Despite significant progress since joining the European Union, several Central and Eastern European (CEE) countries still rank in the bottom third of the new Prosperity Index published by Erste Group Research. 

The index evaluates all 27 EU member states across five key categories: Economy, Households, Society, Education and Sustainability. The lower performance of the newer EU member states in the east of the bloc suggests there is untapped potential for further convergence with Western Europe, Erste said.

The Erste Group's analysis highlights the strengths and challenges of the CEE region. “Over the past two decades, CEE countries have undoubtedly been able to significantly catch up to their West European peers in many respects, supported by the CEE region’s dynamic economic growth,” said Fritz Mostböck, head of research at Erste Group. 

“In order for them to secure the prosperity they’ve achieved and to continue catching up, the region’s economies must better utilise capital markets and expand their pension fund systems if they are to sustainably finance retirement provisions and the green transformation,” he added. 

CEE countries have shown remarkable economic growth and low unemployment, contributing to their convergence with Western Europe. The debt-to-GDP ratios in the region are among the lowest in the EU, with Czechia, Poland, Romania, and Slovakia well below the EU’s 60% threshold. Czechia and Romania rank in the EU's top ten for this criterion.

There has been strong catchup in five CEE countries — Croatia, Hungary, Poland, Romania and Slovenia — in particular, which have ranked in the top ten for GDP growth over the past five years. Conversely, Czechia and Austria both experienced modest growth of 2.6% during this period.

The CEE region has maintained low unemployment rates despite recent economic stagnation. Additionally, income equality in CEE countries surpasses that of Western Europe, reflecting both historical legacies and effective redistributive policies.

The report identifies underdeveloped capital markets and pension systems as significant challenges. "The region … appears to be underdeveloped in terms of pension fund systems, a status that places burdens on private households’ budgets and public finances," the report said. This underdevelopment could hinder sustainable financing for retirement and green transformation initiatives.

Demographic changes pose another critical challenge. "Demographic change will have a significant impact on the region’s labour market," the report said. The shrinking working-age population in Austria and the CEE countries is expected to exceed a 50% old age dependency ratio by 2050, increasing pressure on pay-as-you-go pension systems and potentially limiting growth.

To mitigate these challenges, the report recommends enhancing education, particularly in digital and AI skills, and supporting research and development. "The region’s economies can transform towards being knowledge-based by supporting excellence-based research, development, and education," the report suggests. Adopting new productivity-enhancing technologies could help offset the impact of a declining workforce.