## Executive Summary

## Source details

**Canonical URL:** [Executive Summary](https://www.imf.org/-/media/files/publications/reo/eur/2019/november/english/execsum.pdf)

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### Overview
- Economic activity in Europe has slowed on the back of weakness in trade and manufacturing.
- For most of the region, the slowdown remains externally driven.
- Some signs of softer domestic demand have started to appear, especially in investment.
- Services and domestic consumption have been buoyant so far, but their resilience is tightly linked to labor market conditions, which, despite some easing, remain robust.
- Expansionary fiscal policy in many countries and looser financial conditions have also supported domestic demand.

### Growth projections and regional differences
- Europe’s growth is projected to decline from 2.3 percent in 2018 to 1.4 percent in 2019.
- A modest recovery is forecast for 2020, with growth reaching 1.8 percent.
- The projection is broadly unchanged from the April 2019 World Economic Outlook but masks significant differences between advanced and emerging Europe:
  - Growth in advanced Europe has been revised down by 0.1 percentage point to 1.3 percent in 2019.
  - Growth in emerging Europe has been revised up by 0.5 percentage point to 1.8 percent.

### Downside risks and scenarios
- Amid high uncertainty, risks remain to the downside.
- A no-deal Brexit is identified as the key risk in the near term and could have a sizeable negative impact on the economies in the region.
- An intensification of trade tensions and related uncertainty could also dampen investment.
- The weakness in trade and manufacturing could spread to other sectors—notably services—faster and to a greater extent than currently envisaged.
- Other risks stem from abrupt declines in risk appetite, financial vulnerabilities, the re-emergence of deflationary pressures in advanced economies, and geopolitics.

### Monetary policy considerations
- Subdued inflationary pressures and slowing economic activity in many European countries call for monetary policy to remain accommodative.
- Wage growth has risen above productivity gains, especially in the European Union’s newer member states.
- As discussed in Chapter 2, the pickup in wage growth is likely to have a more muted impact on inflation than in the past.
- Historical analysis suggests the passthrough from wages to prices is weaker when:
  - inflation and inflation expectations are low,
  - corporate profitability is high,
  - firms are exposed to greater competition.
- Extending loose monetary policy for longer calls for heightened monitoring of financial sector vulnerabilities—such as rising house prices—and the active use of macroprudential measures as needed.

### Fiscal policy guidance and structural reforms
- Given that unemployment rates are projected to remain close to or below levels reached during the pre-crisis boom, countries’ fiscal stances should generally remain guided by medium-term objectives.
- Overall fiscal balances should be allowed to absorb cyclical fluctuations in activity.
- Policy guidance by country condition:
  - Countries with ample fiscal space should take measures to boost potential output.
  - Countries with elevated debt and deficit levels should generally proceed with fiscal consolidation.
- Given elevated downside risks, contingency plans should be at the ready for implementation in case these risks materialize, not least because the scope for effective monetary policy action has diminished.
- A synchronized fiscal response, albeit appropriately differentiated across countries, could become suitable.
- Reinvigorating structural reforms remains vital to raise economic growth and address long-term challenges, including:
  - raising labor force participation,
  - enhancing human capital and infrastructure,
  - strengthening governance.

*Source: execsum*

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_Source: https://www.imf.org/-/media/files/publications/reo/eur/2019/november/english/execsum.pdf_