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Central and eastern Europe's 'digital challenger' countries could close the digital gap with the rest of Europe and add €200bn to regional GDP by 2025, says a McKinsey report

Digitisation can bring up to €200bn additional GDP by 2025 in Central and Eastern Europe and be the next big driver of growth for the region, according to a report from consultancy McKinsey. 

Between 1996 and 2017, the 10 CEE countries examined in the report — Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia — recorded on average a 114% increase in GDP per capita. But traditional growth drivers are beginning to weaken and the economies of Central and Eastern Europe are undercapitalised compared to their more advanced European peers, McKinsey says, while workforce costs are rising in the region and labour productivity still lags behind Western Europe.

By closing the digital gap with Western and Northern Europe, the region could add an additional one percentage point on GDP growth each year and its digital economy would grow from 6.5% of GDP today to 16% of GDP by 2025, according to McKinsey’s analysis. 

"Digitisation can secure these ambitious goals for CEE primarily by improving the region's productivity through a digital transformation of the public and private sectors, and by boosting e-commerce and offline consumer spending on digital equipment," said Jurica Novak, managing partner in Central Europe at McKinsey and a lead report author.

The report, ‘The rise of Digital Challengers: How digitisation can become the next growth engine for Central and Eastern Europe’, is a macroeconomic study that quantifies the size and growth rates of the digital economy in the region as a whole and the 10 individual countries studied.

These 10 countries are considered by McKinsey as ‘digital challengers’ since they demonstrate strong digital growth potential and the ability to emulate the success of Northern Europe's ‘digital frontrunners’ – a group of countries with very high digitisation rates, such as Belgium, Denmark, Estonia, Finland, Ireland, Luxembourg, the Netherlands, Norway and Sweden.

“To realise the aspirational digitisation scenario, all stakeholders in ‘digital challenger’ countries need to be engaged in the digital transformation," commented Mr Novak.

“Businesses could increasingly adopt digital tools, which will improve their productivity and ultimately their bottom line. They would also be well advised to take advantage of digital solutions for accessing new customers and expanding into regional and global markets. This export potential is especially relevant in CEE, where the size of domestic markets limits growth opportunities.”

This article is sourced from fDi Magazine
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