Hungary will postpone its drive to join the euro (Q1 2004)

Economic growth should pick-up across Eastern Europe in 2004 as export demand rises and inflows of FDI remain strong. Of the four larger economies joining the EU in May this year – the Czech Republic, Hungary, Poland and Slovakia (the so-called Visegrad-4) – growth will be weakest in Hungary, depressed by high interest rates and poor external competitiveness. Of the prospective members of the EU – Bulgaria, Romania and Turkey – the Turkish outlook is the most uncertain. We expect Turkish growth to slow sharply in 2005, as a refusal by the EU in December this year to give a firm date for starting accession negotiations hits the lira and forces up interest rates.