Central and Eastern European Countries Struggling in Prosperity Index Despite EU Progress

Despite notable progress since joining the European Union, many Central and Eastern European (CEE) countries still rank in the bottom third of the new Prosperity Index published by Erste Group Research. The index assesses all 27 EU member states across five categories: Economy, Households, Society, Education, and Sustainability. The lower performance of newer EU member states in the east indicates untapped potential for further convergence with Western Europe.

Erste Group’s analysis sheds light on the strengths and challenges faced by the CEE region. Fritz Mostböck, head of research at Erste Group, acknowledged the significant economic growth CEE countries have achieved over the past two decades, allowing them to catch up with Western European counterparts in many areas. However, to sustain and enhance their prosperity, these economies need to better utilize capital markets and expand pension fund systems to finance retirement provisions and green transformation initiatives sustainably.

The CEE region has demonstrated impressive economic growth and low unemployment rates, aiding its convergence with Western Europe. Debt-to-GDP ratios in countries like Czechia, Poland, Romania, and Slovakia remain among the lowest in the EU, well below the 60% threshold. Czechia and Romania are particularly notable, ranking in the EU’s top ten for debt-to-GDP ratios.

Countries such as Croatia, Hungary, Poland, Romania, and Slovenia have shown strong GDP growth over the past five years, ranking in the top ten. In contrast, Czechia and Austria experienced modest growth rates of 2.6% during this period. Additionally, the CEE region has maintained low unemployment rates despite recent economic stagnation, and income equality in CEE countries surpasses that of Western Europe, thanks to historical legacies and effective redistributive policies.

The report identifies significant challenges, including underdeveloped capital markets and pension systems. This underdevelopment strains private household budgets and public finances, potentially hindering sustainable financing for retirement and green initiatives. Demographic changes pose another critical issue, with a shrinking working-age population in Austria and the CEE countries expected to result in an old age dependency ratio exceeding 50% by 2050. This demographic shift will increase pressure on pay-as-you-go pension systems and could limit growth.

To address these challenges, the report recommends enhancing education, particularly in digital and AI skills, and supporting research and development. Transforming the region’s economies into knowledge-based systems through excellence-based research and adopting productivity-enhancing technologies could help mitigate the impact of a declining workforce and support sustainable growth.

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