Faster, Stronger Growth in Central, Eastern Europe

Without countermeasures, region facing prolonged slow growth

Economic convergence with West Europe has stalled

Active labor market policies needed to boost employment

In the leadup to the global financial crisis, there was a widespread expectation that this region would likely “converge” on the living standards of its richer, Western neighbors.

In an interview with IMF Survey, the IMF’s regional resident representative for Central and Eastern Europe, James Roaf, suggested measures that might return this region to greater prosperity,

IMF Survey : Central, eastern and southeastern Europe—the region covered in this new report, is geographically large and heterogeneous, but despite that, are there overarching themes common to the countries of this region?

Roaf: These countries are very different from each other but there are still a lot of very important crosscutting themes common to the countries in the region. For example, most of these countries have been in transition from a socialist economic model, and that has a lot of implications for the economy. One, is that these countries tend to have very high and persistent unemployment—that’s a legacy of that transition. The European Union accession process is extremely important in the region. We’ve seen countries that have already joined the EU, countries have even joined the euro from the region. Other countries are still in the process of joining, others have yet to become candidates. We see financial systems which are dominated by Western European banks. This often has big implications for the region.

Also, most of the countries have some similarities in demographics. An aging population is a huge issue for this region. And in general, because the countries are all together in one region, we have common shocks that can affect the countries. These could come through trade, through the financial sector, and through what has happened in the eurozone.

IMF Survey: How did the economies of these countries perform after the fall of the Berlin Wall and up to the beginning of the present?

Roaf: That’s a very long period. We saw very difficult times for many countries through the 1990s, through the trials of the transition process. But then, into the early 2000s, these countries were generally all growing very strongly, and at that time I think it appeared that convergence was some kind of automatic process; that these countries were going to rapidly converge on the living standards of their...