## The European Regional Economic Outlook in the Global Context

## Source details

**Canonical URL:** [The European Regional Economic Outlook in the Global Context](https://www.imf.org/-/media/files/publications/reo/eur/2019/november/english/reo-launch-fall-2019-final-print.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/reo/eur/2019/november/english/reo-launch-fall-2019-final-print.pdf.md)
- [Structured JSON version](/-/media/files/publications/reo/eur/2019/november/english/reo-launch-fall-2019-final-print.pdf.json)

---

### Key messages
- As in the rest of the world, Europe’s manufacturing and trade have weakened considerably.
- Europe’s slowdown is mostly externally driven, but signs of softness in investment have started to appear.
- Consumption has been resilient so far, reflecting still very strong labor markets.
- Growth has been weaker in advanced Europe, while it has been robust in emerging Europe excluding Russia and Turkey.
- A modest recovery is expected for 2020. Risks are on the downside.
- Policy guidance:
  - Monetary policy to stay accommodative for longer, with vigilance about adverse side-effects.
  - Fiscal policy to be anchored by medium-term objectives with contingency plans for a severe downturn at hand.
  - Structural reforms remain vital.

### Recent economic developments
- Manufacturing and exports weakened in the EU, driven by vehicles and machinery.
- Europe’s slowdown is mainly due to industry; services have started to soften (Purchasing Managers Index shows manufacturing below expansion threshold in recent observations).
- Net exports are driving the slowdown, but investment has also started to weaken.
- Industrial production and export volumes show pronounced month-over-month declines (3-month moving averages).

### Labor markets and consumption
- Consumption resilience depends on labor markets; job vacancies and unemployment dynamics remain key.
- Most European economies are at or above full employment (Output Gap, 2018 and 2019 indicate positive or near-positive gaps for many economies).
- Nominal wage growth and inflation dynamics:
  - Wage passthrough to inflation is weak when inflation expectations are better anchored, firms face more competition, and corporate profits are higher.

### Growth projections and risks
- Real GDP growth projections (Year-over-year percent change):
  - World: 2018 3.6; 2019 3.0; 2020 3.4
  - Europe: 2018 2.3; 2019 1.4; 2020 1.8
  - Advanced Europe: 2018 2.0; 2019 1.3; 2020 1.5
  - Euro area: 2018 1.9; 2019 1.2; 2020 1.4
  - Emerging Europe ex. Russia & Turkey: 2018 4.3; 2019 3.7; 2020 3.1
  - Memo: world trade volume (goods and services): 2018 3.6; 2019 1.1; 2020 3.2
- A modest recovery is projected for 2020 based on improving external demand, but risks are on the downside.

### Inflation and monetary policy
- With low inflation and weak wage passthrough, monetary policy is to stay accommodative, while monitoring adverse side-effects of low/negative interest rates.
- Projected end-2020 inflation and target ranges show many advanced and emerging European economies at or below targets (chart-based indications).

### Fiscal policy considerations
- Fiscal policy should be guided by Medium-Term Objective (MTO) frameworks, but be ready to act forcefully in case of a severe downturn.
- Considerations in favor of discretionary fiscal relaxation:
  - Still-strong labor markets and positive output gaps.
  - Projected recovery in 2020.
  - High sovereign debt levels.
  - Possibility of sudden reversal in yields.
- Considerations against discretionary relaxation:
  - Slowing growth and downside risks.
  - Monetary policy approaching its limit.
  - Need to address supply-side bottlenecks.
  - Low/negative interest rates.

### Structural reforms and productivity
- Structural reforms remain vital to raise productivity and living standards.
- Labor productivity per hour worked and nominal PPP GDP per capita indicators show persistent gaps relative to peers, underscoring the need for supply-side reforms.

*Source: IMF | European Department — The European Regional Economic Outlook in the Global Context (November 6, 2019).*

---


_Source: https://www.imf.org/-/media/files/publications/reo/eur/2019/november/english/reo-launch-fall-2019-final-print.pdf_