Economic growth is expected to pick up across the EBRD regions this year and next, supported by higher oil prices and Russia’s recovery from recession, according to the EBRD’s latest Regional Economic Prospects report.

Growth in central Europe and the Baltic states is now expected to accelerate slightly in 2017 to around 3 per cent following an investment-driven dip in 2016. It is projected to remain at the same level in 2018.

GDP growth in 2016 in the Central Europe and the Baltic States region came in slightly below our expectations from the previous Regional Economic Prospects, at 2.6 per cent. This significant deceleration from 3.4 per cent in 2015 can be largely attributed to a dramatic contraction in investment, on average by 6.6 per cent in all eight CEB economies. The reason behind the investment collapse, especially in the public sector, was a much deeper decline in EU fund transfers and their absorption than in the previous beginnings of the EU programming periods. At the same time, strengthening household consumption remained the key growth engine, underpinned by benign labour markets and substantial wage growth. On the downside, the shrinking working age population and intensifying skill-mismatches have started weighting on the pace of employment growth, which has been dwarfed by the fast-mounting number of job vacancies. An anticipated acceleration in investment and further improvements in household consumption should strengthen GDP growth to 3.1 per cent in 2017, a rate that will likely remain at the same level in 2018. Read more.

'In particular in the region of Central Europe and the Baltics, growth will pick up on the back of the investment recovery, which is linked to the better absorption of EU structural funds under the new financial perspective, but also improving lending conditions...  All these countries are still facing convergence challenge and more ambitious structural reform agenda would help to accelerate this convergence. So the potential for growth and investment is definitely there. One of the big challenges the region is facing is the demographic challenge. The labour force in the medium and long term starts to be stagnant or shrinking, putting more and more pressure on productivity improvements,' Artur Radziwiłł, Director for Country Strategy and Policy, European Bank for Reconstruction and Development (EBRD), tells Emerging Europe.