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The CEE economic success story, still in the writing

Last decade saw CEE grow slower amid the rise of Asia, but still much faster than developed Europe

source: IMF, Colliers International

Generally speaking, the CEE region is a quite heterogenous region, with some countries regarded as high-income by the World Bank (mostly the EU member states covered in this report) – though neither yet are on par with the likes of Germany, with the others in the upper-middle income group and Ukraine trailing the pack in the lower-middle income category. Just to mention the headline numbers, the 17 countries we have covered in this report have a collective population of ca. 168 million people, which is almost double that of Germany’s, but just one ninth of China’s 1.4 billion.

Together, these countries produce 1.9 trillion dollars’ worth of goods and services each year, with Poland capturing the lion’s share of this at ca. 29%, with the Czech Republic and Romania accounting for a further 25% together. This underscores just how diverse the region is, with countries of quite different sizes and at different stages of economic development, from frontier markets with plenty of longer-term potential (albeit destined for lower complexity operations currently and higher risks), to countries ready to make the jump into an innovation-driven economy. In fact, in Harvard University’s Atlas of Economic Complexity, Czech Republic, Hungary and Slovenia were in the top 10, alongside the likes of Germany and South Korea, with other CEE countries (mostly the EU member states) not too far behind.

Different stages of development, different growth speeds, different opportunities

source: IMF, Colliers International

Looking at where the region has come from, it is arguably one of the better performing in the world over the last couple of decades, and probably the best performing if we were to exclude southern Asia from the picture (particularly China, which has seen astronomical economic results). That said, compared to Western European countries, which act much more as major economic partners (in terms of trade and source of investments) than Asian economies, it is a clear overperformance. For example, the share of the CEE-17’s GDP in Germany’s has more doubled, from 24.8% in 2000 to 50.2% in 2019. The region’s share of the world GDP has increased from 1.4% in 2000 to 2.2% last year.

At the same time, the main macro indicators look quite a lot better, highlighting big strides in improving internal stability. For instance, none of the countries have an inflation problem currently, despite several of them having had double digit rates in the 2000’s, or even triple digit in Belarus’ case, not helped by the current political situation; the biggest inflation rate in the region this year are estimated to be in Belarus (5.6%) and Ukraine (4.5%), with the rest countries displaying even more tame expectations.

Foreigners pouring in impressive capital for industrial operations in CEE

source: FDI database, Colliers International

While current account deficits are a bit higher than the safely regarded levels (with Montenegro and Albania expected to see double digit gaps as a percentage of GDP in 2020), it is still possible for emerging economies to run a bit hotter, particularly if the gaps can be covered by other inflows, like foreign direct investments or EU funds.

CPI is better behaved than in the past, with unemployment generally offering more room for job gains than in Western Europe

source: European Commission, International Monetary Fund

Thankfully, the attractive labour costs and good geographic position, bridging developed Europe to Asia and the Middle East, has pushed capex ever higher in the last decades. Foreign investments in various industrial operations have totaled ca. half a trillion dollars and created 1.8 million jobs in the CEE-17 countries. The bulk of the money has gone to the “usual suspects”: the bigger EU member states with somewhat lower wages, though this offers an opportunity for the rest to catch up, particularly as wages have risen rapidly in states with big investments.

Overall, the CEE region is closing off one very successful decade, with the same ingredients that have helped countries overperform in recent history still very much in place and, with constant improvements in public governance, will keep the appeal high.

In closing, it is also worth noting that different countries face different challenges: from overcoming the middle-income trap for the richer nations, to countering negative demographic trends (particularly for poorer countries, amid big external migration), but at the same time, all countries offer interesting and various opportunities which we hope can be highlighted in part by this report.

Key contacts

Lukáš Hejduk
Lukáš Hejduk
Head of Real Estate, CEE
T +420 296 798 892
Gregor Famira
Gregor Famira
T +385 1 4825 600