IMF wage hike warning: erodes competitiveness

The IMF warned countries in the region that rapid wage increases in central and eastern Europe could erode the region’s competitiveness.

While incomes have grown at double-digit rates in many countries in the region in recent years, the IMF said productivity has largely stagnated. Alfred Kammer, head of the IMF’s European department, said high wage increases have long been the norm in the region, but what has been seen in recent years is of a different magnitude.

Speaking to the Financial Times, Kammer said the wage increases could create a competitiveness problem for a region that benefits from Western European companies moving production. Kammer said: “Our warning is not to be complacent.”

LEFT THE EU BEHIND

In the second quarter, annual wage increases reached double-digit rates in much of central and eastern Europe. Wages increased on average by 16.9 percent in Hungary and 9 percent in Slovakia.

These countries topped the EU charts in wage increases. Wages in the EU increased by an average of 4.5 percent. Furthermore, inflation in most of the region had risen well above the EU average.

AVERAGE SALARY INCREASE ESTIMATES

According to IMF forecasts, wages are expected to rise by an average of 11 percent in this region in 2023, followed by 7 percent next year and 6 percent in 2025.

In previous years, cheap labor in the region had helped Western European industrial producers open new factories there and attract large amounts of foreign direct investment.

However, in some countries such as Romania and Poland, the migration of millions of workers westward caused congestion in the labor market and created fertile ground for those who remained to demand high wage increases.