The economy of Central and Eastern Europe (CEE) will shrink by about 5.3% in 2020, compared with an 8.9% contraction in the euro area, Berlin-based Scope Ratings said on Thursday.
Since the global financial crisis, CEE countries have developed more diversified engines of growth, debt management strategies have led to longer government debt maturities and a higher proportion of local currency issuance, while financial stability has improved, Scope Ratings said in a report.
“Anchoring higher growth in the CEE region has been investment, running at a yearly average of nearly 23% of GDP over the past decade compared with less than 21% of GDP in the euro area,” Levon Kameryan, analyst at Scope, said. “However, to maximise the economic impact of such investments, governments need to spend more on training workers and focus on long-term growth-enhancing investment.”
To ensure that living standards continue convergence with Western Europe’s the region's government should invest in skilled labour, develop domestic capital markets, and address environmental, social and governance issues, according to Scope.
The EU’s Resilience and Recovery Plan could emerge as a major supporting factor for those endeavors if governments are prepared to use proceeds productively and comply with ESG-related guidelines, such as investment in renewables and setting appropriate social and governance standards, Scope also said.
Subdued productivity growth in many CEE countries has reflected limited spending on research and development, the latter running below a euro area average of 2.2% of GDP yearly and converging only slowly despite inflows of foreign direct investment, Scope added.
CEE countries could also accelerate growth by using their potential to accelerate green transitions at a lower cost, given greater scope than Western European peers in improving energy efficiency in production and consumption, the agency noted.