Ambitious reforms are needed in many central European economies if living standards are not to lag behind those in western Europe for decades, an OECD expert said here on Monday. A central problem would be a shortage of labour, the expert, OECD economic adviser Patrick Lenain, told a forum here of central European chief financial officers.
Although growth rates in the region had risen to about 4.0 percent and the short-term outlook was good, the longer-term outlook was less positive, he warned.
"Even rising oil prices and the falling dollar should not prevent these countries growing by around 4.0 percent in 2004 and 2005. But catching up in the medium-term will not happen automatically. I hope central Europe will have a great future but this is not for certain and is not guaranteed," he said.
"The prospect of joining the EU was an important driver for reform and levelling the playing field in the region. But the pace of reform has since slowed down and we need another carrot for dynamic growth," he added.
A number of barriers and obstacles stood in the way of central Europe catching up with western Europe living standards, he said.
A critical problem faced by the central Europe countries of Poland, Hungary, the Czech Republic and Slovakia was their ageing populations, Lenain warned.
"By 2050 one half of the region's labour force will have disappeared and that's a huge constraint," he warned.
Many older workers in the region were inactive, he said. Labour force participation rates of workers aged 55 to 64 in Poland, Hungary, Slovakia and Slovenia were much lower than the EU average while those of the three Baltic nations, which also joined the EU in May, were higher, he said.
"Getting more people to work will be very difficult and needs ambitious pension and labour reforms," he said.
"Mechanical projections" showed it could take 80 years for spending power in the Czech Republic to catch up with western Europe if the annual growth rates of 2.0 percent seen between 1995 and 2003 continued.
But the process was more likely to take 40 to 50 years given recent higher growth rates, he conceded.
Based on their growth rates over the same period, Poland could take about 32 years to converge and Hungary and Slovakia around 30 years. Two key catch-up factors for the region, he said, were improving labour productivity and labour utilisation.