Challenges for CEE with new decade just ahead

Erste Group
By January 16, 2019 02:06

Challenges for CEE with new decade just ahead

At the beginning of the new decade, CEE countries are likely to face a number of challenges as far as economic growth and convergence are concerned. Although the current EU funding programming period ensures the CEE region a solid flow of EU funds until 2023, there will be fewer EU funds available under the latest proposal of the 2021-27 Multiannual Financial Framework (MFF). Until 2023, CEE should lead in growth in Europe. Despite the expected slowdown as countries enter a new phase of the economic cycle, growth dynamics in CEE should be twice as high as in the Eurozone. After 2023, the amount of money allocated to the Common Agricultural Policy and Regional and Cohesion Policy will be cut substantially, according to recent budget proposals. Moreover, the high degree to which public investment in the region depends on EU funds may thus raise questions on the ability of CEE governments to finance and further develop infrastructure projects, for example. Second, the negative demographic trend, in particular the shrinking workingage population, is expected to weigh on CEE’s potential growth in the decades to come. On a positive note, though, this trend does not necessarily have to negatively affect the GDP per capita figures for the countries in the region. The labor market in CEE has never been so tight and labor shortages have increasingly been seen as an obstacle to growth. Thus, an increase of labor participation rates and support for the region’s convergence closer to levels seen in Western Europe may substantially offset the negative trend of the working-age population in CEE. Another broadly debated issue is the risk posed by automation, which certain recent studies suggest is particularly high for CEE economies1 . Given this challenge, policies in the region should continue to focus on promoting educational attainment and lifelong learning. Finally, countries in the region should also properly address the challenges associated with divergent regional and urban developments. There is still a relatively high share of the CEE population living in rural areas. Instead of subsidizing the underdeveloped regions, fostering urbanization could have more positive effects on productivity.

Erste Group
By January 16, 2019 02:06

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