Eastern European economies should brace themselves for a slowdown in growth after their business model has been exposed as weak, think-tank Vienna Institute for Economic Studies (WIIW) said, as quoted by Dnevnik daily on November 29.

The economic boom experienced by the region since 2000 was based on the shaky foundation of foreign capital inflows, which has led to a drastic increase in current account deficits, the sole exception being Russia.

Until recently, those disbalances were offset by foreign direct investment and loans, but the global cash squeeze is set to put an end to cheap and easily available credit, with a direct consequence of slower economic growth, the think-tank said.

Four countries in the region - Estonia, Hungary, Latvia and Ukraine - faced an economic recession now that capital inflows have diminished. The rest of the countries in the region would see the growth of their economies slow down.

The main risk factor, according to WIIW, was the short-term foreign debt, which in the cases of Croatia, Hungary and Latvia is as big as their entire hard currency reserves, with Romania not far behind. As refinancing opportunities disappear, those countries would find it difficult to pay back their debt on time.

Another risk factor was the large share of foreign currency loans in the credit portfolio of local banks, the think-tank said. In Bulgaria, Croatia, Hungary, Latvia, Romania and Ukraine, foreign currency loans accounted for more than half of all loans given in the country.