Gross Domestic Product of emerging Europe is expected to contract by 3.1% in 2009, a severe and abrupt recession after growth of 4% in 2008, said Edward Parker, Head of Emerging Europe Sovereigns at Fitch, reads a press release remitted by the raging agency.
He said it expected only a modest recovery of 1.4% in 2010, insufficient to prevent further rises in unemployment and pressure on public finances.

Emerging Europe (EE) will suffer its steepest fall in real GDP since the collapse of the Communist planned economic system in the early 1990s, reflecting the severity of financial shocks that have hit the region.

Fitch notes that the divergence in growth prospects this year underlines the need to differentiate between countries rather than treat emerging Europe as a homogenous block, as reflected in different sovereign rating levels and rating actions since the onset of the global financial crisis. The agency has downgraded the sovereign ratings of 10 countries in EE since August 2008.

Fitch Ratings projected a 3.4% contraction of GDP in 2009 in euro area, after 0.7% growth in 2008. In 2010, the economy in the euro area is expected to climb 0.4%.

As for the global economy, GDP will fall 2.7% in 2008 and increase 1.4% in 2010. In 2008, the global economy grew 1.7%.

According to Fitch, the economies most exposed to the dramatic decline in global trade and financial flows and' deleveraging' process are Hungary and Kazakhstan, while Poland and Turkey are least exposed, albeit not immune, to these shocks.

Out of 21 countries it covers in the region, Fitch forecasts GDP to contract in 19 of them, be flat in one and grow in only one. Of the largest economies, Fitch forecasts both Russia and Turkey to shrink by 3% and growth to be 0% in Poland.

The central European economies (with the exception of Poland) will be badly affected through the trade channel as they are relatively open and their exports are weighted towards cyclical industries such as cars.

The countries with large current account deficits, or dependence on foreign financing, particularly the Baltic states, will suffer falls in domestic demand as they have to rapidly correct macroeconomic imbalances.

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