Central Europe’s economic growth on a slippery slope, warns OECD

Budapest, Hungary – Central European economies’ are poised to expand at a robust pace in the coming years, but their growth rate is quickly decelerating, the OECD warned in its latest Economic Outlook report.

Global outlook “unstable”, warns OECD

In its November 2019 Economic Outlook, the OECD paints a rather gloomy picture of the world economy, warning of an “unstable” economic outlook, fueled by uncertainties surrounding ongoing global trade conflicts, the lack of international cooperation, policy uncertainty, the lack of much-needed structural reforms in a number of key countries and various geopolitical risks looming over global trade and economic exchanges.

The world’s economic GDP growth fell to 2.9% this year, according to the OECD, its lowest level since the financial crisis, “and is expected to remain stuck at 3% over the next two years”.

Although remaining, on the most part, the fastest-growing economies in the EU, Central European countries may also face tough times ahead.

Central Europe’s economic growth: robust but decelerating

Although counting among the top performers in the EU, export-driven Central European economies are slowing down, fast, and remain extremely vulnerable to global trade disruptions and the slowdown of its main economic partners, including Germany.

After growing by 5.1% in 2018, Hungary‘s GDP growth should fall to 4.8% this year and experience a precipitous drop in 2020 (+3.3%) and 2021 (+3.1%).

While domestic demand and private consumption will remain the main driver of the Hungarian economy’s growth, challenges lying ahead include the deceleration of public investment “along with declining disbursements from EU structural funds” as well as a tightening labour market poised to “push up wage and price inflation”.

Poland will experience a similar drop. After growing by more than 5% last year, the Polish economy should expand by 4.3% in 2019, 3.8% in 2020 and 3% in 2021, according to OECD projections.

The deceleration of both private and public investment, low trade growth limiting exports and the steady decline of the labour force count among the main factors to watch for in Central and Eastern Europe’s biggest market.

Slovakia, where warning of an imminent economic slowdown have been intensifying in recent months, should grow by only 2.5% this year, compared to 4% in 2018. GDP growth should further fall in 2020 (+2.2%), before picking up the following year (+2.6%).

Global trade disruptions and a weak external demand will be the main factors weighing down the Slovak economy, according to the OECD, which also calls for “a thorough reform of the public sector” in order to increase the efficiency and finance inclusiveness-friendly reforms, notably towards the country’s sizable Roma population.

In a similar vein to its Slovak neighbour, the Czech Republic should see its GDP growth decelerate from 2.9% last year to 2.6% in 2019 and 2.1% in 2020, before growing slightly more rapidly in 2021 (+2.3%).

“The external sector will limit growth as economic activity in the main trading partners is slowing”, highlight OECD experts, “which will also lead to declining investment growth”. Furthermore, the record-low unemployment in the Czech Republic will stay around its current level, while labour shortages will remain the main obstacle to a more robust growth.