CEE economies are stable and represent only a moderate to low risk, claims a report published by Atradius, a global trade credit insurer. The report focuses on the Czech Republic, Slovakia, Hungary, Poland, Russia and Turkey, and also this year includes Romania and Bulgaria, due to their long-term growth potential.
Ten criteria were used for the Atradius ranking: real GDP, inflation, real private consumption, real government consumption, industrial production, unemployment rate, real fixed investment, real exports of goods and services, current account/GDP and fiscal balance (percentage of GDP). Despite uncertain political conditions in a number of the countries surveyed, all have registered a recovery after the contraction of 2009, reaching a GDP of 3-4 per cent, primarily driven by stronger exports and growing private consumption. Unemployment is expected to fall as well.
“It is rather difficult to lump all those countries together,” Dana Bodnar, senior economist at Atradius, tells Emerging Europe. “The EU members among these countries present potential for growth due to the fact that they are part of the club, with its common market and EU business and investment regulations which guarantee, to a certain extent, a business-friendly environment,” she said.
“These countries are attractive for FDI as they still have lower wage levels compared with Western Europe, coupled with reasonable levels of productivity. They are still in the process of catching up with their Western European peers, which provides further business and investment opportunities. Economic growth is generally above EU-average in those countries.”
Still, risks remain. Some countries are too much export-oriented. At more than 75 per cent, the Czech Republic’s export-to-GDP ratio is one of the highest in the EU and the Slovakian economy is heavily reliant on industrial exports (especially in the automotive industry). According to the Atradius report, Hungary’s major weakness remains its high level of external debt, which represented almost 100 per cent of GDP in 2017, while Poland remains vulnerable to international investor sentiment due to the financial and economic fallout of the United Kingdom’s vote to leave the EU.
“Certain countries like the Czech Republic and Slovakia may be too dependent on exports, which makes them more vulnerable to global downturns,” Mrs Bodnar adds. “However, those countries are catching up, and domestic demand growth is also supported by large EU subsidies which help to improve economic conditions, especially infrastructure. The labour markets in, for instance, Poland, Czech Republic and Romania are all tighter than the European average, partially due to emigration, but this means high employment and upward wage pressure which supports domestic demand.”
Germany remains the main import and export market for all CEE countries, led by the Czech Republic, where German imports represent 30 per cent of GDP.