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Half of Hungarian and a quarter of Polish manufacturing firms now claim that a shortage of workers  is limiting production and inhibiting investment.
Half of Hungarian and a quarter of Polish manufacturing firms now claim that a shortage of workers  is limiting production and inhibiting investment.

IMF Sees Trouble Ahead for Emerging Europe

Given the disappointments of the past decade, some countries may reverse the political and institutional reforms that were meant to solidify democracy and support long-term growth

IMF Sees Trouble Ahead for Emerging Europe

Emerging Europe is facing increasing economic stresses that threaten to unwind some of the political progress made over the past decades, a top International Monetary Fund official said Tuesday.
Poul Thomsen, the head of the IMF European Department, said central and eastern Europe's economic growth potential has halved in the past decade and the rapid outflow of skilled workers is an increasing drag, Reuters reported.
He noted at a conference in Dubrovnik, Croatia, that some governments in the region were even questioning the benefits of European integration.
With Europe struggling through a decade of crisis and economic malaise, convergence between the core Western countries and the Eastern periphery has slowed or stopped. This has raised domestic questions about the validity of painful economic and political reform.
"This is a timely reminder to all of us not to fool ourselves into believing that governance and institutional progress are inevitable; not to believe that such progress is an unstoppable outcome, a steady evolution. It is not," Thomsen said.
"Going forward, headwinds will grow stronger," the Danish economist said at the conference that began on Monday.
Thomsen, who has led IMF programs with countries such as Greece and Portugal, also noted that the exceptional support from a benign global growth environment that benefitted the region when it initially emerged from Communism, was unlikely to be replicated.

Shortage of Workers
The outflow of skilled workers to Western Europe is a top issue for the region. The IMF estimates that 20 million people have left central and eastern Europe in the past decades—roughly 5-6% of the population.
Half of Hungarian and a quarter of Polish manufacturing firms now claim that a shortage of workers is limiting production and inhibiting investment, surveys showed.
On a political note, Thomsen pointed to increased tensions between some of the EU's eastern members and the European Commission as a key concern.
The EU is at loggerheads with Poland about rule-of-law issues and has clashed with Hungary over refugees, among other issues.
The turmoil of the past decade has also put into doubt the value of EU membership for countries still outside the bloc.
He added that another concern is that given the disappointments of the past decade, some countries may reverse the political and institutional reforms that were meant to solidify democracy and support long-term growth.
"Some of the threats of (governance) reversal... are evident in some of the most advanced countries of the region," Thomsen said.
"There is clearly one area where we at the fund are concerned: central bank independence," Thomsen said. "In a number of countries, central bank independence is under threat."

Romania Rebalancing
Over the past three years, the Romanian economy has recorded some of the fastest growth rates in the European Union, helped by a rapid expansion of consumer spending.
During this period, retail sales have benefited from what can be considered as a perfect storm of growth catalysts: the VAT rate was reduced from 24 t to 19% (respectively 9% for food products), net average wages increased by a cumulated 26%, and interest rates fell to historic lows. Overall, these factors have helped drive consumer confidence back towards levels that were last observed in the pre-2008 period, and which was also reflected in a rapid growth rate of turnover for retail sellers.
Combining all of these factors, consumer spending is very close to a cyclical peak. The fiscal stimulus, which has fuelled the growth of consumer spending, will gradually have to be phased out. The government has put forward a series of measures that will keep up expansion in 2017 (e.g. higher wages in the public sector, a reduction of the general VAT rate to 19%), but the picture for state finances, in 2018, is increasingly more complicated.

 

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