CORRECTED - FACTBOX-Five risks to watch for in the eastern EU

(Corrects amount of newly agreed Hungarian budget ceiling to 3.9 percent of GDP, not 4.6 percent)

By Mike Winfrey

PRAGUE, Aug 11 (Reuters) - A string of less bleak data in central and Eastern Europe suggests the financial crisis-driven economic downturn across the region has started to ease.

But issues ranging from ballooning budget deficits to a grim demographics outlook still pose a range of short-term and long-term risks to Europe's emerging east. Following is a description of some challenges still facing the region:

ECONOMIC RISKS REMAIN

The risk of multiple national bankruptcies and a chain reaction in cross-border banking failures in emerging Europe has subsided since the International Monetary Fund threw lifelines to Latvia, Hungary, Romania, Ukraine and others.

But a continuing economic slump and higher social spending have caused budget revenues to fall and public deficits to jump.

A spike in company bankruptcies and higher jobless rates are also expected to help drive up the level of non-performing loans to 10-20 percent, putting strain on banks.

Most governments have managed to tap international debt markets, while foreign-owned banks have benefited from liquidity-injecting measures in their home countries, which has allowed credit to continue to expand, although very slowly.

But risks remain. Economists say that, if the crisis lasts longer than expected and foreign demand for products made in industry-heavy east Europe does not resume, it could cause currency volatility, widespread default, and a repeat of the investor flight that threw the region into turmoil last year.

PAINFUL BUDGET CUTS

The most immediate problem for countries in central and Eastern Europe is also the one expected to create the biggest headaches down the road, as ballooning budget deficits today make it harder for governments to rein in their spending later.

Already some of the deficit limits set by the IMF have had to be loosened, and others are under acute strain.