Eastern Europe Outpaces Euro Area Growth

Eastern Europe’s economy remains resilient despite the energy crisis triggered by the war in Iran. EU member states in the region are expected to grow by 2.3% this year, well above the euro area average of 0.9%.

The Vienna Institute for International Economic Studies (wiiw) announced the figures this week in its spring forecast. However, the institute warned that Central and Eastern Europe’s model as a low-cost production base for Western industrial companies is coming under pressure.

The pressure is being driven by declining competitiveness, as sharply higher labor costs have not been matched by corresponding productivity growth. Foreign direct investment is also falling, while competition from China is increasing, APA reported.

The structural change is leading to a historic shift. For the first time since the early 1990s, rising defense spending is contributing as much to regional economic growth as foreign direct investment, or even more, wiiw noted.

(APA, tasr, mja)