## 1. Europe’s Economy Hitting Its Stride ## Source details **Canonical URL:** [1. Europe’s Economy Hitting Its Stride](https://www.imf.org/-/media/files/publications/reo/eur/2017/november/eur-reo-chapter-1.pdf) ## Other formats - [Markdown version](/-/media/files/publications/reo/eur/2017/november/eur-reo-chapter-1.pdf.md) - [Structured JSON version](/-/media/files/publications/reo/eur/2017/november/eur-reo-chapter-1.pdf.json) --- ### Growth Momentum and Composition - Real GDP growth: "1.5 percent in 2016" with recent rebound helped by Russia exiting recession and a strong, policy-assisted pickup in Turkey following a dip related to the failed coup attempt. - Several economies, especially EU members, are seeing growth "much faster than 3 percent". - Drivers of expansion: - Private consumption expanding rapidly due to low unemployment, labor shortages, rising wages, and boosted household confidence. - Investment strengthening, partly from growing absorption of EU structural funds after low levels in 2016. - In Poland and Romania, expansion further fueled by government spending programs (for example, child subsidies in Poland) and large value-added and excise tax cuts (in Romania). - High-frequency indicators (second half of 2017): - Manufacturing PMIs strengthening in advanced Europe and firmly in expansionary territory in emerging Europe. - Consumer confidence gradually improved in 2017; economic sentiment in the euro area reached its highest level in more than a decade, led by rising confidence among industrial companies and in the services sector. - Chart reference: Figure 1.2 indicates economic expansion is driven mostly by domestic demand with contributions from private consumption, public consumption, investment, and net exports (growth, year over year, percent; contributions in percentage points). ### Slack Is Disappearing / Output Gaps - Advanced Europe: output gaps are closing; except for Greece, output gaps are estimated to be relatively small, closed, or positive. The output gap in the euro area is expected to be closed in 2018. - Emerging Europe: cyclical recovery appears largely complete; many economies’ output gaps are already small or closed, with several countries experiencing positive gaps. - Uncertainty in slack measurement: - Indicators conflict: subdued inflation suggests ample slack, while high capacity utilization and low unemployment point to limited remaining slack. - Historical revisions showed output gaps were frequently underestimated during recoveries (Figure 1.5), particularly after the global financial crisis; disentangling cyclical vs. structural components remains complicated. - Recent survey evidence suggests structural factors are supporting the recovery: - Firms in EU countries increasingly expect equipment shortages and capacity constraints (Figure 1.6), indicating investment pickup could be sustained and help raise potential growth. - Near-term potential growth has been revised up in many European countries on the back of the 2017 recovery (Figure 1.7, panel 1); cyclical factors also contributed where inflation and output gap revisions are higher (Figure 1.7, panel 2). ### Inflationary Pressures - Overall: inflation is rising but remains generally subdued across Europe. - Advanced Europe: - Core inflation in the euro area gradually increased to "1.3 percent in August" from "0.9 percent in January", but remains subdued. - Inflation expectations increased from a year ago, deflation risk receded, but expectations remain well below "2 percent". - United Kingdom: inflation higher due to pass-through of pound depreciation following the Brexit referendum. - Other advanced economies (Czech Republic, Baltics) and many emerging economies (Central Europe, Southeastern Europe): somewhat higher but still-low inflation since early 2017 despite accelerating wage growth; inflation expectations point to further increases. - Russia: consumer price inflation hit a post-Soviet low of "3.3 percent in August", below the central bank’s target of "4 percent", driven by a small negative output gap, ruble appreciation, one-off effect from declining food prices, and tight monetary policy. - CIS aggregate headline inflation: hovering around "11.5 percent" throughout 2017, driven by persistent double-digit inflation in Ukraine. - Turkey: annual inflation rose to "10.7 percent in August 2017" from "9.2 percent in January", more than double the central bank’s inflation target of "5 percent"; food, nonfood goods, and fuels climbed at double-digit rates; core inflation reached a three-year high amid oversimulative macroeconomic policies. ### Wage Growth, Productivity, and Labor Markets - Divergence between wage growth and productivity: - In most advanced European economies, wage growth subdued reflecting weak productivity growth and low inflation (Figure 1.8). - In the Baltics and the Czech Republic, and emerging Southeastern European economies, wage growth has been strong and outpaced labor productivity growth since 2016. - Ukraine: nominal wage growth averaged "35 percent in 2017" reflecting a doubling of the minimum wage and strong public sector wage growth—raising unit labor costs and posing second-round inflation risks. - Labor market slack: - Headline unemployment rates have trended down since early 2013. - Declines in labor market slack (unemployment and underemployment) are much larger in the Baltics, Central Europe, and Southeastern Europe—now at the lowest level since 2008—contributing to skill shortages that begin to constrain expansion (Figure 1.11). - Some advanced economies still display labor market slack. - Sectoral patterns: - Exposure to external competition and technological progress influence wage patterns; manufacturing often shows wage growth lagging productivity growth in advanced Europe due to relocatable production and automation (Figure 1.12). - Services exhibit smaller gaps; in Baltics/Central/Southeastern Europe wage growth stronger in services relative to industrial sectors, implying higher domestic services inflation. - Services inflation has generally outpaced goods inflation recently (Figure 1.13); policymakers have tolerated higher services inflation offset by low goods inflation, but rising service wages could press on headline inflation, especially if imported inflation rises. ### Credit Recovery - Credit is picking up across many European countries but still lags domestic demand and output. - Advanced Europe / Euro area: - Bank credit to the private sector is picking up, mainly driven by credit to households. - Credit to businesses remains uneven and particularly weak where NPLs are high. - Nordic economies: credit to businesses robust, credit to households slowed after macroprudential measures to contain housing booms and household debt. - Emerging Europe (outside CIS): - Credit growth to both nonfinancial corporations and households is increasing, particularly in Central Europe and SEE-EU, aligned with strong real GDP and investment growth. - Transactional credit growth may be higher where loan-portfolio cleaning lowers credit stocks (examples cited: Albania, Croatia, Hungary). - Russia: credit is growing again as the economy exits recession. - Rest of CIS: credit contraction continues but at a slower pace. - Turkey: credit rebounded strongly to about "18 percent in July 2017" after slowing in 2016 following the failed coup attempt. --- ### 1. Advanced Europe ### Credit Recovery and Nonperforming Loans (NPLs) - Credit is recovering across advanced and emerging Europe, with contributions from both households and nonfinancial corporations. - NPL levels have declined across Europe from postcrisis peaks, but remain a drag on profitability and credit supply in several countries. - In the euro area: - NPLs have been reduced by about €160 billion since their peak in 2014, predominantly in the household sector. - The stock of NPLs remains high at just below €1 trillion. - Spain and Ireland account for a large portion of the reduction in NPLs. - In Italy, a recent pickup in NPL sales is encouraging, but legacy assets and structural factors continue to weigh on profitability; for an appreciable part of the banking system, return on equity is persistently below the cost of equity. - In emerging market Europe: - NPL levels have declined but remain higher than 10 percent in eight countries. - High NPL levels in several economies appear to be a factor hindering credit growth. - Policy implications highlighted: - More actions are needed to reduce legacy bad assets, repair bank balance sheets, and facilitate necessary corporate restructuring. ### Europe’s Contribution to Global Growth and Trade - Europe’s improved prospects account for the bulk of the upward revision to global growth in 2017 from the April 2017 World Economic Outlook. - The strengthening domestic-demand-driven recovery in Europe has boosted global trade; Europe’s contribution to the growth of global merchandise imports in 2016–17 is similar to that of China and the United States combined. - World Economic Outlook projection cited: - Global growth projected to reach 3.6 percent and 3.7 percent in 2017 and 2018, respectively, up from 3.2 percent in 2016. ### Exchange Rates, Current Accounts, and Competitiveness - Exchange rate movements (March–September 2017): - The euro appreciated by about 4 percent in real effective terms. - The Czech koruna appreciated about 6 percent. - The Turkish lira appreciated after a prior more than 10 percent depreciation following the coup in the second half of 2016. - The Russian ruble has depreciated by about 5 percent since March, after a 25 percent appreciation from the trough reached in early 2016. - Current account developments: - Despite accelerating imports and euro appreciation, current account surpluses remain noticeably larger than before the crisis in most countries. - Net external debtor countries that had large precrisis current account deficits have seen appreciable adjustments, partly driven by permanent demand reduction and labor cost reductions. - In advanced Europe, some former deficit euro area members have maintained surpluses (Estonia, Portugal, Spain) or reduced deficits (Greece, Latvia, Lithuania). - Improvements in current accounts have led only to gradual improvements in net foreign asset positions; surpluses need to be maintained for some time. - Elevated external surpluses have persisted in Germany, the Netherlands, and Switzerland, and in Sweden. - Region-specific notes: - Baltics: indicators suggest some erosion of competitiveness—real effective exchange rate appreciation, fast wage growth, and modest productivity gains have led to notable increases in unit labor costs close to precrisis peaks. - Central Europe and SEE-EU: real effective exchange rates have edged up as wages grew faster than productivity in the past two years; economy-wide profit shares in these economies are higher than the EU average, suggesting companies have some room to absorb higher labor costs. - Turkey: strong domestic demand pressures and high inflation have contributed to a larger current account deficit since the crisis; year-to-date current account deficit exceeded 5 percent of GDP. - Russia: current account balance driven by oil prices and sanctions; given current oil price projections and recovery of domestic demand, Russia’s current account is projected to be in a surplus of 3–4 percent of GDP in the near term. ### External Conditions, Monetary Policy, and Financial Conditions - External demand remains favorable: upturn in manufacturing and investment, and stronger trade growth. Expansionary PMIs in advanced economies point to continued strong global growth in Q3 2017; euro area manufacturing new orders, particularly from foreign markets, are at levels not seen in recent years. - Financial conditions: - Policy rates, term premiums, and corporate spreads generally remain very low; global stock markets have posted strong gains. - On expectations of some tapering of the ECB Asset Purchasing Program, yields in advanced Europe have edged up since September 2016 but remain at low levels. - In euro area economies with limited fiscal buffers, spreads relative to German bunds have declined since mid-2017. - In emerging Europe, local and foreign currency yields have risen somewhat in some countries, but spreads have declined for all countries since October 2016; this decline has been underpinned by continued strength in capital inflows to emerging market economies. - Monetary policy outlook: - In the near term, no significant tightening of conditions is expected; U.S. normalization is expected to proceed smoothly without large market volatility. - Monetary policy is expected to remain accommodative across most European economies. - Advanced Europe: - Continued accommodative monetary policies expected to keep policy rates low. - In the euro area, subdued inflation implies monetary policy is expected to remain accommodative for an extended period. - In the United Kingdom, monetary policy is expected to tighten gradually from a very accommodative stance given a relatively closed output gap and inflation close to target. - In several advanced economies, market expectations point to a tightening bias, but real policy rates remain negative across the region. - Emerging Europe: - Generally accommodative financial conditions expected due to easy monetary policy and strong risk appetite. - Market expects some tightening in Romania given the closing output gap and rising inflationary pressures. - In Turkey, after increases in average funding rates in early 2017, markets expect rates to go modestly down as inflationary pressures subside. - In Russia, policy rates have been lowered since March following declines in inflation and inflation expectations; markets expect further cuts over the next few quarters, though one-year-ahead expectations are more mixed. ### Fiscal Policy Outlook - Fiscal policy is not projected to change appreciably going forward: - Broadly neutral in advanced Europe. - Neutral to expansionary in emerging Europe. - Cumulative fiscal impulse (change in the structural fiscal balance as a share of potential output between 2016 and 2018) is forecast: - Slightly expansionary in some advanced European economies, including Germany and the Netherlands. - Neutral or slightly tighter in most advanced economies (for example, Spain and the United Kingdom). - Moderate fiscal easing expected in most emerging European countries, with notable exceptions. --- ### 1. Major Advanced Economies: Policy Rate Expectations ### Growth projections and recent revisions - Euro area growth revised up to 2.1 percent (from 1.7 percent in the April projection) for 2017 and to 1.9 percent for 2018 (from 1.6 percent in April). - United Kingdom growth projected to slow to 1.7 percent in 2017 and 1.5 percent in 2018. - Russia: economic activity projected to expand by 1.8 percent in 2017 (0.4 of a percentage point up relative to April). - Turkey: growth in 2017 revised up by 2.7 percentage points to 5.1 percent. - General projection summary (selected rows from Table 1.1, Real GDP Growth Projections, October 2017 WEO): - Europe: 2016: 1.7; 2017: 2.4; 2018: 2.1; 2019: 1.9; Difference from April 2017 WEO (2017): 0.5; (2018): 0.2; (2019): 0.0 - Advanced European economies: 2016: 1.9; 2017: 2.1; 2018: 1.9; 2019: 1.7; Difference from April (2017): 0.3; (2018): 0.2; (2019): 0.0 - Euro area: 2016: 1.8; 2017: 2.1; 2018: 1.9; 2019: 1.7; Difference from April (2017): 0.5; (2018): 0.3; (2019): 0.1 - France: 2016: 1.2; 2017: 1.6; 2018: 1.8; 2019: 1.9; Difference from April (2017): 0.2; (2018): 0.1; (2019): 0.1 - Germany: 2016: 1.9; 2017: 2.0; 2018: 1.8; 2019: 1.5; Difference from April (2017): 0.4; (2018): 0.3; (2019): 0.0 - Italy: 2016: 0.9; 2017: 1.5; 2018: 1.1; 2019: 0.9; Difference from April (2017): 0.7; (2018): 0.3; (2019): 0.1 - Spain: 2016: 3.2; 2017: 3.1; 2018: 2.5; 2019: 2.0; Difference from April (2017): 0.5; (2018): 0.4; (2019): 0.0 - Nordic economies: 2016: 2.2; 2017: 2.3; 2018: 2.0; 2019: 2.0; Difference from April (2017): 0.3; (2018): 0.1; (2019): 0.0 - United Kingdom: 2016: 1.8; 2017: 1.7; 2018: 1.5; 2019: 1.6; Difference from April (2017): -0.4; (2018): 0.0; (2019): 0.0 - Emerging European economies (aggregate): 2016: 1.5; 2017: 3.1; 2018: 2.6; 2019: 2.5; Difference from April (2017): 0.9; (2018): 0.2; (2019): 0.0 - Central Europe: 2016: 2.5; 2017: 3.7; 2018: 3.4; 2019: 3.0; Difference from April (2017): 0.4; (2018): 0.2; (2019): 0.1 - Poland: 2016: 2.6; 2017: 3.8; 2018: 3.3; 2019: 3.0; Difference from April (2017): 0.4; (2018): 0.1; (2019): 0.0 - Southeastern European EU member states: 2016: 4.3; 2017: 4.7; 2018: 3.9; 2019: 3.4; Difference from April (2017): 1.0; (2018): 0.8; (2019): 0.4 - Southeastern European non-EU member states: 2016: 2.7; 2017: 3.0; 2018: 3.3; 2019: 3.4; Difference from April (2017): -0.2; (2018): 0.3; (2019): 0.3 - Commonwealth of Independent States: 2016: -0.1; 2017: 1.8; 2018: 1.7; 2019: 1.7; Difference from April (2017): 0.4; (2018): 0.1; (2019): 0.0 - Russia: 2016: -0.2; 2017: 1.8; 2018: 1.6; 2019: 1.5; Difference from April (2017): 0.4; (2018): 0.2; (2019): 0.0 - Turkey: 2016: 3.2; 2017: 5.1; 2018: 3.5; 2019: 3.5; Difference from April (2017): 2.7; (2018): 0.2; (2019): 0.1 - Memorandum — European Union: 2016: 2.0; 2017: 2.3; 2018: 2.1; 2019: 1.8; Difference from April (2017): 0.4; (2018): 0.3; (2019): 0.1 ### Inflation outlook - Inflation expected to remain subdued across most European economies. - Euro area inflation: revised down by 0.2 percentage point for 2017 relative to April 2017 WEO. - United Kingdom headline inflation projected to reach 2.6 percent this year and next, then gradually decline thereafter. - Headline inflation projected to approach the ECB’s medium-term objective of below but close to 2 percent gradually over the next few years. - Selected inflation projections (Table 1.2, October 2017 WEO): - Europe: 2016: 2.0; 2017: 2.8; 2018: 2.7; 2019: 2.8; Difference from April (2017): -0.1; (2018): 0.1 - Advanced European economies: 2016: 0.4; 2017: 1.6; 2018: 1.6; 2019: 1.8; Difference from April (2017): -0.1; (2018): 0.1 - Euro area: 2016: 0.2; 2017: 1.5; 2018: 1.4; 2019: 1.7; Difference from April (2017): -0.2; (2018): 0.0; (2019): 0.1 - France: 2016: 0.3; 2017: 1.2; 2018: 1.3; 2019: 1.6; Difference from April (2017): -0.2; (2018): 0.1; (2019): 0.1 - Germany: 2016: 0.4; 2017: 1.6; 2018: 1.5; 2019: 2.0; Difference from April (2017): -0.5; (2018): 0.2; (2019): 0.1 - Spain: 2016: -; 2017: 2.0; 2018: 1.5; 2019: 1.7; Difference from April (2017): -0.4; (2018): 0.0; (2019): 0.1 - United Kingdom: 2016: 0.7; 2017: 2.6; 2018: 2.6; 2019: 2.2; Difference from April (2017): 0.2; (2018): 0.0; (2019): 0.0 - Emerging European economies (aggregate): 2016: 5.6; 2017: 5.6; 2018: 5.1; 2019: 4.9; Difference from April (2017): 0.1; (2018): -0.1; (2019): 0.1 - Central Europe: 2016: -; 2017: 2.0; 2018: 2.5; 2019: 2.6; Difference from April (2017): -0.3; (2018): 0.2; (2019): 0.1 - Poland: 2016: -; 2017: 1.9; 2018: 2.3; 2019: 2.5; Difference from April (2017): -0.4; (2018): 0.2; (2019): 0.1 - Commonwealth of Independent States: 2016: 7.8; 2017: 5.1; 2018: 4.5; 2019: 4.4; Difference from April (2017): -0.1; (2018): 0.3; (2019): 0.0 - Russia: 2016: 7.0; 2017: 4.2; 2018: 3.9; 2019: 4.0; Difference from April (2017): -0.2; (2018): 0.3; (2019): 0.0 - Turkey: 2016: 7.8; 2017: 10.9; 2018: 9.3; 2019: 8.8; Difference from April (2017): 0.8; (2018): 0.3; (2019): 0.3 - Memorandum — European Union: 2016: 0.2; 2017: 1.7; 2018: 1.7; 2019: 1.9; Difference from April (2017): -0.1; (2018): 0.0; (2019): 0.1 ### Risks to the outlook - Short-term: risks lowered by strong recovery and supportive policies; upside from stronger-than-anticipated global recovery. - Medium-term: risks tilted to the downside, including: - rising protectionism and policy changes in major economies; - heightened geopolitical risks (e.g., North Korea); - sensitivity of financial markets due to prolonged search for yield and potential monetary policy surprises; - higher debt service and refinancing risks affecting leveraged firms, households, and vulnerable sovereigns; - a downturn in China affecting European exports. - Region-specific medium-term risks: - Euro area: high-debt countries may struggle when monetary accommodation is reduced. - Banking sector: weak profitability and high NPL levels could trigger distress. - Emerging Europe: faster wage growth could lift inflation and hurt competitiveness, interacting with tightening external financial conditions. - Political and integration risks: lack of real income convergence and lower appetite for European integration could undermine reforms; Brexit negotiations could raise trade barriers and disrupt services if no agreement is reached; tensions such as the Catalan independence movement add uncertainty. ### Policy priorities (overview) - Rebuild room for policy maneuver given strong cyclical activity but thin fiscal buffers, weak productivity prospects, and unresolved crisis legacies. - Main priorities for most of the region: - reduce fiscal deficits while keeping monetary policies supportive where warranted; - accelerate structural reforms to boost productivity and income convergence; - if downside risks materialize, consider further monetary accommodation supported by fiscal relaxation where space exists. - Use the current growth and employment strength as an opportunity to implement structural reforms. ### Monetary policy recommendations - Euro area and most advanced Europe: keep monetary policy accommodative for an extended period due to subdued underlying inflation; any policy normalization should be backed by a clear shift in actual inflation or stronger inflation outlook. - For ECB to reach its medium-term inflation objective, countries with the strongest cyclical positions will likely need to accept inflation rates above the objective for some time. - United Kingdom: gradual tightening of monetary policy warranted to bring inflation back to target. - Russia: with inflation now below target, continue gradual monetary easing while monitoring output gap and exchange-rate-driven disinflation risks. - Turkey: tighter monetary policy within a simpler monetary framework needed to anchor expectations and reduce inflation. - Other emerging markets: prepare to gradually normalize monetary policy if underlying inflation rises persistently due to wage pressure and/or higher external inflation. ### Fiscal policy recommendations - Advanced Europe: - Countries with high public debt ratios and limited fiscal buffers (Belgium, France, Italy, Portugal, Spain, United Kingdom) should gradually consolidate to rebuild policy room and put debt on a downward path. - Economies with stronger fiscal positions (Germany, the Netherlands, Sweden) can use space to lift potential growth via greater public investment (examples: education and training, digitalization, refugee integration, infrastructure, housing). - Make fiscal policy more growth- and distribution-friendly through spending efficiency and tax design; consider revenue-neutral increases in tax progressivity, spending reallocations, and improved spending efficiency. - Emerging Europe: - Many countries need fiscal tightening, better-quality expenditure, and improved revenue composition. - Fiscal deficits remain relatively large in Hungary, Poland, Romania, and several Western Balkan and CIS economies; more fiscal consolidation is appropriate to preserve competitiveness and policy space. - Russia: adjust fiscally via better-targeted and more permanent pension reforms, reducing tax exemptions and subsidies, while protecting public and human capital investment; establish a credible fiscal rule to support sustainability and mitigate oil price volatility effects. - Turkey: reevaluate the degree of accommodation given strong growth momentum and plan credible medium-term consolidation. ### Financial sector policy recommendations - Advanced Europe: - Facilitate bank balance-sheet repair: follow up on ECB’s March 2017 guidance on NPL management and supervisory expectations for provisioning new NPLs. - Agree on ambitious NPL reduction targets with vigorous supervisory follow-up; apply frameworks proportionally to smaller banks. - Legislative changes to harmonize corporate insolvency and foreclosure frameworks and improve judicial efficiency to stimulate secondary markets. - Address persistently low bank profitability through consolidation and restructuring; supervisors can incentivize adjustments. - Emerging Europe: - Resolving elevated NPLs requires a multipronged approach (see Chapter 3): comprehensive asset quality reviews, supervised and time-bound action plans, bankruptcy and insolvency regime improvements, faster court procedures, and better land registries and cadastral systems to enhance collateralization. ### Structural policy and Economic and Monetary Union (EMU) architecture - Advanced Europe: - Use recovery to implement structural reforms to lift potential growth, close competitiveness gaps, and increase shock resilience (e.g., ambitious labor and product market reforms in the euro area). - At EU level: - Enforce the Macroeconomic Imbalance Procedure more strictly and combine enforcement with incentives for structural reforms via targeted central funds and outcome-based benchmarks. - Complete the Banking Union, including establishing common deposit insurance and a common fiscal backstop. - Accelerate the Capital Markets Union, especially with the United Kingdom leaving the single market. - Consider creating a central fiscal capacity to help offset shocks and reduce national fiscal space constraints. - Complement architectural reforms with banking legacy resolution and stricter implementation of common fiscal rules; undertake national reforms to improve public sector efficiency and labor force participation where needed. - Country-specific examples: - United Kingdom: boost potential growth via increased infrastructure spending, easing planning restrictions on housing, and reforming property taxes. - Sweden: improve housing supply by streamlining building regulations, harmonizing planning and approval processes, phasing out rent controls, and shifting property tax composition. - Emerging Europe: - Focus structural reforms on strengthening institutions (particularly judicial independence), improving public sector efficiency, restructuring state-owned enterprises, and strengthening public investment management frameworks. - Priorities also include labor market reforms to raise female labor force participation and reduce youth unemployment, and institutional improvements to improve the investment climate. - Russia: improve institutional and business environment to realize benefits from innovation and reform. - Turkey: improve business climate and institutional stability, enhance human capital quality, increase domestic private savings, and address labor market rigidities to reduce informality and better integrate refugees. --- ### Euro appreciation since early 2017 — drivers and empirical approach - The euro appreciated about 11 percent against the US dollar from April to September 30, 2017. - Conceptual drivers: favorable economic prospects in the euro area and tighter monetary policy (higher euro-area interest rates relative to the United States). - Empirical approach: - Follows Matheson and Stavrev 2014. - Estimates economic news and monetary shocks for the euro area using a vector autoregression model. - Model variables: 10-year bond yields and stock prices for the euro area and for the United States, and the euro-dollar bilateral exchange rate at monthly frequency. - Identification via economically meaningful sign restrictions: - Favorable euro-area news: stock prices and bond yields increase in the euro area; stock prices and bond yields in the United States decline (to isolate euro-area news versus U.S. news). - Adverse euro-area monetary shocks: stock prices decline and bond yields increase in the euro area; stock prices increase and bond yields decline in the United States (to isolate euro-area monetary shocks). - Counterfactual simulations: - Set estimated euro news shocks to zero and trace the counterfactual euro-dollar path. - Similarly construct counterfactuals excluding euro-area monetary shocks. ### Key empirical finding on the April–September 2017 euro rally - Ongoing improved economic prospects for the euro area vis-à-vis the United States were the main driver of the euro surge during April–September 2017. - Market perceptions of monetary tightening played a smaller but nontrivial role. - Quantified contributions to the actual 11 percent appreciation: - In the absence of favorable economic news in the euro area, the euro-dollar appreciation since April 2017 would have been about 7½ percentage points lower than the actual 11 percent. - In the absence of euro-area monetary shocks, the euro-dollar appreciation since April 2017 would have been only 1½ percentage points lower than the actual 11 percent. ### Aggregate projections and key statistics (selected headline series from annex tables) - GDP Growth (Year-over-year percent change) — October 2017 WEO projections (selected aggregates and major economies): - Europe: 2016 1.7; 2017 2.4; 2018 2.1; 2019 1.9 - Advanced European economies: 2016 1.9; 2017 2.1; 2018 1.9; 2019 1.7 - Euro area: 2016 1.8; 2017 2.1; 2018 1.9; 2019 1.7 - World (memorandum): 2016 3.2; 2017 3.6; 2018 3.7; 2019 3.7 - United states (memorandum): 2016 1.5; 2017 2.2; 2018 2.3; 2019 1.9 - China (memorandum): 2016 6.7; 2017 6.8; 2018 6.5; 2019 6.3 - Japan (memorandum): 2016 1.0; 2017 1.5; 2018 0.7; 2019 0.8 - Domestic Demand (Year-over-year percent change) — October 2017 WEO projections (selected aggregates): - Europe: 2016 1.8; 2017 2.4; 2018 2.1; 2019 1.9 - Euro area: 2016 2.3; 2017 2.1; 2018 1.9; 2019 1.7 - World (memorandum): 2016 3.0; 2017 3.7; 2018 3.7; 2019 3.8 - United states (memorandum): 2016 1.7; 2017 2.3; 2018 2.5; 2019 2.0 - China (memorandum): 2016 7.4; 2017 6.9; 2018 6.9; 2019 6.7 - Gross Investment (Percent of GDP) — October 2017 WEO (selected aggregates and countries): - Europe: 2016 23.2; 2017 22.6; 2018 23.2; 2019 23.3 - Euro area: 2016 20.3; 2017 20.6; 2018 20.8; 2019 21.0 - United states (memorandum): 2016 19.7; 2017 19.8; 2018 20.0; 2019 20.0 - China (memorandum): 2016 44.2; 2017 44.0; 2018 43.3; 2019 42.8 - Inflation (Year-over-year percent change) — October 2017 WEO (selected aggregates): - Europe: 2016 2.0; 2017 2.8; 2018 2.7; 2019 2.8 - Advanced European economies: 2016 0.4; 2017 1.6; 2018 1.6; 2019 1.8 - Euro area: 2016 0.2; 2017 1.5; 2018 1.4; 2019 1.7 - World (memorandum): 2016 2.8; 2017 3.1; 2018 3.3; 2019 3.3 - United states (memorandum): 2016 1.3; 2017 2.1; 2018 2.1; 2019 2.6 - China (memorandum): 2016 2.0; 2017 1.8; 2018 2.4; 2019 2.5 - Unemployment Rate (Percent) — October 2017 WEO (selected aggregates): - Europe: 2016 8.1; 2017 7.6; 2018 7.3; 2019 7.2 - Advanced European economies: 2016 8.6; 2017 7.9; 2018 7.5; 2019 7.3 - Euro area: 2016 10.0; 2017 9.2; 2018 8.7; 2019 8.3 - United states (memorandum): 2016 4.9; 2017 4.4; 2018 4.1; 2019 4.2 - China (memorandum): 2016 4.0; 2017 4.0; 2018 4.0; 2019 4.0 - Japan (memorandum): 2016 3.1; 2017 2.9; 2018 2.9; 2019 2.9 - General Government Overall Balance (Percent of GDP) — October 2017 WEO (selected aggregates): - Europe: 2016 −1.9; 2017 −1.7; 2018 −1.4; 2019 −1.0 - Advanced European economies: 2016 −1.5; 2017 −1.3; 2018 −1.0; 2019 −0.6 - Euro area: 2016 −1.5; 2017 −1.3; 2018 −1.0; 2019 −0.7 - United states (memorandum): 2016 −4.4; 2017 −4.3; 2018 −3.7; 2019 −4.0 - World (memorandum): 2016 −3.6; 2017 −3.4; 2018 −3.0; 2019 −2.9 *Prepared by Raju Huidrom and Emil Stavrev. Source: IMF staff estimates and World Economic Outlook (WEO) tables (October 2017 WEO projections as shown in the annex tables).* --- ### General Government Gross Debt (Annex Table 1.7) - Europe: 2016 68.9, 2017 68.2, 2018 67.1, 2019 65.7; October 2017 WEO–April 2017 WEO difference: 2017 68.9, 2018 68.0, 2019 66.6; Memorandum: 20.7 20.8 20.8 - Advanced European economies: 2016 85.6, 2017 84.3, 2018 82.8, 2019 81.0; October 2017 WEO–April 2017 WEO difference: 2017 84.7, 2018 83.5, 2019 81.8; Memorandum: 20.4 20.7 20.8 - Euro area: 2016 89.0, 2017 87.4, 2018 85.6, 2019 83.5; October 2017 WEO–April 2017 WEO difference: 2017 90.1, 2018 88.6, 2019 86.6; Memorandum: 22.7 23.1 23.1 - Selected country entries (Percent of GDP, October 2017 WEO projections): - Austria: 2016 84.6, 2017 80.2, 2018 77.5, 2019 74.8; April 2017 WEO: 2017 81.2, 2018 78.3, 2019 75.6; difference: 21.0 20.8 20.8 - Belgium: 2016 106.0, 2017 104.3, 2018 102.9, 2019 101.5; April 2017 WEO: 2017 104.3, 2018 103.3, 2019 102.3; difference: 0.0 20.4 20.8 - Cyprus: 2016 107.8, 2017 105.5, 2018 102.0, 2019 96.4; April 2017 WEO: 2017 109.3, 2018 107.4, 2019 100.5; difference: 23.7 25.4 24.1 - France: 2016 96.3, 2017 96.8, 2018 97.0, 2019 97.0; April 2017 WEO: 2017 97.4, 2018 97.4, 2019 96.6; difference: 20.6 20.4 0.4 - Germany: 2016 68.1, 2017 65.0, 2018 61.8, 2019 58.7; April 2017 WEO: 2017 64.7, 2018 62.0, 2019 59.1; difference: 0.3 20.1 20.4 - Greece: 2016 181.6, 2017 180.2, 2018 184.5, 2019 177.9; April 2017 WEO: 2017 180.7, 2018 181.5, 2019 174.3; difference: 20.5 3.0 3.6 - Ireland: 2016 72.9, 2017 69.3, 2018 67.8, 2019 66.2; April 2017 WEO: 2017 74.8, 2018 73.4, 2019 71.4; memorandum differences: 25.5 25.6 25.2 - Italy: 2016 132.6, 2017 133.0, 2018 131.4, 2019 128.8; April 2017 WEO: 2017 132.8, 2018 131.6, 2019 129.4; difference: 0.3 20.1 20.6 - Netherlands: 2016 61.8, 2017 57.4, 2018 54.2, 2019 51.2; April 2017 WEO: 2017 59.7, 2018 57.8, 2019 55.9; memorandum differences: 22.3 23.6 24.7 - Portugal: 2016 130.3, 2017 125.7, 2018 122.5, 2019 119.8; April 2017 WEO: 2017 128.6, 2018 127.1, 2019 125.7; memorandum differences: 22.9 24.6 25.9 - Spain: 2016 99.4, 2017 98.7, 2018 97.2, 2019 95.8; April 2017 WEO: 2017 98.5, 2018 97.9, 2019 96.8; difference: 0.1 20.6 21.0 - Other aggregates: - Nordic economies: 2016 38.2, 2017 36.8, 2018 35.6, 2019 34.1; October 2017 WEO–April 2017 WEO difference: 2017 38.1, 2018 37.3, 2019 36.8; memorandum: 21.3 21.7 22.7 - Emerging European economies: 2016 31.9, 2017 32.8, 2018 32.8, 2019 32.7; memorandum: 33.6 33.6 33.2; differences: 20.8 20.8 20.5 - World (memorandum): Advanced economies 106.3 105.3 104.2 103.1; Emerging market and developing economies 46.8 48.3 49.9 51.2; European Union 85.7 84.2 82.6 80.7; United states 107.1 108.1 107.8 107.9; Japan 239.3 240.3 240.0 238.5 ### Current Account (Annex Table 1.8) - Europe: 2016 2.2 percent of GDP, 2017 2.4, 2018 2.3, 2019 2.3; October 2017 WEO–April 2017 WEO difference: 2.4 2.4 2.5; memorandum differences: 0.0 20.1 20.1 - Advanced European economies: 2016 2.7, 2017 2.9, 2018 2.9, 2019 2.8; October 2017 WEO–April 2017 WEO difference: 2.9 2.9 3.0 - Euro area: 2016 3.5, 2017 3.1, 2018 3.0, 2019 2.9; October 2017 WEO–April 2017 WEO difference: 3.0 3.0 3.0; difference: 0.1 0.0 - Selected country entries (Percent of GDP, October 2017 WEO projections): - Austria: 2016 1.7, 2017 2.1, 2018 2.2, 2019 2.3; April 2017 WEO: 2017 2.4, 2018 2.2, 2019 2.2; difference: 20.3 20.1 0.1 - Belgium: October 2017 WEO: 2016 (not listed), 2017 0.0, 2018 0.1, 2019 0.9, April 2017 WEO: 2017 1.0, 2018 1.4; memorandum differences: 21.2 21.0 21.3 - Estonia: 2016 1.9, 2017 1.8, 2018 1.4, 2019 0.5; April 2017 WEO: 2017 1.4, 2018 0.9, 2019 0.2; difference: 0.3 0.5 0.3 - Germany: 2016 8.3, 2017 8.1, 2018 7.7, 2019 7.5; April 2017 WEO: 2017 8.2, 2018 8.0, 2019 7.8; difference: 20.1 20.2 20.3 - Ireland: 2016 3.3, 2017 3.4, 2018 3.5, 2019 3.6; April 2017 WEO: 2017 4.7, 2018 4.7, 2019 4.6; memorandum differences: 21.3 21.3 21.0 - Netherlands: 2016 8.5, 2017 10.0, 2018 10.0, 2019 9.6; April 2017 WEO: 2017 9.2, 2018 9.1, 2019 9.1; difference: 20.4 20.1 20.8 - Spain: 2016 1.9, 2017 1.9, 2018 2.0, 2019 2.0; April 2017 WEO: 2017 1.5, 2018 1.6, 2019 1.6; difference: 20.5 20.4 20.3 - Other aggregates: - Nordic economies: 2016 5.6, 2017 5.3, 2018 5.2, 2019 5.0 - Emerging European economies: memorandum values largely around 20.4 20.3 20.3 20.3 - World (memorandum): World 0.4 0.4 0.3 0.2; Advanced economies 0.8 0.8 0.7 0.7; European Union 2.2 2.4 2.4 2.3 ### Net Financial Assets (Annex Table 1.9) - Europe: 2016 7.1 percent of GDP, 2017 7.2, 2018 9.1, 2019 11.1; October 2017 WEO–April 2017 WEO difference: 10.1 12.3 14.4; memorandum differences: 22.9 23.2 23.3 - Advanced European economies: 2016 13.1, 2017 13.4, 2018 15.2, 2019 17.3; October 2017 WEO–April 2017 WEO difference: 16.2 18.6 20.9; memorandum differences: 22.8 23.4 23.6 - Euro area (selected lines): 2016 (noted), October 2017 WEO–April 2017 WEO difference lines include 21.2 20.5 and 3.2 6.6 2.7 6.3 9.8; aggregate presentation in table is complex. - Selected country entries (Percent of GDP, October 2017 WEO projections): - Austria: 2016 7.1, 2017 12.1, 2018 13.2, 2019 14.9; April 2017 WEO: 2017 5.3, 2018 7.3, 2019 9.1; difference: 6.8 5.9 5.8 - Belgium: 2016 47.6, 2017 45.5, 2018 43.1, 2019 42.3; April 2017 WEO: 2017 61.7, 2018 61.5, 2019 61.4; memorandum differences: 216.2 218.4 219.1 - Cyprus: table shows large positive net financial assets entries around 2125.4 121.3 121.3 etc., and October 2017 WEO–April 2017 WEO differences 6.3 6.3 5.0 (table formatting reflects country-specific series) - Denmark: 2016 53.3, 2017 62.9, 2018 65.8, 2019 70.7; October 2017 WEO–April 2017 WEO difference lines include 45.5 52.1 57.8 17.4 13.7 12.8 (table formatting complex) - Norway: 2016 199.5, 2017 197.5, 2018 193.4, 2019 190.0; April 2017 WEO: 2017 195.6, 2018 191.7, 2019 188.4; difference: 1.9 1.7 1.5 - Sweden: 2016 15.5, 2017 19.2, 2018 19.8, 2019 21.2; April 2017 WEO: 2017 18.6, 2018 20.2, 2019 21.8; memorandum differences: 20.4 20.4 20.6 - Emerging European economies and regional groups show wide variation: - Central Europe: 2016 59.3, 2017 53.5, 2018 46.7, 2019 44.0; October 2017 WEO–April 2017 WEO difference: 25.9 25.6 25.3 25.2; differences: 6.4 9.4 9.2 - Southeastern European EU member states: 2016 255.6, 2017 255.8, 2018 250.1, 2019 247.2; October 2017 WEO–April 2017 WEO difference: 255.3 252.1 249.3; memorandum differences: 2.0 2.0 2.1 - Commonwealth of Independent States: 2016 9.9, 2017 11.7, 2018 15.5, 2019 18.5; October 2017 WEO–April 2017 WEO difference: 19.0 22.6 25.6; memorandum differences: 27.3 27.1 27.0 - Memorandum: - World and major economies: United states 244.7 243.8 244.6 245.6 (further April vs October differences 244.5 245.7 247.3); China 16.0 16.5 16.2 15.9; Japan 61.0 65.9 68.1 70.8 ### Growth Rate of GDP Per Capita (Annex Table 1.10) - Europe (aggregates and projections): - 2000–08 average: 2.9 - 2009: 2.0 - 2010: 5.2 - 2011: 2.5 - 2012: 2.5 - 2013: 0.3 - 2014: 0.8 - 2015: 1.7 - 2016: 1.2 - 2017: 1.4 - 2018–2022 projections: 2018 2.2, 2019 1.9, 2020 1.7, 2021 1.7, 2022 1.7 - Advanced European economies (selected entries and projections): - Advanced European economies 2000–08 1.7; 2009 2.0; 2010 4.8; 2016 0.1; 2017 1.3; 2018 1.6; 2019 1.4; 2020 1.7; 2021 1.6; 2022 1.4 - Euro area: 2000–08 1.6; 2016 0.5; 2017 1.1; 2018 1.7; 2019 1.5; 2020 1.9; 2021 1.8; 2022 1.5 - Germany: 2000–08 1.6; 2009 2.0; 2010 5.2; 2016 0.6; 2017 0.9; 2018 1.9; 2019 1.7; 2020 1.4; 2021 1.4; 2022 1.4 - France: 2000–08 1.2; 2016 0.4; 2017 0.6; 2018 0.8; 2019 1.1; 2020 1.3; 2021 1.4; 2022 1.5 - United Kingdom: 2000–08 1.9; 2009 2.0; 2010 5.0; 2016 1.4; 2017 1.0; 2018 1.1; 2019 0.8; 2020 0.9; 2021 1.1; 2022 1.1 - Selected faster-growing economies (real GDP per capita, historical and projections): - Estonia: 2000–08 6.9; 2009 2.0; 2010 14.6; 2016 1.9; 2017 2.2; 2018 4.2; 2019 4.0; 2020 3.3; 2021–2022 3.3 - Ireland: 2000–08 2.9; 2009 2.0; 2010 5.3; 2016 8.0; 2017 24.6; 2018 4.1; 2019 3.1; 2020 2.4; 2021 2.0; 2022 1.9 - Latvia: 2000–08 8.3; 2009 2.0; 2010 13.2; 2016 3.3; 2017 3.5; 2018 2.8; 2019 4.4; 2020 4.2; 2021 3.8; 2022 3.4 - Lithuania: 2000–08 8.2; 2009 2.0; 2010 13.9; 2016 2.7; 2017 3.5; 2018 4.7; 2019 4.7; 2020 4.6; 2021 4.4; 2022 4.3 - Poland: 2000–08 4.2; 2009 2.6; 2010 4.0; 2016 2.7; 2017 3.8; 2018 3.4; 2019 3.1; 2020 2.9; 2021 2.8; 2022 2.7 - Romania: 2000–08 7.1; 2009 2.0; 2010 6.2; 2016 3.4; 2017 4.4; 2018 5.4; 2019 5.5; 2020 4.4; 2021 3.8; 2022 3.3 - Southeastern European non-EU member states, Commonwealth of Independent States, and Turkey show heterogeneous and generally higher projected growth rates per capita compared with advanced European economies: - Albania: 2000–08 6.8; 2016 3.5; 2017 3.7; 2018 3.8; 2019 3.9; 2020 4.0; 2021 4.1; 2022 4.1 - Russia: 2000–08 7.3; 2009 2.0; 2010 7.8; 2016 0.7; 2017 2.8; 2018 2.0; 2019 0.2; 2020 1.8; 2021 1.7; 2022 1.6 - Turkey: 2000–08 3.6; 2009 2.0; 2010 6.1; 2016 3.8; 2017 4.7; 2018 1.8; 2019 4.1; 2020 2.5; 2021 2.5; 2022 2.6 *source: IMF, World Economic Outlook (WEO).* *The chapter was prepared by a staff team comprising Cristina Batog, Vizhdan Boranova, Raju Huidrom, Sylwia Nowak, Faezeh Raei, and Yan Sun. The team was led by Emil Stavrev under the general guidance of Jörg Decressin. Gilda Ordoñez-Baric provided skillful administrative support. The chapter reflects data and developments as of October 17, 2017.* ### 1.5 percent in 2016 (Figure 1.2, panel 2). This ### 1. Europe’s Economy Hitting Its Stride ### Growth Momentum and Composition - Real GDP growth: "1.5 percent in 2016" with recent rebound helped by Russia exiting recession and a strong, policy-assisted pickup in Turkey following a dip related to the failed coup attempt. - Several economies, especially EU members, are seeing growth "much faster than 3 percent". - Drivers of expansion: - Private consumption expanding rapidly due to low unemployment, labor shortages, rising wages, and boosted household confidence. - Investment strengthening, partly from growing absorption of EU structural funds after low levels in 2016. - In Poland and Romania, expansion further fueled by government spending programs (for example, child subsidies in Poland) and large value-added and excise tax cuts (in Romania). - High-frequency indicators (second half of 2017): - Manufacturing PMIs strengthening in advanced Europe and firmly in expansionary territory in emerging Europe. - Consumer confidence gradually improved in 2017; economic sentiment in the euro area reached its highest level in more than a decade, led by rising confidence among industrial companies and in the services sector. - Chart reference: Figure 1.2 indicates economic expansion is driven mostly by domestic demand with contributions from private consumption, public consumption, investment, and net exports (growth, year over year, percent; contributions in percentage points). ### Slack Is Disappearing / Output Gaps - Advanced Europe: output gaps are closing; except for Greece, output gaps are estimated to be relatively small, closed, or positive. The output gap in the euro area is expected to be closed in 2018. - Emerging Europe: cyclical recovery appears largely complete; many economies’ output gaps are already small or closed, with several countries experiencing positive gaps. - Uncertainty in slack measurement: - Indicators conflict: subdued inflation suggests ample slack, while high capacity utilization and low unemployment point to limited remaining slack. - Historical revisions showed output gaps were frequently underestimated during recoveries (Figure 1.5), particularly after the global financial crisis; disentangling cyclical vs. structural components remains complicated. - Recent survey evidence suggests structural factors are supporting the recovery: - Firms in EU countries increasingly expect equipment shortages and capacity constraints (Figure 1.6), indicating investment pickup could be sustained and help raise potential growth. - Near-term potential growth has been revised up in many European countries on the back of the 2017 recovery (Figure 1.7, panel 1); cyclical factors also contributed where inflation and output gap revisions are higher (Figure 1.7, panel 2). ### Inflationary Pressures - Overall: inflation is rising but remains generally subdued across Europe. - Advanced Europe: - Core inflation in the euro area gradually increased to "1.3 percent in August" from "0.9 percent in January", but remains subdued. - Inflation expectations increased from a year ago, deflation risk receded, but expectations remain well below "2 percent". - United Kingdom: inflation higher due to pass-through of pound depreciation following the Brexit referendum. - Other advanced economies (Czech Republic, Baltics) and many emerging economies (Central Europe, Southeastern Europe): somewhat higher but still-low inflation since early 2017 despite accelerating wage growth; inflation expectations point to further increases. - Russia: consumer price inflation hit a post-Soviet low of "3.3 percent in August", below the central bank’s target of "4 percent", driven by a small negative output gap, ruble appreciation, one-off effect from declining food prices, and tight monetary policy. - CIS aggregate headline inflation: hovering around "11.5 percent" throughout 2017, driven by persistent double-digit inflation in Ukraine. - Turkey: annual inflation rose to "10.7 percent in August 2017" from "9.2 percent in January", more than double the central bank’s inflation target of "5 percent"; food, nonfood goods, and fuels climbed at double-digit rates; core inflation reached a three-year high amid oversimulative macroeconomic policies. ### Wage Growth, Productivity, and Labor Markets - Divergence between wage growth and productivity: - In most advanced European economies, wage growth subdued reflecting weak productivity growth and low inflation (Figure 1.8). - In the Baltics and the Czech Republic, and emerging Southeastern European economies, wage growth has been strong and outpaced labor productivity growth since 2016. - Ukraine: nominal wage growth averaged "35 percent in 2017" reflecting a doubling of the minimum wage and strong public sector wage growth—raising unit labor costs and posing second-round inflation risks. - Labor market slack: - Headline unemployment rates have trended down since early 2013. - Declines in labor market slack (unemployment and underemployment) are much larger in the Baltics, Central Europe, and Southeastern Europe—now at the lowest level since 2008—contributing to skill shortages that begin to constrain expansion (Figure 1.11). - Some advanced economies still display labor market slack. - Sectoral patterns: - Exposure to external competition and technological progress influence wage patterns; manufacturing often shows wage growth lagging productivity growth in advanced Europe due to relocatable production and automation (Figure 1.12). - Services exhibit smaller gaps; in Baltics/Central/Southeastern Europe wage growth stronger in services relative to industrial sectors, implying higher domestic services inflation. - Services inflation has generally outpaced goods inflation recently (Figure 1.13); policymakers have tolerated higher services inflation offset by low goods inflation, but rising service wages could press on headline inflation, especially if imported inflation rises. ### Credit Recovery - Credit is picking up across many European countries but still lags domestic demand and output. - Advanced Europe / Euro area: - Bank credit to the private sector is picking up, mainly driven by credit to households. - Credit to businesses remains uneven and particularly weak where NPLs are high. - Nordic economies: credit to businesses robust, credit to households slowed after macroprudential measures to contain housing booms and household debt. - Emerging Europe (outside CIS): - Credit growth to both nonfinancial corporations and households is increasing, particularly in Central Europe and SEE-EU, aligned with strong real GDP and investment growth. - Transactional credit growth may be higher where loan-portfolio cleaning lowers credit stocks (examples cited: Albania, Croatia, Hungary). - Russia: credit is growing again as the economy exits recession. - Rest of CIS: credit contraction continues but at a slower pace. - Turkey: credit rebounded strongly to about "18 percent in July 2017" after slowing in 2016 following the failed coup attempt. _The chapter was prepared by a staff team comprising Cristina Batog, Vizhdan Boranova, Raju Huidrom, Sylwia Nowak, Faezeh Raei, and Yan Sun. The team was led by Emil Stavrev under the general guidance of Jörg Decressin. Gilda Ordoñez-Baric provided skillful administrative support. The chapter reflects data and developments as of October 17, 2017._ ### 1. Advanced Europe ### 1. Advanced Europe ### Credit Recovery and Nonperforming Loans (NPLs) - Credit is recovering across advanced and emerging Europe, with contributions from both households and nonfinancial corporations. - NPL levels have declined across Europe from postcrisis peaks, but remain a drag on profitability and credit supply in several countries. - In the euro area: - NPLs have been reduced by about €160 billion since their peak in 2014, predominantly in the household sector. - The stock of NPLs remains high at just below €1 trillion. - Spain and Ireland account for a large portion of the reduction in NPLs. - In Italy, a recent pickup in NPL sales is encouraging, but legacy assets and structural factors continue to weigh on profitability; for an appreciable part of the banking system, return on equity is persistently below the cost of equity. - In emerging market Europe: - NPL levels have declined but remain higher than 10 percent in eight countries. - High NPL levels in several economies appear to be a factor hindering credit growth. - Policy implications highlighted: - More actions are needed to reduce legacy bad assets, repair bank balance sheets, and facilitate necessary corporate restructuring. ### Europe’s Contribution to Global Growth and Trade - Europe’s improved prospects account for the bulk of the upward revision to global growth in 2017 from the April 2017 World Economic Outlook. - The strengthening domestic-demand-driven recovery in Europe has boosted global trade; Europe’s contribution to the growth of global merchandise imports in 2016–17 is similar to that of China and the United States combined. - World Economic Outlook projection cited: - Global growth projected to reach 3.6 percent and 3.7 percent in 2017 and 2018, respectively, up from 3.2 percent in 2016. ### Exchange Rates, Current Accounts, and Competitiveness - Exchange rate movements (March–September 2017): - The euro appreciated by about 4 percent in real effective terms. - The Czech koruna appreciated about 6 percent. - The Turkish lira appreciated after a prior more than 10 percent depreciation following the coup in the second half of 2016. - The Russian ruble has depreciated by about 5 percent since March, after a 25 percent appreciation from the trough reached in early 2016. - Current account developments: - Despite accelerating imports and euro appreciation, current account surpluses remain noticeably larger than before the crisis in most countries. - Net external debtor countries that had large precrisis current account deficits have seen appreciable adjustments, partly driven by permanent demand reduction and labor cost reductions. - In advanced Europe, some former deficit euro area members have maintained surpluses (Estonia, Portugal, Spain) or reduced deficits (Greece, Latvia, Lithuania). - Improvements in current accounts have led only to gradual improvements in net foreign asset positions; surpluses need to be maintained for some time. - Elevated external surpluses have persisted in Germany, the Netherlands, and Switzerland, and in Sweden. - Region-specific notes: - Baltics: indicators suggest some erosion of competitiveness—real effective exchange rate appreciation, fast wage growth, and modest productivity gains have led to notable increases in unit labor costs close to precrisis peaks. - Central Europe and SEE-EU: real effective exchange rates have edged up as wages grew faster than productivity in the past two years; economy-wide profit shares in these economies are higher than the EU average, suggesting companies have some room to absorb higher labor costs. - Turkey: strong domestic demand pressures and high inflation have contributed to a larger current account deficit since the crisis; year-to-date current account deficit exceeded 5 percent of GDP. - Russia: current account balance driven by oil prices and sanctions; given current oil price projections and recovery of domestic demand, Russia’s current account is projected to be in a surplus of 3–4 percent of GDP in the near term. ### External Conditions, Monetary Policy, and Financial Conditions - External demand remains favorable: upturn in manufacturing and investment, and stronger trade growth. Expansionary PMIs in advanced economies point to continued strong global growth in Q3 2017; euro area manufacturing new orders, particularly from foreign markets, are at levels not seen in recent years. - Financial conditions: - Policy rates, term premiums, and corporate spreads generally remain very low; global stock markets have posted strong gains. - On expectations of some tapering of the ECB Asset Purchasing Program, yields in advanced Europe have edged up since September 2016 but remain at low levels. - In euro area economies with limited fiscal buffers, spreads relative to German bunds have declined since mid-2017. - In emerging Europe, local and foreign currency yields have risen somewhat in some countries, but spreads have declined for all countries since October 2016; this decline has been underpinned by continued strength in capital inflows to emerging market economies. - Monetary policy outlook: - In the near term, no significant tightening of conditions is expected; U.S. normalization is expected to proceed smoothly without large market volatility. - Monetary policy is expected to remain accommodative across most European economies. - Advanced Europe: - Continued accommodative monetary policies expected to keep policy rates low. - In the euro area, subdued inflation implies monetary policy is expected to remain accommodative for an extended period. - In the United Kingdom, monetary policy is expected to tighten gradually from a very accommodative stance given a relatively closed output gap and inflation close to target. - In several advanced economies, market expectations point to a tightening bias, but real policy rates remain negative across the region. - Emerging Europe: - Generally accommodative financial conditions expected due to easy monetary policy and strong risk appetite. - Market expects some tightening in Romania given the closing output gap and rising inflationary pressures. - In Turkey, after increases in average funding rates in early 2017, markets expect rates to go modestly down as inflationary pressures subside. - In Russia, policy rates have been lowered since March following declines in inflation and inflation expectations; markets expect further cuts over the next few quarters, though one-year-ahead expectations are more mixed. ### Fiscal Policy Outlook - Fiscal policy is not projected to change appreciably going forward: - Broadly neutral in advanced Europe. - Neutral to expansionary in emerging Europe. - Cumulative fiscal impulse (change in the structural fiscal balance as a share of potential output between 2016 and 2018) is forecast: - Slightly expansionary in some advanced European economies, including Germany and the Netherlands. - Neutral or slightly tighter in most advanced economies (for example, Spain and the United Kingdom). - Moderate fiscal easing expected in most emerging European countries, with notable exceptions. *Source: IMF Regional Economic Outlook: Europe — Chapter 1, November 2017.* ### 1. Major Advanced Economies: Policy Rate Expectations ### 1. Major Advanced Economies: Policy Rate Expectations ### Growth projections and recent revisions - Euro area growth revised up to 2.1 percent (from 1.7 percent in the April projection) for 2017 and to 1.9 percent for 2018 (from 1.6 percent in April). - United Kingdom growth projected to slow to 1.7 percent in 2017 and 1.5 percent in 2018. - Russia: economic activity projected to expand by 1.8 percent in 2017 (0.4 of a percentage point up relative to April). - Turkey: growth in 2017 revised up by 2.7 percentage points to 5.1 percent. - General projection summary (select rows from Table 1.1, Real GDP Growth Projections, October 2017 WEO): - Europe: 2016: 1.7; 2017: 2.4; 2018: 2.1; 2019: 1.9; Difference from April 2017 WEO (2017): 0.5; (2018): 0.2; (2019): 0.0 - Advanced European economies: 2016: 1.9; 2017: 2.1; 2018: 1.9; 2019: 1.7; Difference from April (2017): 0.3; (2018): 0.2; (2019): 0.0 - Euro area: 2016: 1.8; 2017: 2.1; 2018: 1.9; 2019: 1.7; Difference from April (2017): 0.5; (2018): 0.3; (2019): 0.1 - France: 2016: 1.2; 2017: 1.6; 2018: 1.8; 2019: 1.9; Difference from April (2017): 0.2; (2018): 0.1; (2019): 0.1 - Germany: 2016: 1.9; 2017: 2.0; 2018: 1.8; 2019: 1.5; Difference from April (2017): 0.4; (2018): 0.3; (2019): 0.0 - Italy: 2016: 0.9; 2017: 1.5; 2018: 1.1; 2019: 0.9; Difference from April (2017): 0.7; (2018): 0.3; (2019): 0.1 - Spain: 2016: 3.2; 2017: 3.1; 2018: 2.5; 2019: 2.0; Difference from April (2017): 0.5; (2018): 0.4; (2019): 0.0 - Nordic economies: 2016: 2.2; 2017: 2.3; 2018: 2.0; 2019: 2.0; Difference from April (2017): 0.3; (2018): 0.1; (2019): 0.0 - United Kingdom: 2016: 1.8; 2017: 1.7; 2018: 1.5; 2019: 1.6; Difference from April (2017): -0.4; (2018): 0.0; (2019): 0.0 - Emerging European economies (aggregate): 2016: 1.5; 2017: 3.1; 2018: 2.6; 2019: 2.5; Difference from April (2017): 0.9; (2018): 0.2; (2019): 0.0 - Central Europe: 2016: 2.5; 2017: 3.7; 2018: 3.4; 2019: 3.0; Difference from April (2017): 0.4; (2018): 0.2; (2019): 0.1 - Poland: 2016: 2.6; 2017: 3.8; 2018: 3.3; 2019: 3.0; Difference from April (2017): 0.4; (2018): 0.1; (2019): 0.0 - Southeastern European EU member states: 2016: 4.3; 2017: 4.7; 2018: 3.9; 2019: 3.4; Difference from April (2017): 1.0; (2018): 0.8; (2019): 0.4 - Southeastern European non-EU member states: 2016: 2.7; 2017: 3.0; 2018: 3.3; 2019: 3.4; Difference from April (2017): -0.2; (2018): 0.3; (2019): 0.3 - Commonwealth of Independent States: 2016: -0.1; 2017: 1.8; 2018: 1.7; 2019: 1.7; Difference from April (2017): 0.4; (2018): 0.1; (2019): 0.0 - Russia: 2016: -0.2; 2017: 1.8; 2018: 1.6; 2019: 1.5; Difference from April (2017): 0.4; (2018): 0.2; (2019): 0.0 - Turkey: 2016: 3.2; 2017: 5.1; 2018: 3.5; 2019: 3.5; Difference from April (2017): 2.7; (2018): 0.2; (2019): 0.1 - Memorandum — European Union: 2016: 2.0; 2017: 2.3; 2018: 2.1; 2019: 1.8; Difference from April (2017): 0.4; (2018): 0.3; (2019): 0.1 ### Inflation outlook - Inflation expected to remain subdued across most European economies. - Euro area inflation: revised down by 0.2 percentage point for 2017 relative to April 2017 WEO. - United Kingdom headline inflation projected to reach 2.6 percent this year and next, then gradually decline thereafter. - Headline inflation projected to approach the ECB’s medium-term objective of below but close to 2 percent gradually over the next few years. - Selected inflation projections (Table 1.2, October 2017 WEO): - Europe: 2016: 2.0; 2017: 2.8; 2018: 2.7; 2019: 2.8; Difference from April (2017): -0.1; (2018): 0.1 - Advanced European economies: 2016: 0.4; 2017: 1.6; 2018: 1.6; 2019: 1.8; Difference from April (2017): -0.1; (2018): 0.1 - Euro area: 2016: 0.2; 2017: 1.5; 2018: 1.4; 2019: 1.7; Difference from April (2017): -0.2; (2018): 0.0; (2019): 0.1 - France: 2016: 0.3; 2017: 1.2; 2018: 1.3; 2019: 1.6; Difference from April (2017): -0.2; (2018): 0.1; (2019): 0.1 - Germany: 2016: 0.4; 2017: 1.6; 2018: 1.5; 2019: 2.0; Difference from April (2017): -0.5; (2018): 0.2; (2019): 0.1 - Spain: 2016: -; 2017: 2.0; 2018: 1.5; 2019: 1.7; Difference from April (2017): -0.4; (2018): 0.0; (2019): 0.1 - United Kingdom: 2016: 0.7; 2017: 2.6; 2018: 2.6; 2019: 2.2; Difference from April (2017): 0.2; (2018): 0.0; (2019): 0.0 - Emerging European economies (aggregate): 2016: 5.6; 2017: 5.6; 2018: 5.1; 2019: 4.9; Difference from April (2017): 0.1; (2018): -0.1; (2019): 0.1 - Central Europe: 2016: -; 2017: 2.0; 2018: 2.5; 2019: 2.6; Difference from April (2017): -0.3; (2018): 0.2; (2019): 0.1 - Poland: 2016: -; 2017: 1.9; 2018: 2.3; 2019: 2.5; Difference from April (2017): -0.4; (2018): 0.2; (2019): 0.1 - Commonwealth of Independent States: 2016: 7.8; 2017: 5.1; 2018: 4.5; 2019: 4.4; Difference from April (2017): -0.1; (2018): 0.3; (2019): 0.0 - Russia: 2016: 7.0; 2017: 4.2; 2018: 3.9; 2019: 4.0; Difference from April (2017): -0.2; (2018): 0.3; (2019): 0.0 - Turkey: 2016: 7.8; 2017: 10.9; 2018: 9.3; 2019: 8.8; Difference from April (2017): 0.8; (2018): 0.3; (2019): 0.3 - Memorandum — European Union: 2016: 0.2; 2017: 1.7; 2018: 1.7; 2019: 1.9; Difference from April (2017): -0.1; (2018): 0.0; (2019): 0.1 ### Risks to the outlook - Short-term: risks lowered by strong recovery and supportive policies; upside from stronger-than-anticipated global recovery. - Medium-term: risks tilted to the downside, including: - rising protectionism and policy changes in major economies; - heightened geopolitical risks (e.g., North Korea); - sensitivity of financial markets due to prolonged search for yield and potential monetary policy surprises; - higher debt service and refinancing risks affecting leveraged firms, households, and vulnerable sovereigns; - a downturn in China affecting European exports. - Region-specific medium-term risks: - Euro area: high-debt countries may struggle when monetary accommodation is reduced. - Banking sector: weak profitability and high NPL levels could trigger distress. - Emerging Europe: faster wage growth could lift inflation and hurt competitiveness, interacting with tightening external financial conditions. - Political and integration risks: lack of real income convergence and lower appetite for European integration could undermine reforms; Brexit negotiations could raise trade barriers and disrupt services if no agreement is reached; tensions such as the Catalan independence movement add uncertainty. ### Policy priorities (overview) - Rebuild room for policy maneuver given strong cyclical activity but thin fiscal buffers, weak productivity prospects, and unresolved crisis legacies. - Main priorities for most of the region: - reduce fiscal deficits while keeping monetary policies supportive where warranted; - accelerate structural reforms to boost productivity and income convergence; - if downside risks materialize, consider further monetary accommodation supported by fiscal relaxation where space exists. - Use the current growth and employment strength as an opportunity to implement structural reforms. ### Monetary policy recommendations - Euro area and most advanced Europe: keep monetary policy accommodative for an extended period due to subdued underlying inflation; any policy normalization should be backed by a clear shift in actual inflation or stronger inflation outlook. - For ECB to reach its medium-term inflation objective, countries with the strongest cyclical positions will likely need to accept inflation rates above the objective for some time. - United Kingdom: gradual tightening of monetary policy warranted to bring inflation back to target. - Russia: with inflation now below target, continue gradual monetary easing while monitoring output gap and exchange-rate-driven disinflation risks. - Turkey: tighter monetary policy within a simpler monetary framework needed to anchor expectations and reduce inflation. - Other emerging markets: prepare to gradually normalize monetary policy if underlying inflation rises persistently due to wage pressure and/or higher external inflation. ### Fiscal policy recommendations - Advanced Europe: - Countries with high public debt ratios and limited fiscal buffers (Belgium, France, Italy, Portugal, Spain, United Kingdom) should gradually consolidate to rebuild policy room and put debt on a downward path. - Economies with stronger fiscal positions (Germany, the Netherlands, Sweden) can use space to lift potential growth via greater public investment (examples: education and training, digitalization, refugee integration, infrastructure, housing). - Make fiscal policy more growth- and distribution-friendly through spending efficiency and tax design; consider revenue-neutral increases in tax progressivity, spending reallocations, and improved spending efficiency. - Emerging Europe: - Many countries need fiscal tightening, better-quality expenditure, and improved revenue composition. - Fiscal deficits remain relatively large in Hungary, Poland, Romania, and several Western Balkan and CIS economies; more fiscal consolidation is appropriate to preserve competitiveness and policy space. - Russia: adjust fiscally via better-targeted and more permanent pension reforms, reducing tax exemptions and subsidies, while protecting public and human capital investment; establish a credible fiscal rule to support sustainability and mitigate oil price volatility effects. - Turkey: reevaluate the degree of accommodation given strong growth momentum and plan credible medium-term consolidation. ### Financial sector policy recommendations - Advanced Europe: - Facilitate bank balance-sheet repair: follow up on ECB’s March 2017 guidance on NPL management and supervisory expectations for provisioning new NPLs. - Agree on ambitious NPL reduction targets with vigorous supervisory follow-up; apply frameworks proportionally to smaller banks. - Legislative changes to harmonize corporate insolvency and foreclosure frameworks and improve judicial efficiency to stimulate secondary markets. - Address persistently low bank profitability through consolidation and restructuring; supervisors can incentivize adjustments. - Emerging Europe: - Resolving elevated NPLs requires a multipronged approach (see Chapter 3): comprehensive asset quality reviews, supervised and time-bound action plans, bankruptcy and insolvency regime improvements, faster court procedures, and better land registries and cadastral systems to enhance collateralization. ### Structural policy and Economic and Monetary Union (EMU) architecture - Advanced Europe: - Use recovery to implement structural reforms to lift potential growth, close competitiveness gaps, and increase shock resilience (e.g., ambitious labor and product market reforms in the euro area). - At EU level: - Enforce the Macroeconomic Imbalance Procedure more strictly and combine enforcement with incentives for structural reforms via targeted central funds and outcome-based benchmarks. - Complete the Banking Union, including establishing common deposit insurance and a common fiscal backstop. - Accelerate the Capital Markets Union, especially with the United Kingdom leaving the single market. - Consider creating a central fiscal capacity to help offset shocks and reduce national fiscal space constraints. - Complement architectural reforms with banking legacy resolution and stricter implementation of common fiscal rules; undertake national reforms to improve public sector efficiency and labor force participation where needed. - Country-specific examples: - United Kingdom: boost potential growth via increased infrastructure spending, easing planning restrictions on housing, and reforming property taxes. - Sweden: improve housing supply by streamlining building regulations, harmonizing planning and approval processes, phasing out rent controls, and shifting property tax composition. - Emerging Europe: - Focus structural reforms on strengthening institutions (particularly judicial independence), improving public sector efficiency, restructuring state-owned enterprises, and strengthening public investment management frameworks. - Priorities also include labor market reforms to raise female labor force participation and reduce youth unemployment, and institutional improvements to improve the investment climate. - Russia: improve institutional and business environment to realize benefits from innovation and reform. - Turkey: improve business climate and institutional stability, enhance human capital quality, increase domestic private savings, and address labor market rigidities to reduce informality and better integrate refugees. *International Monetary Fund | November 2017* ### 1. EUROpE’s ECONOMy HITTING ITs sTRIdE ### 1. EUROpE’s ECONOMy HITTING ITs sTRIdE ### Euro appreciation since early 2017 — drivers and empirical approach - The euro appreciated about 11 percent against the US dollar from April to September 30, 2017. - Conceptual drivers: favorable economic prospects in the euro area and tighter monetary policy (higher euro-area interest rates relative to the United States). - Empirical approach: - Follows Matheson and Stavrev 2014. - Estimates economic news and monetary shocks for the euro area using a vector autoregression model. - Model variables: 10-year bond yields and stock prices for the euro area and for the United States, and the euro-dollar bilateral exchange rate at monthly frequency. - Identification via economically meaningful sign restrictions: - Favorable euro-area news: stock prices and bond yields increase in the euro area; stock prices and bond yields in the United States decline (to isolate euro-area news versus U.S. news). - Adverse euro-area monetary shocks: stock prices decline and bond yields increase in the euro area; stock prices increase and bond yields decline in the United States (to isolate euro-area monetary shocks). - Counterfactual simulations: - Set estimated euro news shocks to zero and trace the counterfactual euro-dollar path. - Similarly construct counterfactuals excluding euro-area monetary shocks. ### Key empirical finding on the April–September 2017 euro rally - Ongoing improved economic prospects for the euro area vis-à-vis the United States were the main driver of the euro surge during April–September 2017. - Market perceptions of monetary tightening played a smaller but nontrivial role. - Quantified contributions to the actual 11 percent appreciation: - In the absence of favorable economic news in the euro area, the euro-dollar appreciation since April 2017 would have been about 7½ percentage points lower than the actual 11 percent. - In the absence of euro-area monetary shocks, the euro-dollar appreciation since April 2017 would have been only 1½ percentage points lower than the actual 11 percent. ### Aggregate projections and key statistics (selected headline series from annex tables) - GDP Growth (Year-over-year percent change) — October 2017 WEO projections (selected aggregates and major economies): - Europe: 2016 1.7; 2017 2.4; 2018 2.1; 2019 1.9 - Advanced European economies: 2016 1.9; 2017 2.1; 2018 1.9; 2019 1.7 - Euro area: 2016 1.8; 2017 2.1; 2018 1.9; 2019 1.7 - World (memorandum): 2016 3.2; 2017 3.6; 2018 3.7; 2019 3.7 - United states (memorandum): 2016 1.5; 2017 2.2; 2018 2.3; 2019 1.9 - China (memorandum): 2016 6.7; 2017 6.8; 2018 6.5; 2019 6.3 - Japan (memorandum): 2016 1.0; 2017 1.5; 2018 0.7; 2019 0.8 - Domestic Demand (Year-over-year percent change) — October 2017 WEO projections (selected aggregates): - Europe: 2016 1.8; 2017 2.4; 2018 2.1; 2019 1.9 - Euro area: 2016 2.3; 2017 2.1; 2018 1.9; 2019 1.7 - World (memorandum): 2016 3.0; 2017 3.7; 2018 3.7; 2019 3.8 - United states (memorandum): 2016 1.7; 2017 2.3; 2018 2.5; 2019 2.0 - China (memorandum): 2016 7.4; 2017 6.9; 2018 6.9; 2019 6.7 - Gross Investment (Percent of GDP) — October 2017 WEO (selected aggregates and countries): - Europe: 2016 23.2; 2017 22.6; 2018 23.2; 2019 23.3 - Euro area: 2016 20.3; 2017 20.6; 2018 20.8; 2019 21.0 - United states (memorandum): 2016 19.7; 2017 19.8; 2018 20.0; 2019 20.0 - China (memorandum): 2016 44.2; 2017 44.0; 2018 43.3; 2019 42.8 - Inflation (Year-over-year percent change) — October 2017 WEO (selected aggregates): - Europe: 2016 2.0; 2017 2.8; 2018 2.7; 2019 2.8 - Advanced European economies: 2016 0.4; 2017 1.6; 2018 1.6; 2019 1.8 - Euro area: 2016 0.2; 2017 1.5; 2018 1.4; 2019 1.7 - World (memorandum): 2016 2.8; 2017 3.1; 2018 3.3; 2019 3.3 - United states (memorandum): 2016 1.3; 2017 2.1; 2018 2.1; 2019 2.6 - China (memorandum): 2016 2.0; 2017 1.8; 2018 2.4; 2019 2.5 - Unemployment Rate (Percent) — October 2017 WEO (selected aggregates): - Europe: 2016 8.1; 2017 7.6; 2018 7.3; 2019 7.2 - Advanced European economies: 2016 8.6; 2017 7.9; 2018 7.5; 2019 7.3 - Euro area: 2016 10.0; 2017 9.2; 2018 8.7; 2019 8.3 - United states (memorandum): 2016 4.9; 2017 4.4; 2018 4.1; 2019 4.2 - China (memorandum): 2016 4.0; 2017 4.0; 2018 4.0; 2019 4.0 - Japan (memorandum): 2016 3.1; 2017 2.9; 2018 2.9; 2019 2.9 - General Government Overall Balance (Percent of GDP) — October 2017 WEO (selected aggregates): - Europe: 2016 −1.9; 2017 −1.7; 2018 −1.4; 2019 −1.0 - Advanced European economies: 2016 −1.5; 2017 −1.3; 2018 −1.0; 2019 −0.6 - Euro area: 2016 −1.5; 2017 −1.3; 2018 −1.0; 2019 −0.7 - United states (memorandum): 2016 −4.4; 2017 −4.3; 2018 −3.7; 2019 −4.0 - World (memorandum): 2016 −3.6; 2017 −3.4; 2018 −3.0; 2019 −2.9 *Prepared by Raju Huidrom and Emil Stavrev. Source: IMF staff estimates and World Economic Outlook (WEO) tables (October 2017 WEO projections as shown in the annex tables).* ### 1. EUROpE’s ECONOMy HITTING ITs sTRIdE ### 1. EUROpE’s ECONOMy HITTing ITs sTRIdE ### General Government Gross Debt (Annex Table 1.7) - Europe: 2016 68.9, 2017 68.2, 2018 67.1, 2019 65.7; October 2017 WEO–April 2017 WEO difference: 2017 68.9, 2018 68.0, 2019 66.6; Memorandum: 20.7 20.8 20.8 - Advanced European economies: 2016 85.6, 2017 84.3, 2018 82.8, 2019 81.0; October 2017 WEO–April 2017 WEO difference: 2017 84.7, 2018 83.5, 2019 81.8; Memorandum: 20.4 20.7 20.8 - Euro area: 2016 89.0, 2017 87.4, 2018 85.6, 2019 83.5; October 2017 WEO–April 2017 WEO difference: 2017 90.1, 2018 88.6, 2019 86.6; Memorandum: 22.7 23.1 23.1 - Selected country entries (Percent of GDP, October 2017 WEO projections): - Austria: 2016 84.6, 2017 80.2, 2018 77.5, 2019 74.8; April 2017 WEO: 2017 81.2, 2018 78.3, 2019 75.6; difference: 21.0 20.8 20.8 - Belgium: 2016 106.0, 2017 104.3, 2018 102.9, 2019 101.5; April 2017 WEO: 2017 104.3, 2018 103.3, 2019 102.3; difference: 0.0 20.4 20.8 - Cyprus: 2016 107.8, 2017 105.5, 2018 102.0, 2019 96.4; April 2017 WEO: 2017 109.3, 2018 107.4, 2019 100.5; difference: 23.7 25.4 24.1 - France: 2016 96.3, 2017 96.8, 2018 97.0, 2019 97.0; April 2017 WEO: 2017 97.4, 2018 97.4, 2019 96.6; difference: 20.6 20.4 0.4 - Germany: 2016 68.1, 2017 65.0, 2018 61.8, 2019 58.7; April 2017 WEO: 2017 64.7, 2018 62.0, 2019 59.1; difference: 0.3 20.1 20.4 - Greece: 2016 181.6, 2017 180.2, 2018 184.5, 2019 177.9; April 2017 WEO: 2017 180.7, 2018 181.5, 2019 174.3; difference: 20.5 3.0 3.6 - Ireland: 2016 72.9, 2017 69.3, 2018 67.8, 2019 66.2; April 2017 WEO: 2017 74.8, 2018 73.4, 2019 71.4; memorandum differences: 25.5 25.6 25.2 - Italy: 2016 132.6, 2017 133.0, 2018 131.4, 2019 128.8; April 2017 WEO: 2017 132.8, 2018 131.6, 2019 129.4; difference: 0.3 20.1 20.6 - Netherlands: 2016 61.8, 2017 57.4, 2018 54.2, 2019 51.2; April 2017 WEO: 2017 59.7, 2018 57.8, 2019 55.9; memorandum differences: 22.3 23.6 24.7 - Portugal: 2016 130.3, 2017 125.7, 2018 122.5, 2019 119.8; April 2017 WEO: 2017 128.6, 2018 127.1, 2019 125.7; memorandum differences: 22.9 24.6 25.9 - Spain: 2016 99.4, 2017 98.7, 2018 97.2, 2019 95.8; April 2017 WEO: 2017 98.5, 2018 97.9, 2019 96.8; difference: 0.1 20.6 21.0 - Other aggregates: - Nordic economies: 2016 38.2, 2017 36.8, 2018 35.6, 2019 34.1; October 2017 WEO–April 2017 WEO difference: 2017 38.1, 2018 37.3, 2019 36.8; memorandum: 21.3 21.7 22.7 - Emerging European economies: 2016 31.9, 2017 32.8, 2018 32.8, 2019 32.7; memorandum: 33.6 33.6 33.2; differences: 20.8 20.8 20.5 - World (memorandum): Advanced economies 106.3 105.3 104.2 103.1; Emerging market and developing economies 46.8 48.3 49.9 51.2; European Union 85.7 84.2 82.6 80.7; United states 107.1 108.1 107.8 107.9; Japan 239.3 240.3 240.0 238.5 ### Current Account (Annex Table 1.8) - Europe: 2016 2.2 percent of GDP, 2017 2.4, 2018 2.3, 2019 2.3; October 2017 WEO–April 2017 WEO difference: 2.4 2.4 2.5; memorandum differences: 0.0 20.1 20.1 - Advanced European economies: 2016 2.7, 2017 2.9, 2018 2.9, 2019 2.8; October 2017 WEO–April 2017 WEO difference: 2.9 2.9 3.0 - Euro area: 2016 3.5, 2017 3.1, 2018 3.0, 2019 2.9; October 2017 WEO–April 2017 WEO difference: 3.0 3.0 3.0; difference: 0.1 0.0 - Selected country entries (Percent of GDP, October 2017 WEO projections): - Austria: 2016 1.7, 2017 2.1, 2018 2.2, 2019 2.3; April 2017 WEO: 2017 2.4, 2018 2.2, 2019 2.2; difference: 20.3 20.1 0.1 - Belgium: October 2017 WEO: 2016 (not listed), 2017 0.0, 2018 0.1, 2019 0.9, April 2017 WEO: 2017 1.0, 2018 1.4; memorandum differences: 21.2 21.0 21.3 - Estonia: 2016 1.9, 2017 1.8, 2018 1.4, 2019 0.5; April 2017 WEO: 2017 1.4, 2018 0.9, 2019 0.2; difference: 0.3 0.5 0.3 - Germany: 2016 8.3, 2017 8.1, 2018 7.7, 2019 7.5; April 2017 WEO: 2017 8.2, 2018 8.0, 2019 7.8; difference: 20.1 20.2 20.3 - Ireland: 2016 3.3, 2017 3.4, 2018 3.5, 2019 3.6; April 2017 WEO: 2017 4.7, 2018 4.7, 2019 4.6; memorandum differences: 21.3 21.3 21.0 - Netherlands: 2016 8.5, 2017 10.0, 2018 10.0, 2019 9.6; April 2017 WEO: 2017 9.2, 2018 9.1, 2019 9.1; difference: 20.4 20.1 20.8 - Spain: 2016 1.9, 2017 1.9, 2018 2.0, 2019 2.0; April 2017 WEO: 2017 1.5, 2018 1.6, 2019 1.6; difference: 20.5 20.4 20.3 - Other aggregates: - Nordic economies: 2016 5.6, 2017 5.3, 2018 5.2, 2019 5.0 - Emerging European economies: memorandum values largely around 20.4 20.3 20.3 20.3 - World (memorandum): World 0.4 0.4 0.3 0.2; Advanced economies 0.8 0.8 0.7 0.7; European Union 2.2 2.4 2.4 2.3 ### Net Financial Assets (Annex Table 1.9) - Europe: 2016 7.1 percent of GDP, 2017 7.2, 2018 9.1, 2019 11.1; October 2017 WEO–April 2017 WEO difference: 10.1 12.3 14.4; memorandum differences: 22.9 23.2 23.3 - Advanced European economies: 2016 13.1, 2017 13.4, 2018 15.2, 2019 17.3; October 2017 WEO–April 2017 WEO difference: 16.2 18.6 20.9; memorandum differences: 22.8 23.4 23.6 - Euro area (selected lines): 2016 (noted), October 2017 WEO–April 2017 WEO difference lines include 21.2 20.5 and 3.2 6.6 2.7 6.3 9.8; aggregate presentation in table is complex. - Selected country entries (Percent of GDP, October 2017 WEO projections): - Austria: 2016 7.1, 2017 12.1, 2018 13.2, 2019 14.9; April 2017 WEO: 2017 5.3, 2018 7.3, 2019 9.1; difference: 6.8 5.9 5.8 - Belgium: 2016 47.6, 2017 45.5, 2018 43.1, 2019 42.3; April 2017 WEO: 2017 61.7, 2018 61.5, 2019 61.4; memorandum differences: 216.2 218.4 219.1 - Cyprus: table shows large positive net financial assets entries around 2125.4 121.3 121.3 etc., and October 2017 WEO–April 2017 WEO differences 6.3 6.3 5.0 (table formatting reflects country-specific series) - Denmark: 2016 53.3, 2017 62.9, 2018 65.8, 2019 70.7; October 2017 WEO–April 2017 WEO difference lines include 45.5 52.1 57.8 17.4 13.7 12.8 (table formatting complex) - Norway: 2016 199.5, 2017 197.5, 2018 193.4, 2019 190.0; April 2017 WEO: 2017 195.6, 2018 191.7, 2019 188.4; difference: 1.9 1.7 1.5 - Sweden: 2016 15.5, 2017 19.2, 2018 19.8, 2019 21.2; April 2017 WEO: 2017 18.6, 2018 20.2, 2019 21.8; memorandum differences: 20.4 20.4 20.6 - Emerging European economies and regional groups show wide variation: - Central Europe: 2016 59.3, 2017 53.5, 2018 46.7, 2019 44.0; October 2017 WEO–April 2017 WEO difference: 25.9 25.6 25.3 25.2; differences: 6.4 9.4 9.2 - Southeastern European EU member states: 2016 255.6, 2017 255.8, 2018 250.1, 2019 247.2; October 2017 WEO–April 2017 WEO difference: 255.3 252.1 249.3; memorandum differences: 2.0 2.0 2.1 - Commonwealth of Independent States: 2016 9.9, 2017 11.7, 2018 15.5, 2019 18.5; October 2017 WEO–April 2017 WEO difference: 19.0 22.6 25.6; memorandum differences: 27.3 27.1 27.0 - Memorandum: - World and major economies: United states 244.7 243.8 244.6 245.6 (further April vs October differences 244.5 245.7 247.3); China 16.0 16.5 16.2 15.9; Japan 61.0 65.9 68.1 70.8 ### Growth Rate of GDP Per Capita (Annex Table 1.10; real GDP per capita in purchasing power parity; year-over-year percent change; October 2017 WEO projections) - Europe (aggregates and projections): - 2000–08 average: 2.9 - 2009: 2.0 - 2010: 5.2 - 2011: 2.5 - 2012: 2.5 - 2013: 0.3 - 2014: 0.8 - 2015: 1.7 - 2016: 1.2 - 2017: 1.4 - 2018–2022 projections: 2018 2.2, 2019 1.9, 2020 1.7, 2021 1.7, 2022 1.7 - Advanced European economies (selected entries and projections): - Advanced European economies 2000–08 1.7; 2009 2.0; 2010 4.8; 2016 0.1; 2017 1.3; 2018 1.6; 2019 1.4; 2020 1.7; 2021 1.6; 2022 1.4 - Euro area: 2000–08 1.6; 2016 0.5; 2017 1.1; 2018 1.7; 2019 1.5; 2020 1.9; 2021 1.8; 2022 1.5 - Germany: 2000–08 1.6; 2009 2.0; 2010 5.2; 2016 0.6; 2017 0.9; 2018 1.9; 2019 1.7; 2020 1.4; 2021 1.4; 2022 1.4 - France: 2000–08 1.2; 2016 0.4; 2017 0.6; 2018 0.8; 2019 1.1; 2020 1.3; 2021 1.4; 2022 1.5 - United Kingdom: 2000–08 1.9; 2009 2.0; 2010 5.0; 2016 1.4; 2017 1.0; 2018 1.1; 2019 0.8; 2020 0.9; 2021 1.1; 2022 1.1 - Selected faster-growing economies (real GDP per capita, historical and projections): - Estonia: 2000–08 6.9; 2009 2.0; 2010 14.6; 2016 1.9; 2017 2.2; 2018 4.2; 2019 4.0; 2020 3.3; 2021–2022 3.3 - Ireland: 2000–08 2.9; 2009 2.0; 2010 5.3; 2016 8.0; 2017 24.6; 2018 4.1; 2019 3.1; 2020 2.4; 2021 2.0; 2022 1.9 - Latvia: 2000–08 8.3; 2009 2.0; 2010 13.2; 2016 3.3; 2017 3.5; 2018 2.8; 2019 4.4; 2020 4.2; 2021 3.8; 2022 3.4 - Lithuania: 2000–08 8.2; 2009 2.0; 2010 13.9; 2016 2.7; 2017 3.5; 2018 4.7; 2019 4.7; 2020 4.6; 2021 4.4; 2022 4.3 - Poland: 2000–08 4.2; 2009 2.6; 2010 4.0; 2016 2.7; 2017 3.8; 2018 3.4; 2019 3.1; 2020 2.9; 2021 2.8; 2022 2.7 - Romania: 2000–08 7.1; 2009 2.0; 2010 6.2; 2016 3.4; 2017 4.4; 2018 5.4; 2019 5.5; 2020 4.4; 2021 3.8; 2022 3.3 - Southeastern European non-EU member states, Commonwealth of Independent States, and Turkey show heterogeneous and generally higher projected growth rates per capita compared with advanced European economies: - Albania: 2000–08 6.8; 2016 3.5; 2017 3.7; 2018 3.8; 2019 3.9; 2020 4.0; 2021 4.1; 2022 4.1 - Russia: 2000–08 7.3; 2009 2.0; 2010 7.8; 2016 0.7; 2017 2.8; 2018 2.0; 2019 0.2; 2020 1.8; 2021 1.7; 2022 1.6 - Turkey: 2000–08 3.6; 2009 2.0; 2010 6.1; 2016 3.8; 2017 4.7; 2018 1.8; 2019 4.1; 2020 2.5; 2021 2.5; 2022 2.6 *source: IMF, World Economic Outlook (WEO).* --- _Source: https://www.imf.org/-/media/files/publications/reo/eur/2017/november/eur-reo-chapter-1.pdf_