By Alan Crosby
VIENNA (Reuters) - East European economies have weathered the global credit crunch so far, but they are becoming increasingly vulnerable and governments must tighten fiscal policy to avoid overheating, the IMF said on Wednesday.
Speaking at the Reuters Central European Investment Summit, International Monetary Fund regional representative Christoph Rosenberg said he expects a slight economic slowdown in the European Union's east European members.
"(These countries) have done very well with the market turmoil until recently. We do think the countries have not used fiscal policies appropriately, some have really poured oil on the fire with their fiscal policies," he said.
The IMF said in a report on the world economic outlook that it had revised downward all of its 2008 GDP forecasts for EU members in east Europe, with the exception of Lithuania which remained unchanged.
The IMF report said the Baltics would see 2008 growth of 6.3 percent, down 0.2 percentage points from the previous estimate, while the outlook for central European members was revised down by the same amount to 4.9 percent.
Southeastern Europe's EU members will see growth of 5.7 percent in 2008, down 0.8 points from the IMF's July forecast.
"The (economic) numbers look good but vulnerabilities are growing in the region... In general we think that in 2008 there's going to be a slowdown... Recent events have highlighted the downside (economic) risks."
Rosenberg said as countries in the region approve their 2008 budgets in the coming weeks, they will have an opportunity to help ease pressure on their economies and create positive conditions for the longer term.
"One thing is very clear: Fiscal policy should be much less pro-cyclical, and that's particularly the case for the countries with fixed exchange rates and don't have any other real policy instruments at their disposal," he said.
Rosenberg said countries in the region must also work to make their labor and capital markets more flexible to support the flow of resources from non-tradables to tradables.
He also said they are focusing too much on meeting Maastricht criteria to join the euro zone, instead of looking at the broader restructuring picture for the longer term.
"We think that this whole debate about euro adoption is very much focused on meeting the Maastricht criteria and not so much on what we can really do to get the economy ready for really doing well in the euro zone."
(For summit blog: summitnotebook.reuters.com/)
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