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March 16, 2018 www.intellinews.com I Page 10
fellow EU members. One risk elaborated on
by wiiw economists during the webinar is the potential impact of these populist politics on FDI inflows, particularly from Western Europe. While the region has seen a rebound in investment recently, Grieveson notes that “anecdotally, on the private side we are seeing a lot of caution re- lated especially to challenges to the rule of law” in Poland ... this may not be affecting FDI now but probably will become increasingly more the case over time”, especially given that a possible tailing off of private investment could be masked by the current strong inflows of EU funding.
This could change when the next EU funding programme starts, with less money available post-Brexit. “I would not underestimate the extent of irritation with eastern EU member states in certain Eestern European states,
for example France. A lot of things are being brushed under the carpet in the EU because of Brexit, but that will not be the case indefinitely.”
Growth across the board
wiiw’s data shows that economies across the CEE region expanded at a healthy pace in 2017, with most hovering around 4% y/y and even the slowest – Slovakia – growing by 3.4%. This is set to continue though at a slightly more moderate pace in 2018, when growth rates are pegged
to range from 3.5% in Lithuania to 3.8% in Hungary, Latvia, Poland and Slovakia.
By contrast, the CIS countries assessed in the report – Belarus, Kazakhstan and Russia – plus Ukraine are the “regional laggards” and are set to remain as such, though a continued gradual recovery is anticipated.
There is a rather mixed picture from Southeast Europe, with the SEE9 – EU members Bulgaria, Croatia and Romania plus the six aspiring mem- bers from the Western Balkans – expected to grow at an average of 4%, ahead of both the Visegrad 4 and the Baltic regions. Growth in SEE will range from 2.8% in Serbia, which has strug-
gled with structural reforms in recent years, to a buoyant 4.7% in Romania, which is holding onto its title as the fastest growing economy in the wider region, albeit at a slower pace than in 2017.
Romania also has the highest inflation forecasts for the Central and Southeast Europe region, and is among three countries – the others being the Czech Republic and Turkey – seen as being at risk of overheating. This is of less concern in the Czech Republic, but “we see imbalances clearly there” in Romania and Turkey, Grieveson told participants in the webinar, though added that, “we are still quite far away from this becoming really serious”.
Longer-term pitfalls
Despite these concerns, overall the region is growing fast at present, contributing to conver- gence with Western Europe, even with the robust growth in Germany and elsewhere in the Euro- zone. But while convergence with Western Eu- rope is expected to continue during the forecast period until 2020, wiiw sees some significant long-term challenges to convergence.
The first is the demographic decline across the region, which wiiw anticipates could be a constraint on growth by the 2020s.
The recent period of rapid growth and plummeting unemployment in CEE, especially the Visegrad 4 countries, has already created labour shortages, with major manufacturers looking to import workers to enable them to ramp up production.
The emergence of these labour shortages risks becoming growth constraining, according to wiiw. To offset that, there is growing migration within the region from countries such as Serbia and Ukraine to the countries where labour markets are tightest. Ukrainian migrants now represent an important part of labour markets in countries in the region, helping to prevent too much constraint on growth in the short term, the institute says.