From boom to slowdown: Central and Eastern Europe faces strain

After two decades of progress, researchers warn that Central and Eastern Europe may see its economic development slow.

Analysis from the Warsaw School of Economics has examined the fate of 11 countries that joined the EU after 2004 (CEE-11), namely: Poland, Bulgaria, Croatia, the Czech Republic, Estonia, Lithuania, Latvia, Romania, Slovakia, Slovenia and Hungary.

Researchers analysed the economic progress made by these nations between 2004 and 2024, paying particular attention to the rate of economic growth and real convergence. In other words, how quickly these nations have closed the development gap with the EU-15, the bloc’s wealthier Western members.

"These countries as a group have developed at a rate almost twice as fast as the so-called 'old Union' or the EU-15," Dr Piotr Maszczyk, head of the Department of Macroeconomics and Public Sector Economics at the Warsaw School of Economics, told Euronews.

"It is pleasing to every Pole's heart to say that Poland in this group has developed the fastest," he said.

Central and Eastern Europe: Twenty years of exemplary growth

The study shows the exceptional scale of the success achieved by Central and Eastern Europe.

The region's growth has not only sped up, but it has also become more resilient to shocks. Despite the global financial crisis, the pandemic and the war in Ukraine, the CEE-11 countries have maintained a high pace of development.

The average growth rate among these eleven new EU member states reached 3.2%, compared to 1.6% in the so-called “old EU” (EU-15), and 3.8% in Poland alone.

This enabled the entire CEE-11 group to make up, on average, nearly 30 percentage points of the development gap with the founding countries, measured by the ratio of GDP per capita in purchasing power parity.

"It was a real success story," stressed Maszczyk, adding that economists — and not only Polish ones — even call these two decades an "economic miracle".

Scenarios for the decade 2025-2035

However, the outlook for the coming years does not inspire optimism, and researchers say a decade of challenges looms after twenty years of prosperity.

"The outlook for the next ten years is not so favourable," warned Dr Maszczyk.

Experts at the Warsaw School of Economics (SGH) have created three development scenarios: baseline, cautionary and optimistic.

Which one materialises will depend on each country’s ability to implement institutional reforms.

In the cautionary scenario, the current convergence trend would stall, and the gap between post-socialist economies and the EU-15 would begin to widen again. The optimistic scenario, on the other hand, envisions that by 2035 Poland and the rest of the CEE-11 could reach parity with the EU-15 in GDP per capita (PPP terms).

Two main threats

The academics identify two key threats to the region's future growth.

"Firstly, demography. Our region of Europe is depopulating, and Poland is doing so at the fastest rate," warned Maszczyk.

He explained that Poland is heading towards a fertility rate below one, while 2.1 is needed to sustain generational replacement. By 2060, the country could shrink to 30 million inhabitants, dominated by an ageing population.

"And the second element, is innovation," Maszczyk added. "Both public and private investment in R&D are deeply insufficient."

He noted that Polish business is at the tail end of Europe in terms of AI usage. The latest data from the Polish Economic Institute shows that only 5.9% of companies employing a minimum of 10 people are using AI-based solutions in 2024. This is the penultimate result in the entire European Union, with only Romania faring worse.

The problem of patchwork capitalism

A key challenge for CEE-11 countries is to overcome what the researchers call 'patchwork capitalism', which they view as characteristic of the region.

"It is the kind of institutional arrangement in which regulations are very often created without order and consistency," argued Maszczyk.

According to the researchers, the 'patchwork' is made up of loosely connected elements taken from different regimes — feudalism, pro-capitalism, socialism and modern models of Western European capitalism.

Entrepreneurs complain about this environment of inconsistent regulations.

Romania a frontrunner, Hungary trailing

The fate of the CEE-11 is a tale of both successes and challenges. Alongside Poland, other case studies stand out.

"Romania is a particularly positive case," said Maszczyk. "Although it did not record the highest GDP growth, it was the fastest in narrowing its gap with the EU-15."

Here, the key to success was the combination of GDP growth and favourable demographic changes.

"Let us remember that an indicator such as GDP per capita depends not only on how fast GDP grows, but also on how the population changes," Maszczyk added.

The situation is quite different for Hungary, which recorded a much slower growth rate.

"Hungary recorded an average growth rate of 2% over the period 2004-2024, which is below the average for the entire analysis group and only slightly above the level characteristic of the old European Union," explained Maszczyk.

He said this slower trajectory will persist through the next decade to 2035, and the reasons for this lie in Hungary's history of transformation.

"The country went through a particularly tough systemic transition before joining the EU. By the mid-1990s, Hungary had experienced a deep transformational recession and a sharp economic collapse," said Maszczyk.

The experts were interviewed during the 34th Economic Forum, of which Euronews is a media patron.