Growth and Resilience in Central, Eastern, and Southeastern Europe in a More Fragmented World

Source: IMF – News in Russian

Opening Remarks by Kristalina Georgieva, IMF Managing Director, at the CESEE High-Level Conference in Dubrovnik, Croatia

May 30, 2025

Good morning and a very warm welcome to everyone!

I would like to begin by thanking Governor Vujčič for the kind invitation. Dear Boris: it is such a pleasure to return to Dubrovnik. Truly, a pearl of the Adriatic!

Since its first gathering here in 2017, this conference has become an important forum for policymakers to discuss the challenges confronting the region.

And, as usual, we have much to discuss: the successes, the unfinished business and, now, huge new challenges.

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First, a few words on the successes.

Over the last three decades, reforms promoting economic openness and integration—first with the EU, then within the EU—have helped the countries of Central, Eastern and Southeastern Europe achieve a remarkable convergence with the standards of living of their more advanced peers.

Since the mid-1990s, incomes have more than doubled and the gap relative to the advanced Europe has shrunk sharply.

Manufacturing became a catalyst for productivity growth as integration into European and global value chains helped CESEE economies reach beyond their domestic markets.

At the same time, openness to FDI accelerated capital accumulation and technology transfer.

EU accession played a huge role. Powered by the domestic structural reforms put in place on the path to EU accession countries that joined the EU   accelerated their income convergence with the advanced Europe and outperformed comparable countries outside of the block.

Thus, it is fair to pause and say: well done.

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Second, the unfinished business.

The journey is far from complete. Reforms slowed after EU accession. After the Global Financial Crisis, investment fell significantly and contributed to a productivity slump that has only worsened since Covid.

Various economic challenges were already calling out for revitalizing reforms. The demand for skilled workers is rising, but labor supply is tightening. High energy costs are hurting manufacturing competitiveness. New technologies in the auto sector—and AI—could alter export value chains.

So even before the latest global economic developments, there certainly was much more work to do.

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And now, there are huge new challenges.

The sweeping disruptions to world trade that are underway are plain for all to see. World trade is being tested. And while most of the CESEE countries are less impacted directly, let us be very clear: the indirect impact is significant as these disruptions pose a major threat to the region’s main trading partners and to the overall economic model of openness that CESEE countries rely on.

Trade tensions and uncertainty complicate domestic and foreign investment plans. This is particularly painful for a region that needs access to modern production processes, jobs in high-productivity sectors, and export demand.

***

So here is my main message to you today: standing still, taking shelter, and hoping the storm will pass is not a plan. It would be much wiser to assume that many of the shifts we see are here to stay, and to act accordingly.

So, what should CESEE countries do in order to negotiate this stormy economic weather? How can they catch a tailwind from the “Adriatic Bora” and keep powering forward?

I would point to three critical priorities:

• Steering a steady course in terms of macroeconomic policy—monetary and fiscal policies for stability;
• Getting the ship into better working order so it can sail forward faster—that is, pursue structural policies for growth; and
• Integrating more deeply into and within the single market of the EU—strength through regional cohesion.

Let me briefly discuss each of these, in turn.

Priority one: action to mitigate uncertainty. The best antidote to uncertainty is a stable macroeconomic environment.

• Central banks must remain agile and focused on achieving their targets. Where inflation is still high and persistent, policymakers should tread cautiously. Clear communication is key. Independence lends credibility and must be protected.
• Fiscal policy must focus on ensuring sustainability and policy space. Countries with low deficits and debts can use fiscal space to invest in essential areas such as energy security. But in countries where fiscal space is limited, governments need to either reallocate spending or boost fiscal revenues.

Priority two: take decisive action to boost growth potential. In a new study, we find that domestic reforms across the CESEE region could lift GDP levels by 7 percent over the medium term. The potential goes up to 9 percent for the Western Balkans.

• Further productivity gains from better education, more efficient labor markets that allow talent to thrive, and cutting red tape are waiting to be tapped. In the Western Balkans and aspiring EU entrants, closing governance gaps with the EU frontier delivers the highest dividend. The case to act decisively is compelling.

Priority three—last but certainly not least: CESEE countries must ensure they retain the benefits of their economic integration with Europe and the global economy.

• Integration has been a major source of knowledge transfer and capital deepening, particularly through FDI. As is the case across the EU as a whole, the CESEE region would benefit from further progress in completing the EU’s single market.
• Our analysis shows that internal barriers add significant costs — for goods they are equal to 44 percent tariffs, and for services to a staggering 110 percent! Completing the single market can be a major factor in strengthening the performance of the EU economy and improving its attractiveness for investment.
• In a forthcoming working paper on Europe’s reform priorities, we outline several concrete steps: a more integrated electricity market; more capital for startups; better labor mobility across borders; and simpler regulations. Together, these measures could raise EU GDP by about 3 percent over the next ten years.
• In addition, we argue that the EU budget can lend more of a hand. Tying EU funds for public investment to progress on reform implementation would provide a double blessing: more central fiscal funding, and more effective use of it.

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With that, let me conclude.

We at the IMF stand ready to support you, as we always have. Through our surveillance and technical assistance, we are committed to supporting the CESEE region unlock its growth potential. The steadily increasing demand we see for IMF capacity development, including in public investment management and central banking, testifies to our role as your partner in your quest for faster growth and stronger resilience.

The region is at a crossroads. Faced with structural headwinds and a much more volatile external environment, reinvigorating domestic reforms are now essential—to navigate the stormy seas and to unlock the region’s potential to sail faster.

The time to act is now. By moving decisively, you can transform the current challenges into opportunities and chart a brighter future for the region.

Thank you.

https://www.imf.org/en/News/Articles/2025/05/29/sp053025-growth-and-resilience-in-central-eastern-and-southeastern-europe-in-a-more-fragmented-world

MIL OSI