Countries in Europe and Central Asia need to make better use of their existing economic resources and invest more in the skills of their workforce and businesses to achieve faster growth, according to a new report by the World Bank.
The report, titled "TIDES of Change: Igniting Productivity Growth in Europe and Central Asia," emphasizes that increasing productivity—how efficiently capital and labor are used—is essential for boosting economic output. The report points out that simply adding more workers or capital is not enough for sustained growth.
A key finding is that a 10% rise in productivity could result in nearly 2 million additional jobs across the region, highlighting the connection between higher productivity and employment opportunities.
The study notes that since the global financial crisis, economic growth has slowed primarily because of declining productivity. This decline has been linked to fewer reforms, ongoing market distortions such as inefficient state-owned enterprises, poor resource allocation, incomplete integration with global markets, and weak business capabilities. Without improvements in productivity, further investments bring diminishing returns.
According to the report, if countries in the region had maintained their pre-2008 pace of productivity growth after the financial crisis, regional GDP could be about 62 percent higher today. Increasing productivity is also associated with greater welfare, more jobs, and higher wages.
Export-oriented firms are found to be the most productive but represent only a small share of all businesses. Despite this, they contribute significantly to job creation and investment. The report states that countries in Europe and Central Asia trade around 45% less than they potentially could. Expanding trade integration and attracting foreign direct investment present significant opportunities for these countries. To benefit from recent trends where multinational companies seek closer-to-home supply chains, local firms will need improved capabilities and supportive business environments.
The World Bank recommends renewed reform efforts focused on trade, investment, digitalization, efficiency, and skills—summarized as TIDES—to unlock potential gains in productivity.
Asad Alam, Regional Director for Europe and Central Asia at the World Bank’s Prosperity division said: “The evidence is compelling. When competition is robust, when firms can access technology and finance, when trade and investment is open, and when workers have the skills to adopt technologies and adapt, productivity rises. Firms grow, employ more people, and show greater business dynamism. This propels the growth of incomes and the success of countries.”
The analysis draws on over 40 million firm-level data points collected from national statistics agencies across 16 countries between 2008-2023. These data offer new perspectives on where bottlenecks exist within sectors as well as opportunities for improvement.
The World Bank urges governments across Europe and Central Asia to prioritize policies supporting competition among firms; improve transparency; integrate productivity goals into planning; ensure public procurement processes are clear; measure progress on reforms; and encourage cooperation among policy makers, businesses leaders, and partners so that economies can regain momentum.