Central and Eastern Europe's Catch-Up

How countries like Poland, the Czech Republic and the Baltic states grew rapidly after communism and EU membership, and what fuelled their convergence.

When communism collapsed around 1989 to 1991, the countries of Central and Eastern Europe were much poorer than Western Europe. Since then, many have achieved remarkable convergence, closing much of the gap.

Poland’s success

Poland is the standout example. After a sharp “shock therapy” reform in 1990, it became the only EU economy to avoid a recession during the 2008 to 2009 global financial crisis. Its income per person, measured in purchasing power, rose from around a third of the Western European average in the early 1990s to around three-quarters or more by the 2020s.

What drove growth

Market reforms in the 1990s, including privatisation and opening to trade.
EU accession: eight central and eastern European countries joined the EU in 2004, gaining access to the single market and adopting EU rules.
Foreign direct investment: Western companies built factories, especially for cars and electronics, integrating the region into European supply chains. Germany’s manufacturing links were especially important.
EU funds: large transfers for roads, railways and other infrastructure.
Educated workforces with relatively low wages.

Challenges

Emigration: millions of young workers moved west after EU accession, creating labour shortages.
Ageing populations and low birth rates.
Middle-income risks: as wages rise, growth based on cheap labour and assembly must give way to innovation and higher value-added activities.
Energy dependence on Russia in some countries, reduced after 2022.

The car factory region

Slovakia, a small country, became one of the world's largest producers of cars per person, as Volkswagen, Kia, Stellantis and Jaguar Land Rover built plants there. The factories brought jobs and exports but also made the economy dependent on a single industry facing a costly shift to electric vehicles.

Thinking the transition was smooth everywhere

Some post-communist countries struggled for years with falling output, inflation and corruption, and several former Soviet states grew far more slowly. The success of countries like Poland and the Baltic states was not guaranteed.

Key takeaways

Many central and eastern European countries have converged strongly toward Western incomes.
Poland was the only EU economy to avoid recession in 2009.
Reforms, EU accession in 2004, foreign investment and EU funds drove growth.
Emigration, ageing and the need to move beyond cheap assembly are challenges.