Deleveraging by Western banks – which transferred capital back into their home countries whenever they could or simply stopped renewing credit lines to Central and Eastern European subsidiaries, coupled with a slowdown in exports to the eurozone, the countries’ main trading partner, have had a negative impact on the region’s economies.
The European Bank for Reconstruction and Development (EBRD) recently cut its outlook for the region, citing the global headwinds and as the eurozone crisis spread- but at the same time it cited Poland and Slovakia as the region’s “two brighter spots.”
Neither of those, though, is CEE’s “sleeping tiger” according to Societe Generale economists, who said in a recent research note that the Czech Republic is the one “likely to fare best in the longer run.”
The bank’s analysts used the results of a survey published in 2007 by economists George Petrakos, Paschalis Arvanitidis and Sotiris Pavleas, that revealed the most significant factors and the greatest obstacles to growth in the new European Union member states, as criteria for its calculations.
The factors – called determinants for growth in the research - used in Societe Generale’s calculations were:
the human resources in science and technology, as a share of the labor force
tertiary educational attainment, as a share of the 30-34 age group
political stability/absence of violence
institutions
paying taxes
gross domestic expenditure on research and development
innovation
international trade integration
trading across the border
infrastructure
Societe Generale’s analysts determined weightings for each of the factors and calculated their deviation from the CEE average, to get the relative position of each country in the region.
The results of the evaluations showed the Czech Republic scoring best in terms of growth determinants, followed by Poland, Hungary, Slovakia, Bulgaria and Romania.
“Looking at the detail we find that the Czech Republic fares best in terms of infrastructure, innovation and R&D as well as in terms of the share of human resources devoted to science and technology,” the Societe Generale analysts wrote.
“But this last advantage is at risk of declining in the future, as the share of people in the 30-34 age group who have attained tertiary education ranks relatively low,” they said, adding that Poland was well placed to catch up in this area.
Poland’s overall ranking was “considerably dragged down” by its relatively low level of integration in terms of international trade, as in a more open economy domestic producers are put into harsher competition which strengthens them and boosts the transfer of knowledge.
For Hungary, the scoring looked overall “well balanced,” the Societe Generale economists said, but added that the country “reveals its biggest weakness in the area of political environment.”
Laggard Romania’s results “turned out very weak relative to the other CEE countries, with weaknesses in almost all areas, most of all the quality of human capital, the political environment, infrastructure, innovation and R&D,” the analysts wrote.