The European Economy is not a Level Playing Field

Published: 18th November 2014 | Issue 31

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The economic climate is not uniform across Europe, and allocating resources toward areas of growth will help you outperform the general economy. Annual Industrial Production for Europe as a whole is on the rise, and the economy is expected to mildly expand through 2015. However, annual Western Europe Industrial Production is on the verge of a mild recession that will persist through the first half of 2015.

In contrast, economic activity in Eastern Europe is not expected to fall into recession this year but will instead expand through at least 2015. Annual Eastern Europe Industrial Production accelerated in July to a new record-high level. Production will rise into at least 2016, albeit at a slower pace in 2015. Despite recent turmoil in Ukraine, Eastern Europe has some key advantages that are making it an appealing choice to do business.

Wages in Eastern Europe are typically lower than in Western Europe. Hourly labor costs in Germany can range from €40 to €52, but this cost drops to €13 per hour in Hungary and below €5 in Bulgaria and Romania. As labor costs can be one of the more expensive pieces of production and harder to control, Eastern Europe’s skilled labor force has a significant cost advantage over Western Europe. This has been particularly true of the auto sector. Volkswagen and Daimler have been expanding into Eastern and Central Europe to benefit from the low cost structure and to capture sales in a new market. As local employees have benefited from the new jobs in the region, they have increased their disposable income and are able to support additional industries in the region.

Eastern Europe’s proximity to Western Europe also gives it an advantage over Asian low-cost production centers. This significantly reduces transportation costs and cuts down on lead-in and delivery times for goods. Eastern Europe’s proximity also helps to reduce language and cultural differences that can be costly for businesses. Consider whether now is the right time for you to develop production facilities or seek out new customers and suppliers in Eastern Europe.

ITR Economics International is able to help your company see tomorrow’s economy today. Confidence about your markets over the next few years will help you lead your business while providing you with a tool to outperform the competition. For additional information on how ITR Economics International can give you a greater planning tool to assist in meeting your business needs or to suggest future article topics, please email jgreene@itreconomics.eu.

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