EU Regular Economic Report — Innovation Rising: Lifting Central and Eastern Europe's Jobs and Growth Potential

Overview

Europe's economy continues to adjust to multiple overlapping shocks, and the recovery remains gradual. EU GDP growth is projected to remain moderate, at around 1 percent in 2025, supported mainly by private consumption and front-loaded exports. At the same time, risks remain tilted to the downside amid global trade reconfiguration, policy uncertainty, and intensifying geoeconomic competition. Structural headwinds-including aging populations, sluggish productivity growth, investment gaps, and fragmentation within the Single Market-are weighing on Europe's long-term growth prospects.

DOWNLOAD PDF

These pressures are particularly relevant for several Central and Eastern European economies, including Bulgaria, Croatia, Poland, and Romania (the 4CEE). Over the past two decades, these countries have achieved rapid income gains through trade integration and participation in European supply chains. That growth model is now becoming more constrained. With working-age populations shrinking and labor markets already tight, sustaining convergence will increasingly depend on stronger productivity growth and firms moving up the value chain to create higher-value jobs.

Revitalizing innovation ecosystems offers a pathway to renew growth models in the region. Central and Eastern European economies still have significant scope to raise productivity by adopting existing technologies, strengthening firm capabilities, and upgrading innovative sectors.

The 4CEE can build on their existing strengths by developing strategic specialization, leveraging skilled labor for higher-tech manufacturing, strengthening industry clusters, and gradually increasing R&D investment. However, the window is narrowing as demographic decline, skilled worker emigration, and reshoring toward larger markets intensify competitive pressures.

Strengthening innovation ecosystems-by deepening science-industry collaboration, improving firms' capacity to absorb and develop new technologies, and mobilizing private investment through deeper capital markets-will be critical to sustaining growth and creating more productive and resilient jobs that benefit workers across all skill levels and regions.

Country Profiles

Bulgaria | Croatia | Poland | Romania

www.worldbank.org/eurer