Benefitting from Growth – Sharing Prosperity in 11 Countries in Europe

As Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic and Slovenia - the eleven countries making up the European Union 11 (EU11) region - exit recession and begin building on the limited growth seen in 2013, these countries are also beginning to take a deeper look at how economic growth can better benefit all people in the region, especially the bottom 40%.

Although the year got off to a slow start in the region - with GDP growth of only 0.2 percent in the first quarter of 2013 - growth started picking up in the second quarter, reaching 0.8 percent for the first nine months of 2013. Rising net export growth, especially in Romania, Slovakia, and Poland, helped boost the economic outlook in the region, with growth now expected to be 1% in 2013 and 2.3% by the end of 2014. Despite this projected recovery, unemployment rates in the region remain near record–high levels - highlighting the work that still needs to be done in order to truly set these countries on the path toward economic recovery.

In an effort to bolster this growth and ensure that the resulting economic prosperity can have a positive impact on all segments of society, experts in the region continue to work with the World Bank to identify policies and actions geared toward achieving these outcomes. As part of this work, the latest EU11 Regular Economic Report (EU11 RER) identifies the drivers of this growth and outlines focus areas that can further inclusive growth and prosperity in the region. A combination of analyses and recommendations, this report looks at the growth happening in the region and offers policy recommendations that are beneficial at the regional and country levels alike.

“Now that these countries have exited recession, it is a sign of growth to come,” says Ken Simler, Senior Economist at the World Bank and co-author of the report, “the economies are more stable and the fundamentals are in place for accelerated growth going forward.”

This growth, however, will not be homogenous. Economic growth in Latvia, for example, is expected to reach 4.2% in 2014, while Slovenia is expected to experience a contraction of 1% during the same period. Additionally, the drivers behind this growth and contraction are equally varied. Strong levels of domestic consumption have fuelled the economies of Estonia, Latvia, and Lithuania, while robust exports – primarily in the automotive industry – have buoyed Romania’s economy. The Czech Republic, Slovenia, and Croatia, however, all experienced declines in domestic demand during most of 2013.

The report addresses this challenge of developing relevant guidance in an economically diverse region by offering a wide range of policy recommendations - from initiatives that can improve non-performing loans, to improvements in the regulatory environments in these 11 countries, to utilizing European Structural and Investment Funds - that can guide policy makers in all the countries covered in the report.

Furthermore, this latest EU11 RER also employs a similar, multipronged approach when addressing the socio-economic diversity in the region. With relative poverty in the region ranging from 10% in the Czech Republic to 22% in Romania and Bulgaria, and an employment rate of less than 50% in nearly all 11 countries, the report lays the foundation for more targeted analysis. By highlighting not only the differences between the bottom 40% and the top 60%, but also the differences between the poorest 20% and the rest of the bottom 40%, this report offers more strategic guidance on how policy makers in the region can build on the projected growth in a way that boosts shared prosperity for all - especially the bottom 40%.

“Shared prosperity in the context of the EU11 region means that everyone in the society, especially the poorer individuals, participates in, and benefits from, economic growth,” says Simler.

According to the report, increasing labor market participation for the bottom 40%, better incentives for this group to move into employment, improvements in the equality of existing opportunities, and a more effective social safety net are all elements of an agenda for shared prosperity tailored to the specific realities of each country in the region.

By looking at the economic forces driving growth in the EU11 region as a whole, as well as addressing the diversities of this growth at the country level, the latest Regular Economic Report is laying a foundation for growth that is both stable and sustainable. Furthermore, by looking at the diverse impact this growth will have on the different groups in these 11 countries, this report is building a model for growth that is also equitable, much to the benefit of the region, the 11 countries in the region, and the millions of individuals in these countries.