According to a new report from Colliers International looking at the regional industrial market, Emerging Europe may attract new production capacity as the global economy undergoes major changes in the context of the Covid 19 pandemic.
The report notes Romania in particular as a highly competitive location, both in terms of costs and the significant increase in the country's industrial production in recent years.
The report – which supports similar sentiment from leading analysts in recent months – notes that in the context of the pandemic, the global economy is undergoing a period of intense change, and relations between Europe and China are expected to shift significantly in the future.
The significantly higher cost of production in Central and Eastern Europe as compared with China would have been a major impediment.
As wages in China have gone up tremendously over the past 10 years, this change is becoming more and more possible, particularly in the context of a pandemic that has put enormous pressure on the supply chain.
Emerging Europe has seen one of the highest economic growth rates in the world in the last decade and industrial production has kept pace.
Probably the biggest advantage that countries in this region have is the labor market, with wages several times lower than in Western Europe and, according to Colliers International's report, surprisingly similar to those in China in recent years.
"Bulgaria's production operations remain well below the level of labor costs in China, Romania is comparable to China, and Poland and Hungary are not much higher," says Lauren?
Am I Duic?
, Partner and head of Colliers International's industrial agency.
"There are major differences from a decade and a half ago, when Eastern European countries either were preparing to join the EU or were just joining the EU. Between 2004 and 2018, average manufacturing costs increased 5.6 times in China, while progress was much lower in the CEE region, all of which at a productivity that clearly kept pace."
By comparison, labor costs in the German production sector are roughly three times higher than in Czechia and Slovakia, roughly four times higher than in Hungary and Poland, nearly six times higher than in Romania and almost eight times higher than in Bulgaria.
"The CEE factories initially focused on goods involving low-complex manufacturing processes, but this also gradually changed over time: goods with higher added value and more technologically complex now account for a much higher share throughout the CEE than a decade ago." The pace of productivity growth remained above the pace of cost advances and across Central and Eastern Europe.
It is worth noting that the gap between value added per employee and labor costs in Romania is slightly below that in China, with small differences also following neighboring countries.
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