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Labor shortage risk to CEEʼs economic prospects

Credit ratings agency Moodyʼs says that labor shortage poses a growing risk to the long-term economic prospects of CEE countries, with emigration, low birth rates, and aging population exacerbating the problem.

Moodyʼs specifically mentions Hungary (rated by Moodyʼs as Baa3 stable), Poland (A2 stable) and Romania (Baa3 stable) as the countries most exposed to the problem.

The agency adds that better jobs in Northern and Western Europe attract a number of migrants from Central Europe, reducing the size of working-age population.

"Labor shortages in Central and Eastern Europe are the highest in Europe," said Olivier Chemla, a Moodyʼs vice president - senior analyst and the reportʼs author. "An excess of labor demand over supply is well above the historical average, with more than a third of CEE manufacturing firms reporting labor shortages in the third quarter of this year."

Moodyʼs adds that the main direct channel through which labor shortages constrain sovereign credit quality is through economic strength. Shortages make it harder for companies to meet business needs and grow. The situation can also cause skills mismatches, constraining labor productivity and innovation capacity as well.

According to the agency, labor shortages will pose increasingly significant challenges in the medium- to long-term, as the active population pool shrinks due to low birth rates and as more people retire from the workforce.