Central Europe is a land of contrasts. It is historically and culturally diverse, but it has emerged from a centralised economic system, which gave all its countries similar experiences in post war years. It is a region where a new generation, born in the 1980s, has come of age in a market oriented system. All the countries in the region are on the same reform path mapped out by the European Union, but they are at different stages. Some are already in the EU, others are still waiting to start EU accession talks. Some have yet to take decisions on when to join the euro zone, others like Slovenia has joined or, like, Slovakia, are about to join. What is clear, though, is that Central Europe, as a whole, is one of the world’s fastest growing regions.
Indeed, as gross domestic product (GDP) growth in western Europe slows, average growth in Central Europe is expected to reach 5 per cent this year compared to 6 per cent in 2007. GDP in the Central European region is already over 50 per cent higher then it was in 1989, even taking into account the fall in GDP at the beginning of the 1990s, which followed the transition to a market economy. The last decade, between 1998 and 2007, has seen annual average Central European GDP growth reaching 4 per cent or around 2 per cent higher than in the EU-15 countries. Assuming these trends continue, Central European real GDP will double within two decades. If population growth dynamics remain the same, regional GDP per capita, will, in the space of less than two generations, or around 35 years, have closed the gap with even the most developed countries of western Europe.
The global financial crisis which started in August 2007, means that the world economy faces the risk of a major slowdown. In 2007, the world GDP growth figure still stood at a relatively high 3.7 per cent. Estimates for 2008 are far less optimistic, with GDP growth set to drop to 2.7 per cent. But governments in Central Europe are looking at their own figures which are expected to reach an average of 5 per cent growth this year, even in spite of the sub prime crisis.
Predictions for Poland, the region’s largest economy, are good. Polish GDP growth should surpass 5 per cent in 2008 and slow in 2009 when GDP growth may be slightly lower. Of course, the various countries in the region tell differing stories. In 2007, the Baltic States were the leaders, with average economic growth reaching almost 9 per cent, however, this record is unlikely to be sustained in the face of a dramatic slow down, now expected to reach an average level of 3 to 4 per cent with further downside risk. Slovakia has replaced the Baltics as the fastest growing economy, with GDP growth exceeding 10 per cent in 2007 and 2008. The figure is expected to slow slightly to 7.5 per cent in 2009. Slovakia will enter the euro zone on January 1; if it experiences similar overheating as was seen in the Baltics the policy options open to the authorities will be limited. Should the present populist government not continue with reforms of public finances and fail to accelerate structural reforms, its star could fall as quickly as it has risen.
Unemployment has been a serious problem in transition economies. Poland, where the jobless rate reached almost 20 per cent in 2002, has seen this indicator fall to below 10 per cent in 2008. Some experts point out that a regional economic slowdown could halt this positive trend. So could the rapid repatriation of people who have been working in Britain, Ireland and elsewhere in the old EU in recent years. However, over the longer term, the region faces a labour deficit similar to the one in western Europe, particularly among the youngest section of the workforce, resulting from the dip in the birth rates seen during the early 1990s caused by economic and political transition. As a result Central European companies will have to become more skilled at hiring, training and retaining employees.
