Eastern Europe and the EU — reawakened growth

Christopher Oufi

Following a disastrous 2016, Eastern European countries have begun brushing off the pain. A halt in financing for projects from the EU resulted in one of the strongest collective sectors crumble right before their eyes. The construction sector is now beginning to regain momentum within the area, with sustained growth and a positive economic outlook seeming to be the plausible aim. This has most likely been aided in part by the $350 billion German export boom led by Merkel.

Non-compliance of certain EU countries saw the 2014-2020 EU funding temporarily frozen until early 2017. This arose due to the initial misuse of such funding, for example; politicians directing funding to business that would directly benefit them when rallying support for election campaigns. Clientelism is the key factor generating such disparities that are not enabling greater levels of competition within economic environments.

Reliance on national governments to distribute equitably has backfired creating scrutiny from all fronts battering the EU. Nonetheless, the EU adopted a proactive and more hands-on approach, allowing the funding for intended countries to seep into intended sectors. They have been the instigators behind the resurgence of the construction sector specifically, evident from their figures posted over the first half of 2017.

These structural funds were originally designed to help Eastern Europe’s convergence with the rest of EU countries, from an economic standpoint. However, these funds have cushioned the fall in the construction sector and have led to growth in 2017. This has surprised many, including Liam Carson of Capital Economics, who said, “The size of the boost to growth stemming from a recovery in EU fund inflows probably took some analysts by surprise.” He continued to say, “We expect EU structural fund inflows to continue to pick up over the course of this year across the region.”

The continued rise of the construction sector has also attracted foreign investors to pitch in. This has further resulted in labour markets strengthening, most notably in Poland, Czech Republic, and Romania. A survey carried out by Ernst & Young revealed that Poland is second behind the UK for FDI through creation of jobs in the whole of Europe.

Private equity firms and deals associated with the construction sector are also becoming more prominent within the region. Deloitte analysed data from Mergermarket showing a positive trend in private equity deals; signalling their presence was increasing. The average disclosed deal value in 2015 was €675 million compared to that of the €63 million of strategically orientated deals. Within their findings, Deloitte concluded that the construction sector will remain stable or positive, with private equity houses looking to maintain their interest in order to capitalise on the improving perspectives of the construction sector.

A conscious effort now needs to be delivered to actively protect the recovery phase that Eastern Europe is going through. National governments need to step up to stop the hijacking of EU funding to allocate it towards disrupted public sector projects as well as potential new projects. Doing so only attracts the attention needed to through FDI to mount further sustained growth in 2018; allowing Eastern Europe to display their true capabilities within the sector. Who knows, part of the influx cash from the UK’s pay-out in exiting the EU could well go into revitalising the EU construction sector further.

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