The opportunity of Europe’s emerging economies

A period of economic expansion for central Eastern Europe began at the end of the 20th century, only to be derailed by the recession in 2007 and the outbreak of Covid in 2020. While these events had a huge influence on the region’s countries that still have to pick up the pace if they’re to catch up with their Western European counterparts, the situation might just be turning for the better.

The current state of the central Eastern European economy

In terms of trade, this area of the continent has long specialised in manufacturing, especially machinery, appliances and equipment. In 2021, Poland and the Czech Republic exported machinery to neighbouring markets valued at nearly €77 billion and €63 billion respectively. Hungary’s main export was electronic machinery valued at €29.6 billion, while Slovakia’s biggest export was vehicles at €28.4 billion (Statista).

The importance of these industries is not only in the number of exports, but also their significant contribution to the countries’ employment. According to the International Labour Organization, 26.1% of the Czech Republic’s employed population works in manufacturing, followed by 24.9% of Slovakia’s and 21.2% of Hungary’s workforce. In both Romania and Poland, over 19% of the employed population works in manufacturing, placing these countries a long way above the 13% average for high income countries across the world.

The focus on manufacturing seems to have paid off in terms of GDP growth in the region – while the average GDP growth across the European Union in Q3 of 2022 was 0.3%, Romania and Poland scored a 1.3% and 1% increase respectively, outperforming Germany (0.5%) and Netherlands (-0.2%). This trend is expected to continue as we move into 2023 – the International Monetary Fund projections estimate that the advanced European economies will see a 0.6% growth, while the emerging European economies will see around 1.7% growth on average.

A shift in sourcing and production

While proximity to the market and consumers certainly plays an important role, it is not the only factor that needs to be considered when selecting the next sourcing location. According to research by Accenture, the most complex disruptor of supply chains is the talent challenge, with Germany expected to reach a 7.2 million worker shortage across industries by 2035.

Similarly, labour shortage is reported as the second biggest factor limiting production in the EU, right after material and equipment shortage. Particularly affected are the Western European manufacturing sectors of electronic equipment, motor vehicles, computers, machinery and equipment (Centre for Economic Policy Research). At the same time, countries of central Eastern Europe not only have the access to a skilled workforce, but it also comes with a lower labour cost.

Agility of supply chains is affected not only by sourcing proximity and labour and material availability, but also the logistics infrastructure in the country of origin, destination, and everything in between. While countries of Western Europe lead the way in trade logistics performance, their Eastern neighbours are not that far behind. The Logistics Performance Index places the Czech Republic, Poland, Hungary, and Romania in the top 50 countries in the world for their overall logistics performance, with Czech Republic leading the way at 26th and 20th place for infrastructure and logistics competence respectively. With further investment and development projects planned for trans-European transport, businesses sourcing in and transporting across Europe stand to benefit with improved reliability and agility of their supply chains in the years to come.

Consumer behaviour in the region

In the last quarter of 2022, online shoppers in Eastern Europe placed orders valued at $76.30 on average. This average is similar in Western Europe, with average value of online orders being $103.44 in Germany, $71.77 in the UK and $53.64 in the Netherlands in the same period (Salesforce).

Such trends in consumer behaviour could make central Eastern Europe a hugely interesting region for businesses to analyse. With near-sourcing becoming more and more prominent for European companies, Eastern countries have certainly underlined their credentials for exploration thanks to proximity to the market, vast infrastructure and a solid, skilled workforce to their name.

Away from the sourcing and manufacturing of goods, Eastern Europe also represents a real opportunity for businesses looking to expand into new markets. 

At a time when Western regions are faced with increased hesitancy and lower consumer spend, Eastern Europe is a chance to reach a new, lucrative consumer base and enjoy the business benefits that come with it.