The recent economic recovery in the new Member States

The entry of the new Member States into the European Union (EU) on 1 May 2004 marked the culmination of a historic process of economic transition that commenced with the fall of Communism in 1989. Fifteen years after the initiation of far-reaching reform in Eastern Europe, eight of the formerly centrally planned economies together with Cyprus and Malta joined the existing fifteen EU members in the largest EU enlargement to date. And, while the combined economic weight of the new members might seem relatively small compared to the EU-15, the dynamics of growth, commitment to internal reforms, and the desire to close the income gap with the rest of the EU, may well provide a key impulse to future economic development in Europe.

From the cyclical perspective, the new Member States are entering the EU with indisputably strong growth dynamics. Following the economic slowdown of 2001 and 2002, caused both by the unaccommodating external environment and serious domestic policy mistakes, and the moderate recovery of 2003, the first half of 2004 marks the first period of very strong growth across most of the region, in particular in the largest economies. More importantly, with only a few exceptions, the current growth recovery is overwhelmingly broad based, combining the benefits of stronger demand in the traditional Western European export markets with steady growth in private consumption, and, even more importantly, with a gradual recovery in domestic capital spending.