Central Europe needs reforms to boost slowing growth potential, IMF says

BUDAPEST, Oct 6 (Reuters) - Central and eastern European countries need reforms to boost economic growth amid mounting demographic pressures and a rising challenge from Chinese exports, the International Monetary Fund's regional representative said on Tuesday.

The medium-term economic growth outlook for the CEE region has fallen to an average 2.5% by 2026 from around 5% before they joined the European Union, Carlos Mulas-Granados told a conference organised by financial news website portfolio.hu.

"The growth outlook is less favourable. The time it takes to close the convergence gap (to western Europe) is much longer," he said.

"You cannot expect the region to grow as fast in the next years if it doesn't increase its growth potential. And that's not going to be easy."

He said the region's contribution to the European Union's economic growth has fallen to 27% between 2020 and 2026 from 30% before the COVID-19 pandemic, driven in part by weakening export prospects in Germany, central Europe's main trading partner.

Mulas-Granados said CEE should continue to diversify trade as a growth engine, address demographic decline through higher labour market participation among young, female and elderly workers, and accelerate AI innovation and preparedness.

He also said countries in the region should transform their energy, climate and defence sectors into new growth engines instead of relying mainly on US or South Korean suppliers for equipment procurement amid growing defence sector spending.

Mulas-Granados added that the EU's next budget could also give the region an opportunity to transform its growth model. 

(Reporting by Gergely Szakacs; Editing by Alexander Smith)