The Competitive Edge in Central and Eastern Europe


Ciprian Dascalu

About Ciprian Dascalu

Ciprian Dascalu is Chief Economist at ING Bank in Romania. He graduated with an Msc from the Doctoral School of Finance and Banking - European Centre of Excellence, Bucharest University of Economic Studies. He started his career in 2003 with National Bank of Romania as an economist within the Monetary Policy Department and joined ING first time in 2006 as a senior economist. He left briefly for two years for a career as a trader at Millennium Bank, followed by a one year as financial markets business manager with Unicredit, before returning to ING in February 2015 as Chief Economist.

Joining the EU has unlocked robust GDP growth and continues to aggregate positive energy in the Central and Eastern European (CEE) countries. Adhering to the common market has brought a surge in trade, positive institutional changes and improvements in the business environment. However for many countries, it has also led to a migration of the labour force, which could affect long-term economic growth prospects.

The CEE region has attracted international players who are looking to expand their business to new EU members. The region has also appeared on the radar as an outsourcing destination that has a number of advantages: lower labour costs, an available and skilled labour force and a friendly corporate tax regime, but the story is far from homogenous. Some of the disparities within the CEE date back to the communist regime and its relative rigidity, but most have to do with the speed of reform and structural changes during the post-communism period.

There are significant gaps between the first group of states that joined the EU extension to the east and the late comers. Coming from very low productivity levels, all the countries benefited from external capital inflows leading to productivity gains that significantly outpaced the EU average, with Romania displaying the strongest performance amid the low statistical base. Most countries have seen an improvement in their World Economic Forum competitiveness index over the last ten years, but overall momentum is showing signs of fatigue and some countries are even witnessing an erosion of their competitive edge.

Labour costs are still competitive, relative to the EU, with the lowest being observed in Bulgaria (13.9 per cent of Eurozone average for business economy in 2015) and the highest in the Czech Republic (33.6 per cent of average). At the same time, although wages are growing quickly, government policies are raising minimum wages faster than average and labour productivity. While minimum wages remain about one third, relative to the Eurozone, the ratio between the minimum and average wages is relatively in-line with Western Europe. This is because politicians want to appeal to voters without a direct fiscal impact.

These wage pressures are coming on top of labour market tightening, with surveys showing that the manufacturing sector is seeing labour shortages as an increasingly important factor for limiting growth (at eye catching levels in Hungary). While such policies usually affect the lower skilled and younger workers, the CEE competitive edge is not only about a cheap labour supply.

Increasing labour costs, which are not always correlated with productivity gains, risk provoking job losses in these still labour-intensive economies. With the exception of the Czech Republic, a larger percentage of jobs in the CEE countries are threatened by technological advances, relative to the EU average. Some countries have put more effort into the education system, spending above the EU’s average on budget resources (notably Poland).

However, others are continuously underfunding education (3.1 per cent of GDP state funds are allocated for education in Romania vs the 4.9 per cent EU average). Functional illiteracy is high among students in CEE, with Poland being the notable exception, mainly because their reforms began over a decade ago and are bearing fruit. Once again, in terms of the number of employees with a tertiary education, Poland stands out positively, while Romania stands out also, but for negative reasons. This is mainly related to the countries resolve in implementing reforms, but there is also limited social inclusion for some social categories, especially in Romania and Bulgaria. This is very important because a person with a tertiary education is more likely to be employed and is generally more productive.

Alarmingly, many in the so-called ‘Y generation’ are shunning both education and the labour market. Bringing them back into work is vital, as the ageing population poses one of the biggest dangers for Europe. This is of even higher importance for CEE countries, which have experienced lower fertility rates and are less attractive to migrants than Western EU countries, leading to the risk of a dwindling workforce in the decades to come.

EU funds play an important role, allowing CEE countries to reduce regional discrepancies, improve infrastructure and tackle labour market frictions. In absolute terms, Poland receives the most of the EU funds that are CEE-directed, followed by Romania. But as a ratio to GDP, EU funds matter more for Bulgaria and Croatia than CE4 (on average).

Currency strength can also be a factor and different exchange rate measures which have been deflated by prices, unit labour costs, manufacturing labour costs and export prices, show that currencies are, generally speaking, fairly valued when compared to each other, with the exception of the Bulgarian currency (pegged to EUR) which seems to be at a disadvantage.

Corporate tax is also attractive in the CEE, relative to the Western Eurozone, but labour taxation is not as friendly. The infrastructure is generally behind Western standards and in some cases it represents an important disadvantage (notably Romania). At the same time, the institutional framework is mainly discouraging. CEE countries each have different selling points when it comes to business. Some shine (and outshine) in education (Poland), while others still offer very attractive labour costs (Bulgaria and Romania). Moreover, sectorial and geographically targeted state incentives could make the difference when choosing a location.

In the medium-term, growth is likely to continue to outpace growth in the Eurozone, but there are risks on the horizon. Populism, which seems contagious, and policy uncertainty reign supreme in the CEE. The idea of a two-speed Europe is not looking good for the CEE space with the approach varying from one country to another, and at a time when geopolitical challenges need close monitoring.


The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy.


20 Years of Romanian-US Cooperation

usa romania emerging europe

Will the New Five-day Visa-free Regime Encourage More Visitors to Belarus?

The CEE Region Is Making Advances in Prioritising Waste-to-Energy Projects

How strong is V4?

Viktor Orban

Romania Could Catch Up in Innovation

innovation emerging europe

China and Central Europe: Don’t Believe the Hype


Poland: Is it Ready, and is it Time to Adopt the Euro?

The Voice of European Business Must Be Heard Loud and Clear by Brexit Negotiators

Measuring Growth of Societies with GDP Alone Shows an Incomplete Picture

The Right to Water: Who Can Change Today’s Situation?

Romanian Wine: A Growing Opportunity

halewood wine

Czech Republic Renaming Has Real Economic Costs

Romania Surviving the Waves of Recent Political Tsunamis in Europe

European Volatility Makes Economic Development Slower for Ukraine

Is the CEE Region About to Steal the Outsourcing Crown From India?

Amazing view on the Taj Mahal in sunset light with reflection in water. The Taj Mahal is an ivory-white marble mausoleum on the south bank of the Yamuna river. Agra Uttar Pradesh India.

Fiscal Policy Predictability in CEE — It’s Time for Change

International Women’s Day — Let’s Take Action And Then Celebrate

Could the West At Least Help Ukraine To Insure FDI Against Political Risks?

Albania’s Election Apathy

tirana albania

United or Divided? Europe in the Face of the Challenges of Tomorrow

Budapest and Warsaw: Marriage of Convenience or Union of Values?

Why Hungary’s New NGO Law Is Harmful for Business

Budapest, Hungary. Aerial view of the old city Budapest, Hungary with river and Parliament Building with cloudy blue sky

Robust First-Quarter Growth in Romania

emerging europe romania brasov

Romania’s Government Plans to Grow the Country’s Already High ICT Reputation

romania ICT emerging europe

How Will Trump’s Visit Affect Polish Politics?

Donald trump

Is the Level of Foreign Ownership a Problem in Emerging Europe?

Flags of European countries flying from their capital cities. Viewed from the South.

Romanian Wine Is Making a Comeback

When Neutrality Isn’t an Option

President of the Russian Federation Vladimir Putin

Assaults on the Judiciary: How CEE Governments Are Trying to Restrict Judicial Independence, and Why It’s Not Working… For Now

poland romania justice system

Romanian Upgrade to Emerging Market is on the Cards

Romania capital market

Under Promise, Over Deliver: Prospects for the EU’s Eastern Partnership in 2018

Eastern partnership

Privatisation, Past and Present in Romania

energy privatisation romania emerging europe

Surprising Resilience of Romanian Social-Democrats

BUCHAREST ROMANIA - June 21 2017: Liviu Dragnea President of Social Democrat Party speaks in front of Parliament during a no-confidence vote against Sorin Grindeanu's Cabinet.

Changing Perspectives and Showing That True Romania is a Vibrant Innovative Country

Moldova Falls Victim to Politicising

moldova emerging europe

Why the Baltic States Should Reject the Nanny State

man smoking a cigarette Cigarette smoking Cigarette with smoke

Poland’s Unicorn, Slovakia’s Flying Car and the Future of Europe

Outsourcing in Germany: Stop Talking at and Start Talking to

Romgaz and GE Partner in a New Power Project

romania GE

Political In-fighting Must Be Resolved

Sorin Grindeanu

Merging and Growing Romania’s Outstanding Broadband and Other Infrastructures

electrogrup emerging europe

Netherlands and Romania’s Love-Match Continues

romania netherlands emerging europe

‘Traditional Values’: A Potent Weapon Against LGBT Rights

gay rights putin

Czech Own Currency Insures Against Euro Losses

Euro Czech republic emerging europe

Regional Relations in the Western Balkans: Moving Beyond Folklore

Bosnia and Herzegovina flag with Serbia flag, 3D rendering

Romania’s Economic Outlook Is Bright

Different Romanian Lei Banknotes on the table

Are Labour Shortages Driving Economic Growth?

The Goal for Romania — the Positives Outweigh the Negatives

ebrd emerging europe romania

Impact of Brexit on EU-CEE Not Overstated

theresa may brexit

Juncker’s “More, Together” Offers Romania a Better Future

aspen institute romania emerging europe

Brexit: Let’s Learn the Lesson and Hope a Better Europe Will Arise

Poland and Romania: Almost 100 Years of Friendship That Is Still Growing

warsaw poland emerging europe

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

A New Division Between Eastern And Western Europe?

Where’s My Cheese? – The GREAT British Food Tour 2014

Cheese Shop

After 25 Years of Restructuring, the Romanian Power Sector Is at a Crossroad

The Global Outsourcing Industry — the Rise of the Phoenix

After Its Significant Rise the Georgian Economy May Now Fall

Panorama of Tbilisi, Georgia in sunset rays. Vivid, saturated, splittoned image.

Driving the Romanian Automotive Industry

opel romania

LGBT in CEE — A New Acceptance Is Being Born From Migration

Ex-Transition Economies’ FDI Recovery

dollar euro fdi

Big Fish, Small Fish, Where to Fish? On the Eve of the Fourth Industrial Revolution

Romania Works to Cement its Position in the EU

european union

Romanian Banks Must Use Lessons Learned

romania emerging europe banks

Poland Must Preserve Wilson Spirit

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

Romania’s Infrastructure Development Is Slow

roads romania

The Bucharest Stock Exchange Has Started the Year on a Promising Note

stock exchange bucharest

Are Czech-EU Relations at Breaking Point?

PRAGUE, CZECH REPUBLIC - 21 JUNE 2014: People on the streets of Prague, Czech Republic. Prague is one of the most visited city in Europe with over 5 million visitors every year.

Romanian Market Moving Towards Rebalancing

Adam Smith’s Warning for Poland

Emerging Europe Back on Track to Convergence


Defending EU Values in Poland and Hungary

Eu hungary poland

History as Destiny? Institutional Erosion in Ukraine and Poland

Ukraine’s Economic Recovery: Good, But Slow

ukraine money

China: A Giant That Is Hard to Crack

Nagorno-Karabakh Conflict Moves from Frozen to Kinetic


Can Romania’s success last longer?

brasov adecco emerging europe

Political Tensions Rise As Croatia Allegedly Breaks the Dublin III Refugee Regulation

croatia migrants

January Kicks Off an Exciting Year for Emerging Europe

Why Emerging Europe is the New Darling of Outsourcing

outsourcing Developing programming and coding technologies. Website design. Cyber space concept.

Efficient Innovation: Entrepreneurship in Bulgaria

Beautiful photos of modern buildings under blue sky. Europe, Bulgaria, Sofia.

Examining How a Strong Swiss Franc Could Single-Handedly Topple Poland’s Economy

Office Real-Estate Is Burgeoning in Romania

romania office space emerging europe

CEE — Do We Need a Launch Pad For Our On-Site Tech Intelligence in the Silicon Valley

The EU’s Choice: Fundamental Reform Or Disintegration

It’s Time for Romania to Roar

outsourcing romania emerging europe global sourcing association

Global Expansion in the Digital Age

Romania’s European Values Are Changing Public Misinformed Opinions

world bank emerging europe

Nurturing a Needed Knowledge and Innovation Culture

It cluster cluj

The Capital Markets Union: a New Beginning in the European Financial Sector?

Euroscepticism in Serbia: An Image Problem?

Romania — Decades After Two Milestones

View of Palace of Parliament in Bucharest Romania

Breaking With Imitations of the Past

Can Armenia Keep a Foot in Both Camps?

European union armenia russia emerging europe

Serbia’s New PM Is Cut From a Familiar Cloth

Serbian flag emerging europe

Macedonia’s Controversial Coalition Government

SKOPJE MACEDONIA emerging europe

Old Fashioned Skulduggery Overshadows the Elections in Moldova

Alexandru Petrescu: Romania Is Working to Solidify the Highest Growth Rate in Europe

BUCHAREST ROMANIA - MAY 1: Unidentified people relax and socialize in the green area of the Promenada Mall on May 1 2014 in Bucharest Romania. The mall has a gross floor area of approx. 110000 m.

Why Was Zapad-2017 So Important?

russian tank belarus zapad

Romania’s 140 Years of UK Cooperation

Emphasising the Incongruence Between the V4 Countries

Macron emerging europe

The Netherlands’ Objection to the Ukraine-EU Association Agreement could be Costly to Europe

Europe at Odds over OPAL and Nord Stream 2

Let’s Stop Wasting Time Redefining our Place in Europe

The GREAT London Food Scene

Bakery in London

Why is Armenia Borrowing Another 100 Million US Dollars From Russia?

We, the Post-Communist Generation, Have the Skills to Rid of the Past And Create Our Own Future

How Will Poland Approach the Brexit Negotiations?

Good Match But Unlikely Marriage

Risky (but Rewarding) Business

risky business

Central and Eastern European Consumers Are Joining the Global Trends for Change

Polish Tax Laws — Fighting a Winning Battle Against Tax Evaders

A Positive and Modern View of Entrepreneurship

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

Romania Can Still Provide Stability Within the EU

BUCHAREST, ROMANIA - 05 February 2017: More than 240,000 protesters in Victory Square (Piata Victoriei). "Torches" moment. At 09:00PM Romanian protesters shone torches on their phones.

Not All Quiet on the Eastern Front

CEE-Benefits and Disadvantages of Joining the Eurozone

forint zloty euro

Seven Reasons for Optimism in Romania

gazelle emerging europe romania

Romania’s Short-Term Prospects Remain Solid

romania economist

A Family Between Britain and Romania

london emerging europe

A Bosnian Referendum Shows Russia’s Influence in the Balkans—As Well As Its Limits

Moldova’s Briefly Suspended President is Still in Business

chisinau moldova parliament

Partnership is the Key to CEE-Indian Business

Prepare for a New Europe

Romanian IT Business Statistics Are Promising

ANIS romanian ICT

Will Poland Leave the European Union?


CEE: Innovate or Get Eaten


What Went Wrong in Ukraine – And When?

Are There Differences Between How Tax Regulations in Poland and IAS Treat Intangible Assets?

E-lifestyle and Cyber Security: Some Views From Estonia

Cyber Security Protection Firewall Interface Concept

What Was First on the Romanian Table?

food romania dragut emerging europe

Azerbaijan: The Rich Get Richer and the Poor Get Nothing


Princess Marina Sturdza: Things Are Bound to Improve for Romania

Central square in Iasi town Moldavia Romania

Poland’s Confusing GDP Growth

Swimpassing Dniester Without Prejudice To Democracy

Parliament of the republic of moldova in chisinau, national flag, stefan cel mare street, spring time with blue sky

Europe Needs To Be More Proactive In Embracing Armenia

Poland Challenges the European Identity

Poland emerging europe

Romania in 2017 in Brief

romania emerging europe

Belarusian Journalists Still Face Huge Problems

EU Visa-Liberalisation Strengthens Georgia’s Pro-Western Path

georgia emerging europe eu

PiS Uses Media Control to Bring Poland to Heel

Jaroslaw kaczynski pis emerging europe

Hungary and Israel: the Collision of Past and Present

Budapest synagoge

Romania Will Be a Hot Topic in Europe

Only a United Opposition Can Defeat Poland’s Ruling Law and Justice Party

Classical building of Polish parliament. Warsaw in Poland.

Romania’s EU Membership Was Slow to Be Appreciated But Now the Tide Is Turning

Romanian Palace Of Parliament

Building on CEE’s Established Reputation for Quality and Value

People Power Reminds the Government of the Rule of Law

Poland’s Drift Away From Democracy

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

The Sharing Economy Could Bring New Business Models to CEE

A Country of Beauty and Warmth That Will Reward Those Who Visit With an Open Mind

Cityscape Brasov

Bulgaria Needs a Reform-Oriented Government to Take Full Advantage of its EU Membership

bulgaria emerging europe

Hungary’s Nationalist Assault on Free Enquiry

victor orban ceu

Romania Needs to Follow its EU Membership With Some Sweeping Reforms to Avoid Stagnation

Bucharest Romania - March 07 2016: Bucharest Sky Tower Business Center. Bucharest urban landscape.

Visegrád Divided


Romania Says No to Corruption

Corruption romania

Slovenia’s Presidential Election: Pahor Expected to Romp Home

Slovenia flag against blue sky waving in wind

Stuck in Neutral: Georgia’s Constitutional Reforms

Tbilisi Parliament Georgia

Poland Needs to Cling to the Eurozone

zloty euro emerging europe

Next Christmas in Belgrade? The EU’s Move into the Western Balkans

Belgrade, Serbia, July 22, 2017.Belgrade cityscape at sunset with national assembly, aerial view

2018 Elections — Vital Decisions for Hungary’s Future

Victor Orban energing europe

Is there any prospect of ‘Polexit’?

poland european union polexit

The Long Tail of Global Expansion

The EU’s Benign Neglect Of Eastern Europe

Romania Can Foster German Partnership

frankfurt emerging europe

Resignation in Ukraine: War, Revolution, Crisis — Some Things Never Change

The Socialism of Central Europe’s Populists

MARSEILLE FRANCE - JUNE 21 2016: People watch football match at Tribunes of Stade Velodrome during UEFA EURO 2016 game Ukraine v Poland

The Morawiecki Plan Promises a Brighter Future for Poland

Will a Two-speed European Union Side-line the Visegrad Four?

Belarus 2020: Turning the Vicious Circle Into an Upward Spiral

Poland’s Capital Saturation Lower Than the Czech Republic’s

deloitte fdi poland

EU-CEE Is Still Growing at a Healthy Rate

Prague emerging europe

Romania To Stay Close After Brexit

Greg Hands

Leave a Reply

Your email address will not be published. Required fields are marked *