Central and Eastern Europe (CEE)

In Central and Eastern Europe (CEE 11) growth accelerated from 4.0% to 5.3% in 2004; this was partly a consequence of the first round of EU accession in May 2004. Industrial output rose by 10%, supported by investment activity. Whereas in 2003 economic growth was still driven primarily by domestic consumption, 2004 saw an additional impetus to growth from foreign demand. Economic growth accelerated in all countries covered by our operations with the exception of Croatia, where economic reforms were initially implemented at the expense of growth. Of greatest significance for our operations was the growth experienced by Poland (5.4% after 3.8%), followed by Slovakia and Hungary. Romania (8.3%) and Bulgaria (5.6%) both witnessed an upturn that resembled a boom. Most countries pursued a restrictive monetary policy, which together with the demand for foreign currency by foreign investors and portfolio investors, led to an appreciation of their currencies against the US dollar, and the euro as well. In 2004 the expansion of the banking sector in CEE again clearly outperformed economic growth on account of the continued acceleration of financial intermediation. Demand for loans grew by 16% in the CEE 11 countries combined. Deposits increased strongly, by 13% – albeit with great regional disparities – as the rise in incomes in industry began to affect downstream sectors.