved.

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