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Analysis

2019 Outlook for Central and Eastern Europe

Geopolitical tensions threaten business stability and overall growth in the region.

By Dana Bodnar & Arkadiusz Taraszkiewicz | December 04, 2018 at 05:58 PM

Russia is often painted as a villain in the news cycle these days, but the business environment there—and throughout Central and Eastern Europe—is more complex, and more promising, than it may appear to casual outside observers.

The region experienced strong growth in 2018, thanks to domestic demand fueled by tightening labor markets, high wage growth, and low borrowing costs, among other factors. As we head into 2019, conditions look favorable for that demand to remain high. Moreover, the business environment in Central and Eastern Europe is largely positive—for now. Strong institutions and a proximity to Western European markets, which enables easy integration with the supply chains of major companies in the West, combine to support an optimistic outlook.

Still, clouds are gathering on the region’s horizon as a result of geopolitical uncertainty and the related issue of unorthodox policymaking. Europe is already split in an east-west divide along Cold War lines. Some populist governments in the east have recently driven up political and social tensions by launching policies that undermine democratic institutions and threaten to derail long-term growth. In Russia and Turkey, in particular, leaders who are demonstrating authoritarian tendencies and stoking geopolitical tensions are undermining the confidence of the business community and increasing economic uncertainty.

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