Central Europe needs reforms to boost slowing growth potential, IMF says

IMF Warns Central Europe to Reform for Long-Term Economic Growth Amid Challenges

IMF Highlights Urgent Need for Reforms in Central and Eastern Europe

Mounting Demographic Pressures and External Competition

BUDAPEST, Oct 6 (Reuters) - Central and eastern European countries need reforms to boost economic growth amid mounting demographic pressures and a rising challenge from Chinese exports, the International Monetary Fund's regional representative said on Tuesday.

Falling Growth Outlook for the CEE Region

The medium-term economic growth outlook for the CEE region has fallen to an average 2.5% by 2026 from around 5% before they joined the European Union, Carlos Mulas-Granados told a conference organised by financial news website portfolio.hu.

Widening Convergence Gap with Western Europe

"The growth outlook is less favourable. The time it takes to close the convergence gap (to western Europe) is much longer," he said.

"You cannot expect the region to grow as fast in the next years if it doesn't increase its growth potential. And that's not going to be easy."

Declining Contribution to EU Economic Growth

He said the region's contribution to the European Union's economic growth has fallen to 27% between 2020 and 2026 from 30% before the COVID-19 pandemic, driven in part by weakening export prospects in Germany, central Europe's main trading partner.

Key Recommendations for Sustainable Growth

Diversifying Trade and Addressing Demographics

Mulas-Granados said CEE should continue to diversify trade as a growth engine, address demographic decline through higher labour market participation among young, female and elderly workers, and accelerate AI innovation and preparedness.

Transforming Strategic Sectors

Energy, Climate, and Defence as New Growth Engines

He also said countries in the region should transform their energy, climate and defence sectors into new growth engines instead of relying mainly on US or South Korean suppliers for equipment procurement amid growing defence sector spending.

Opportunities in the EU's Next Budget

Mulas-Granados added that the EU's next budget could also give the region an opportunity to transform its growth model. 

(Reporting by Gergely Szakacs; Editing by Alexander Smith)