## Executive Summary

## Source details

**Canonical URL:** [Executive Summary](https://www.imf.org/-/media/files/publications/reo/eur/2023/april/english/text.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/reo/eur/2023/april/english/text.pdf.md)
- [Structured JSON version](/-/media/files/publications/reo/eur/2023/april/english/text.pdf.json)

---

### Europe’s balancing act
- Europe must simultaneously bring down inflation, sustain economic growth, and preserve financial stability while adjusting to the fallout of the energy crisis triggered by Russia’s invasion of Ukraine and the aftermath of the COVID-19 pandemic.
- The expected recovery assumes policymakers keep financial stress contained and tame inflation without a recession.
- Supply-side tailwinds (lower energy prices, easing supply bottlenecks) and gradually easing demand headwinds are expected to support a slow recovery.

### Recent macroeconomic developments and outlook
- Europe avoided an all-out recession this winter thanks to sharply lower energy prices and government relief measures.
- GDP growth slowed sharply in the second half of 2022 as inflation lowered households’ real incomes, monetary tightening started to bite, and growth slowed in key trading partners.
- Natural gas and electricity prices had dropped to about half of their 2022 averages by early 2023.
- Exact growth projections:
  - Advanced European economies: 0.7 percent in 2023 and 1.4 percent in 2024.
  - Emerging European economies (excluding Belarus, Russia, Türkiye, and Ukraine): 1.1 percent in 2023 and 3.0 percent in 2024.
- Revisions since October 2022: small for advanced European economies; downside for growth and upside for inflation in emerging European economies.

### Inflation and labor market dynamics
- Inflation remains significantly above central bank targets across Europe.
- Headline inflation fell sharply by end-2022 in some economies as commodity prices and supply-chain bottlenecks eased, but core inflation surprised on the upside and reached double-digit levels in several economies.
- Inflation expectations have increased relative to a year ago and remain above target in several economies (Hungary, Poland).
- Labor markets are tight:
  - Vacancy-to-unemployment ratios near record highs in the euro area and broadly in line with pre-COVID-19 heights in emerging European economies.
  - Employment and hours worked are back to pre-pandemic levels in most cases.
  - Average output gaps across advanced European economies (including the euro area) are estimated to have turned positive in 2022; emerging European economies (excluding Belarus, Russia, Türkiye, and Ukraine) recorded even higher positive output gaps in 2022 than in 2021.
- Wage dynamics:
  - In emerging European economies, nominal wages kept up with double-digit headline inflation, reinforcing core inflation pressures.
  - In advanced European economies, nominal wages rose more slowly than inflation, producing a drop in real wages that could lead to sustained wage demands and elevated core inflation.

### Financial market stress and risks
- Following the fastest monetary tightening in decades, monetary policy is starting to bite and financial sector risks have materialized.
- Key risk channels:
  - Failure to contain financial stability risk could lead to crisis and lower growth.
  - Failure to act forcefully to bring down inflation now could mean higher inflation later, forcing greater policy tightening and an economic downturn.
  - Tight labor markets, a resurgence of energy prices, or fragmentation risks could bring lower growth and higher inflation.

### Policy recommendations — overarching
- Macroeconomic, financial, and structural policies need to work in concert to tame sticky inflation while avoiding financial stress and a recession.

### Monetary policy
- Tight(er) monetary policy is needed to bring inflation down decisively to central bank targets.
- Further increases in policy rates are required in the euro area.
- Central banks in emerging European economies should stand ready to tighten further where real rates are low, labor markets are tight, and underlying inflation persistence is high.
- A tighter stance is a desirable response to high uncertainty around economic slack and inflation persistence.
- Central banks should address financial sector liquidity risks primarily through their well-established lender-of-last-resort role.
- Euro area baseline: the current baseline assumes a terminal rate of about 3¾ percent, implying additional policy hikes ahead.

### Financial sector policies
- Maintain financial stability across markets and bank and nonbank financial institutions through close monitoring, contingency planning, and prompt corrective action.
- EU-specific measures to bolster stability:
  - Extend the reach of bank resolution tools.
  - Clarify the availability of the Single Resolution Fund’s resources.
  - Ratify the European Stability Mechanism’s amended treaty.
  - Agree on a pan-European deposit insurance.
- Macroprudential policies should maintain or increase buffers as needed.
- Measures to help households cope with rising interest rates should be targeted and well-designed.
- Actions to avoid: forced conversions from flexible- to fixed-rate mortgages at below market rates and regulatory forbearance.

### Fiscal policy
- Governments should pursue more ambitious fiscal consolidation.
- Tighter fiscal policy would support monetary policy in fighting inflation, helping central banks meet objectives at lower interest rates and yielding positive spillovers for public debt service costs and financial stability.
- Recent developments:
  - Energy relief measures and higher inflation-driven tax revenues blunted contractionary effects; aggregate fiscal consolidation in advanced European economies fell short of October 2022 World Economic Outlook projections.
  - Fiscal positions deteriorated on average in emerging European economies.
- Fiscal consolidation would restore depleted fiscal space and governments’ ability to cope with large future shocks.
- Use fiscal windfalls: examples of fiscal savings from lower energy prices compared with October 2022 WEO:
  - Denmark and Finland: about 0.1 percent of GDP.
  - Montenegro and Slovenia: about 0.5 percent of GDP.
- Windfall taxes: should be avoided ex post and singling out particular sectors (energy and banking); where introduced they should remain strictly temporary and be carefully monitored.

### Structural policies
- Prioritize reforms that ease growth-inflation trade-offs:
  - Raise female and older workers’ labor force participation and enhance job matching to reduce labor market tensions.
  - Progress on implementing Recovery and Resilience Plans and the Capital Markets Union to unlock investments and raise productive capacity.
  - Subsidies to green industries should be limited in scope, well-targeted, and minimize distortions to international trade and the single market.
- Energy and climate:
  - Achieving the EU’s emissions-reduction goals will require additional investment of some €3–4 trillion through 2030.
  - The European Union has made €225 billion in loans available under the Recovery and Resilience Facility.
  - Renewable deployment needs to double from its 2000–21 average speed to reach a 42.5 percent share of renewables in final energy consumption.
  - Complement renewables with targeted measures (for example, incentivizing heat pumps) and broader carbon-pricing measures, including expanding and tightening the EU’s emission trading program.

### Country and sector-specific notes and boxes (selected exact figures)
- Ukraine:
  - GDP contracted approximately 30 percent in 2022.
  - About 35 percent of the population fled their homes.
  - World Bank assessed poverty rate increased fivefold to about 20 percent since the war started.
  - Baseline projection: GDP to remain about flat in 2023.
  - Current account deficit projected to reach $6.5 billion.
  - Goods exports expected to decline another 20 percent after their one-third drop in 2022.
- Russia:
  - Economy contracted 2.1 percent in 2022.
  - Growth projected at 0.7 percent in 2023.
  - Current account surplus rose to a record $227 billion.
  - Russia’s output in 2027 is projected to be about 8 percent lower than forecasted prior to Russia’s invasion of Ukraine.
- Türkiye (earthquakes):
  - Total financial burden estimated at $104 billion (11 percent of 2022 GDP).
  - Staff’s baseline assumes the earthquakes will add a combined 2.5 percent of GDP to the fiscal deficit in 2023–24.
  - Staff’s baseline includes a 0.8 percentage point drag on growth in 2023 and a 0.6 percentage point boost in 2024 from reconstruction.
- Housing and household stress:
  - Real house prices have doubled since 2015 in the Czech Republic, Hungary, Iceland, Luxembourg, The Netherlands, and Portugal.
  - Price-to-income ratios currently stand at more than 30 percent above their long-term trends.
  - Under adverse scenarios: about 45 percent of households could be stretched financially; more than 80 percent of lower-income households could be stretched.
  - Stretched households would hold more than 40 percent of mortgage debt and 45 percent of consumer debt.
  - A 20 percent downturn in the housing market would push bank losses into the 100–300 basis point range in affected countries.
- Banking sector metrics:
  - Average (asset-weighted) Common Equity Tier 1 (CET1) ratio in European banks exceeds 16 percent.
  - Liquidity coverage ratios average more than 150 percent across Europe.
  - Reliance of euro area global systemically important banks on wholesale funding and unsecured deposits from nonfinancial corporations ranges between 22 and 37 percent.

### Annex and headline inflation aggregates (exact series excerpts)
- Europe (regional aggregate) — Current WEO (2021, 2022, 2023, 2024): 4.8,15.2,10.4,6.3
- Advanced European Economies (aggregate) — Current WEO (2021, 2022, 2023, 2024): 2.5,8.4,5.6,3.0
- Euro Area (aggregate) — Current WEO (2021, 2022, 2023, 2024): 2.6,8.4,5.3,2.9
- Emerging European Economies (aggregate) — Current WEO (2021, 2022, 2023, 2024): 9.7,30.2,21.0,13.9
- Selected country examples (Current WEO 2021, 2022, 2023, 2024):
  - Germany: 3.2,8.7,6.2,3.1
  - France: 2.1,5.9,5.0,2.5
  - Italy: 1.9,8.7,4.5,2.6
  - United Kingdom: 2.6,9.1,6.8,3.0
  - Türkiye: 19.6,72.3,50.6,35.2

*REGIONAL ECONOMIC OUTLOOK—Europe  INTERNATIONAL MONETARY FUND • April 2023*

### Executive Summary .....................................................................................................v

### Executive Summary

### Europe’s balancing act
- Europe faces the difficult task of simultaneously bringing down inflation, sustaining economic growth, and preserving financial stability while adjusting to the fallout of the energy crisis triggered by Russia’s invasion of Ukraine and the aftermath of the COVID-19 pandemic.
- The expected recovery assumes policymakers keep financial stress contained and tame inflation without a recession.
- Supply-side tailwinds (lower energy prices, easing supply bottlenecks) and gradually easing demand headwinds are expected to support a slow recovery.

### Recent macroeconomic developments and outlook
- Europe avoided an all-out recession this winter thanks to sharply lower energy prices and government relief measures.
- GDP growth slowed sharply in the second half of 2022 as inflation lowered households’ real incomes, monetary tightening started to bite, and growth slowed in key trading partners. Some advanced economies expected negative sequential GDP growth in Q1 2023; some emerging European economies experienced technical recessions in 2022.
- Natural gas and electricity prices had dropped to about half of their 2022 averages by early 2023.
- Growth projections:
  - Advanced European economies: 0.7 percent in 2023 and 1.4 percent in 2024.
  - Emerging European economies (excluding Belarus, Russia, Türkiye, and Ukraine): 1.1 percent in 2023 and 3.0 percent in 2024.
- Inflation projections:
  - Advanced European economies: 5.6 percent in 2023 and 3.0 percent in 2024.
  - Emerging European economies: 11.7 percent in 2023 and 5.5 percent in 2024.
- Revisions since October 2022: small for advanced European economies; downside for growth and upside for inflation in emerging European economies.

### Inflation and labor market dynamics
- Inflation remains significantly above central bank targets across Europe.
- Headline inflation fell sharply by end-2022 in some economies as commodity prices and supply-chain bottlenecks eased, but core inflation surprised on the upside and reached double-digit levels in several economies.
- Inflation expectations have increased relative to a year ago and remain above target in several economies (Hungary, Poland).
- Labor markets are tight:
  - Vacancy-to-unemployment ratios near record highs in the euro area and broadly in line with pre-COVID-19 heights in emerging European economies.
  - Employment and hours worked are back to pre-pandemic levels in most cases.
  - Average output gaps across advanced European economies (including the euro area) are estimated to have turned positive in 2022; emerging European economies (excluding Belarus, Russia, Türkiye, and Ukraine) recorded even higher positive output gaps in 2022 than in 2021.
- Wage dynamics:
  - In emerging European economies, nominal wages kept up with double-digit headline inflation, reinforcing core inflation pressures.
  - In advanced European economies, nominal wages rose more slowly than inflation, producing a drop in real wages that could lead to sustained wage demands and elevated core inflation.

### Financial market stress and risks
- Following the fastest monetary tightening in decades, monetary policy is starting to bite and financial sector risks have materialized.
- The outlook is subject to severe and interconnected risks:
  - Failure to contain financial stability risk could lead to crisis and lower growth.
  - Failure to act forcefully to bring down inflation now could mean higher inflation later, forcing greater policy tightening and an economic downturn.
  - Tight labor markets, a resurgence of energy prices, or fragmentation risks could bring lower growth and higher inflation.

### Policy recommendations — overarching
- Macroeconomic, financial, and structural policies need to work in concert to tame sticky inflation while avoiding financial stress and a recession.

### Monetary policy
- Tight(er) monetary policy is needed to bring inflation down decisively to central bank targets.
- Further increases in policy rates are required in the euro area.
- Central banks in emerging European economies should stand ready to tighten further where real rates are low, labor markets are tight, and underlying inflation persistence is high.
- A tighter stance is a desirable response to high uncertainty around economic slack and inflation persistence.
- Central banks should address financial sector liquidity risks primarily through their well-established lender-of-last-resort role.

### Financial sector policies
- Maintaining financial stability across markets and bank and nonbank financial institutions requires close monitoring, contingency planning, and prompt corrective action.
- In the European Union, stability could be bolstered by:
  - Extending the reach of bank resolution tools.
  - Clarifying the availability of the Single Resolution Fund’s resources.
  - Ratifying the European Stability Mechanism’s amended treaty.
  - Agreeing on a pan-European deposit insurance.
- Macroprudential policies should maintain or increase buffers as needed.
- Measures to help households cope with rising interest rates should be targeted and well-designed.
- Actions to avoid: forced conversions from flexible- to fixed-rate mortgages at below market rates and regulatory forbearance.

### Fiscal policy
- Governments should pursue more ambitious fiscal consolidation.
- Tighter fiscal policy would support monetary policy in fighting inflation, helping central banks meet objectives at lower interest rates and yielding positive spillovers for public debt service costs and financial stability.
- Recent developments:
  - Energy relief measures and higher inflation-driven tax revenues blunted contractionary effects; aggregate fiscal consolidation in advanced European economies fell short of October 2022 World Economic Outlook projections.
  - Fiscal positions deteriorated on average in emerging European economies.
- Fiscal consolidation would restore depleted fiscal space and governments’ ability to cope with large future shocks.

### Structural policies
- Structural reforms should prioritize easing growth-inflation trade-offs:
  - Raise female and older workers’ labor force participation and enhance job matching to reduce labor market tensions.
  - In the European Union, progress on implementing the Recovery and Resilience Plans and the Capital Markets Union could unlock investments needed to raise crisis-hit productive capacity, achieve climate goals, and enhance energy security.
  - Subsidies to green industries should be limited in scope, well-targeted, and minimize distortions to international trade and the single market.

*REGIONAL ECONOMIC OUTLOOK—Europe  INTERNATIONAL MONETARY FUND • April 2023*

### 1. Headline Inflation

### 1. Headline Inflation

### Financial market stress and headwinds
- Financial conditions have broadly tightened across European economies.
- Market events noted:
  - Fall market turmoil in the United Kingdom following announcement of a deficit-increasing fiscal package revealed vulnerabilities among nonbank financial institutions (NBFIs) and required Bank of England intervention to restore orderly market conditions.
  - In March, banking sector stress in the United States spilled over to Europe, causing sharp declines in banks’ equity prices.
  - Decisive actions by Swiss authorities reduced immediate contagion risks from the feared failure of Credit Suisse.
- Consequence: Overall financing conditions are likely to remain tighter than they would otherwise have been, despite markets paring back expectations of monetary tightening in some jurisdictions (for example, the euro area and United Kingdom).

### Baseline outlook assumptions
- The Regional Economic Outlook: Europe baseline assumes:
  - Policymakers will continue to act to lower inflation, alleviating the need for a sharper tightening and deeper economic slowdown later.
  - Several central banks, including the European Central Bank (ECB), will tighten further and/or keep a restrictive stance for an extended period.
  - Some mild fiscal consolidation will proceed.
  - Any renewed bouts of financial stress will remain contained.
  - No further escalation of the war in Ukraine and associated sanctions, allowing energy and other commodity prices to continue falling in line with April 2023 World Economic Outlook projections.

### Growth outlook and revisions
- Supply tailwinds and a gradual easing of demand headwinds are expected to support a gradual recovery starting in the course of 2023, leading to a rebound in annual growth in 2024.
- Key projections (exact):
  - GDP growth in 2023:
    - Advanced European economies: 0.7 percent
    - Emerging European economies (excluding Belarus, Russia, Türkiye, and Ukraine): 1.1 percent
  - GDP growth in 2024 (rebound):
    - Advanced European economies: 1.4 percent
    - Emerging European economies (excluding Belarus, Russia, Türkiye, and Ukraine): 3.0 percent
- Revisions (relative to October 2022 Regional Economic Outlook: Europe):
  - Advanced European economies: upward revisions of about 0.1 percentage point in 2023 and downward revisions of 0.3 percentage point in 2024.
  - Emerging European economies: downward revisions of 0.5 percentage point in 2023 and 0.4 percentage point in 2024.
- Country and sector notes:
  - Private demand deceleration in 2023 projected to be particularly sizable in Hungary and Poland (emerging) and in Austria, Cyprus, Greece, Iceland, Slovenia, and the United Kingdom (advanced).
  - Some large European economies (France, Germany, Italy) are projected to experience weak or negative quarterly sequential growth in 2023; some economies may face technical recessions (for example, Sweden and the United Kingdom).
  - Ukraine: after a 30 percent GDP collapse in 2022, high-frequency indicators suggest activity stabilized early in 2023 and is projected to remain broadly flat, with high uncertainty.
  - Türkiye: earthquakes in February will lower GDP growth in 2023, followed by higher growth in 2024 supported by reconstruction.
  - Russia: after contracting in 2022, GDP will grow slowly in 2023, supported by deficit-financed public spending; medium-term outlook is for very low growth.

### Inflation projections and dynamics (exact figures preserved)
- Headline inflation:
  - Average headline inflation in 2023 is forecast to reach:
    - Advanced European economies: 5.6 percent
    - Emerging European economies (excluding Belarus, Russia, Türkiye, and Ukraine): 11.7 percent
  - These are downward revisions of 0.6 and 0.3 percentage point from the October 2022 Regional Economic Outlook: Europe, respectively.
- Core inflation:
  - Advanced European economies:
    - 2022: 5.1 percent
    - 2023 (average, projected): 5.6 percent
    - 2024 (projected): 3.1 percent
  - Emerging European economies (excluding Belarus, Russia, Türkiye, and Ukraine):
    - 2022: 10.6 percent
    - 2023 (average, projected): 12.5 percent
    - 2024 (projected): 7.0 percent
- Drivers and transmission:
  - Cooling of core inflation is predicated on ongoing policy tightening and its lagged impact on activity, pass-through from lower energy and food prices, and continued easing of supply-chain bottlenecks.
  - Inflation in advanced European economies is projected to return to target by 2025 or 2026, earlier than most emerging European economies, reflecting lower current inflation rates, smaller second-round wage effects, better anchored expectations, and lower exchange rate depreciation.

### Financial sector risks
- Recent episode lessons:
  - Comfortable average capital and liquidity buffers in euro area and UK banks provide a cushion, but liquidity strains and financial stress can surface abruptly in an environment of higher interest rates after 15 years of highly accommodative monetary policy.
- Risk transmission channels:
  - Another stress episode could erode buffers, tighten credit, reduce asset quality, raise provisioning needs, and further weaken activity.
  - Could trigger capital outflows and disproportionately hit emerging European economies.
  - Several NBFIs with long-dated asset portfolios, including some pension funds, face acute deleveraging pressures.
  - Maturity mismatches would be amplified if inflation proves more persistent than markets expect, triggering sudden downward adjustment in bond prices.
- Real estate risks:
  - A housing market correction is already underway in some countries; Sweden saw house prices decline more than 6 percent in 2022.
  - Further house price declines could adversely affect household and bank balance sheets.
- Sovereign spread and financing pressures:
  - Asymmetric rise in sovereign spreads amid market stress could reignite economic divergence.
  - A 100 basis point ECB monetary policy rate surprise might raise 10-year government yields in emerging European economies by more than 150 basis points, with larger effects in economies with weaker fundamentals.
  - Debt composition and large financing requirements add vulnerabilities in several emerging European economies.

### Inflation persistence and related risks
- Conditions that could sustain high and divergent inflation:
  - Energy price spikes (for example, a harsh 2023–24 winter, discontinuation of remaining Russian gas flows, or a pickup in liquified natural gas demand from China).
  - Upward drift in inflation expectations (expected inflation for 2023 is higher than a year ago and subject to wide divergence in views).
  - Wage growth picking up more than projected and more backward-looking wage- and price-setting behavior.
  - Minimum wage hikes tracked core inflation closely last year, posing risk of propagation through the pay scale.
- Slack and potential output concerns:
  - Economic slack may be smaller than estimated after back-to-back shocks that left long-lasting scars on productive capacity.
  - Long COVID-19 and shifting worker preferences have reduced labor supply (increasing workdays lost because of sickness).
  - Futures prices suggest long-term European energy prices may be up to 40 percent higher than before the pandemic.
  - The average potential output decrease because of higher medium-term energy prices is assessed at more than 1 percentage point in most European countries, reaching more than 1.5 percent on average in Germany and Italy.

### Fragmentation and medium-term risks
- Trade and FDI fragmentation:
  - Trade fragmentation, measured by the number of trade and foreign direct investment restrictions imposed on and by European countries, is on the rise.
  - Russia’s war in Ukraine has increased economic and national security concerns, raising uncertainty and volatility and risks of a durable drag on medium-term growth.
- Possible outcomes of fragmentation:
  - Reconfiguration of trade and foreign direct investment.
  - Renewed waves of supply disruptions.
  - Technological and payment systems fragmentation.

### Policy implications and scenarios (as reflected in source)
- Immediate policy stance implied by baseline:
  - Central banks maintain or further tighten restrictive policy to lower inflation and prevent higher inflation later that would necessitate sharper tightening.
  - Some mild fiscal consolidation proceeds, but less ambitious fiscal consolidation than previously expected limits drag on growth relative to prior forecasts.
- Risks to the baseline:
  - Failure to contain financial stability risks could lead to crisis and lower growth.
  - Failure to act forcefully to bring down inflation could mean higher inflation later, forcing greater-than-projected tightening and deeper slowdown.
  - Resurgence of energy prices or fragmentation risks could produce lower growth and higher inflation, complicating policy trade-offs.

*Sources: Haver Analytics; Indeed, Wage Tracker; IMF, World Economic Outlook database; and IMF staff calculations.*

### 1. Output Gaps: Real time versus t + 1

### 1. Output Gaps: Real time versus t + 1

### Key empirical observations and figures
- Panel descriptions and data sources:
  - Panel 1: Recovery is a three-year period after the individual country’s recession; distribution shows the kernel density of the output gap difference between the real-time and the ex post estimates.
  - Panel 3: Excess sickness leave is estimated based on the overall working hours deficit (usual versus actual hours) relative to the pre-pandemic level in 2019; the proportion of sickness leave in the overall deficit is proxied from French administrative data on sickness declarations.
  - Panel 4: The no-shock scenario assumes an absence of price shocks; the energy price shock scenario corresponds to the commodity price path forecast in the October 2022 World Economic Outlook.
  - Sources: Eurostat; IMF, World Economic Outlook database; and IMF staff calculations.
- Lost hours because of sickness: Loss until 2022:Q1 is measured in percent of the 2019 labor force (panel text describes methodology but no country-level numeric values are listed in the supplied excerpt).
- Variation in output gap estimates: reported as standard deviations (panel title indicates metric; numeric values not provided in the excerpt).

### Risk factors: Energy prices and geopolitical fragmentation
- Figure 8 highlights the role of energy prices and geopolitical fragmentation in potential output losses and other risks (panel labels and country abbreviations use ISO codes; EA = euro area).
- Potential output loss because of the energy price shock: deviation from no-shocks scenario in 2027 is shown (panel titles and axes described; country labels include PRT DEU UK FRA FIN ESP ITA BEL).
- Estimates are based on an endogenous technical change model with energy as an input, allowing for energy efficiency to increase in respond to price changes (see Lan and others, forthcoming).

### Policy guidance — acting decisively now to avoid a hard landing later
- Macro-financial policy coordination:
  - (1) A tighter monetary stance is needed to bring inflation down decisively to central bank targets. Failure to do so would require even more contractionary macroeconomic policies later.
  - (2) A more restrictive fiscal policy would help ease demand pressures and achieve disinflation at lower interest rates, helping reduce risks to financial stability.
  - (3) Financial policies should focus on enhancing resilience to risks of higher interest rates, including liquidity strains, asset price corrections, and broader downturn risks.
  - (4) Structural policies should ease growth-inflation trade-offs through labor market and other reforms that raise labor supply, and by implementing measures that strengthen energy security and demand efficiency, including by promoting the green energy transition.

### Monetary policy: keeping a tight(er) stance for longer
- Rationale and signals:
  - High and potentially more persistent underlying inflation calls for tight monetary policy until core inflation is unambiguously on a path back to central bank inflation targets.
  - Policy rates have increased significantly across the region but may still be too low to bring inflation down to targets in a timely fashion in many cases.
  - Some central banks (mostly among emerging European economies) that started early have been early to slow or pause their policy tightening.
- Euro area baseline:
  - The current baseline assumes a terminal rate of about 3¾ percent, implying additional policy hikes ahead.
  - Ongoing quantitative tightening (QT) will support the tighter stance while aiming to reduce ECB large financial market footprint distortions; QT should be done in a predictable and gradual way.
- Decision framework under uncertainty:
  - Where real rates are already high but core inflation is not yet on a clear declining path, prematurely easing the monetary stance should be avoided.
  - Indicators suggest policy rates in a number of countries are at the lower end of commonly used benchmarks such as Taylor rules, implying higher rates may be needed (Figure 10, panel 1; Box 5).
  - From a risk-management perspective, reacting too late to inflation persistence risks larger economic losses than acting decisively early.
  - When economic slack is uncertain, policy should place more weight on observed inflation and labor market dynamics.

### Country-differentiated monetary approaches
- Euro area: terminal rate about 3¾ percent; continue QT while monitoring financial fragmentation and sovereign spread divergence.
- United Kingdom: may need some further tightening to keep inflation expectations well-anchored.
- Other advanced European economies (Sweden, Switzerland): calibrate terminal rates and duration of tight stance carefully.
- Emerging European economies: maintain a stance that decisively contains upward shifts in inflation expectations and avoids escalating wage-price dynamics; some countries (including Hungary, Poland) may require more rate increases.
- Contingency triggers for changing policy:
  - Less contractionary stance warranted if financial conditions tighten notably for non-monetary-policy-related reasons (including banking sector problems).
  - Monetary policy should switch to easing in a systemic financial crisis or if expected inflation falls with rising recession prospects.
  - Renewed supply pressures (for example from energy price hikes) would call for additional tightening where second-round effects and inflation persistence are high.
  - Faster cooling of underlying inflation due to weaker demand, greater pass-through from lower commodity prices, and subdued nominal wage growth would warrant less tightening.

### Financial policies: reaffirming financial stability regulation and supervision
- Immediate priorities:
  - Close monitoring, strong supervision, contingency planning, and prompt corrective action where needed.
  - Stress-test banks and NBFIs for vulnerabilities, including household and firm balance sheet risks and real estate risks (commercial real estate).
  - Have contingency plans in place following recent episodes of banking sector stress.
- European Union-specific recommendations:
  - Extend bank resolution tools to small- and medium-sized banks and clarify Single Resolution Fund resource availability.
  - Ratify the European Stability Mechanism’s amended treaty to bolster system stability by providing a backstop to the Single Resolution Fund.
  - Consider agreement on pan-European deposit insurance to enhance credibility of resolution arrangements.
  - Deal promptly with weak banks to facilitate orderly exits and ensure robust capital restoration plans.

### Macroprudential policies
- Maintain current macroprudential stance broadly, with country variation.
- In countries with rising macro-financial imbalances:
  - Increase buffers where needed, avoiding procyclical effects.
  - Raising countercyclical buffers may be preferable to tightening borrower-based measures because they increase banks’ reserves to absorb losses without reducing credit as much.
- In a sharp downturn or abrupt house price correction:
  - Immediate relaxation of capital-based tools would be warranted.
  - Some cyclical borrower-based measures could be eased if they have become too constraining and sufficient macroprudential policy space exists.

### Financial policy measures to support households
- Design measures to be well-targeted and narrowly focused:
  - Avoid forced conversions from flexible- to fixed-rate mortgages at below-market rates and regulatory forbearance, which weaken transmission of policy rate increases, delay loss recognition, distort market signals, and increase moral hazard.
  - Targeted transfers to lower-income households are less distortive and more cost-effective to reduce debt distress risks, particularly in advanced European economies (such as Germany).
- Measurement note:
  - A household is defined as in financial distress when the cost-of-living-adjusted debt-service-to-income ratio is equal to or higher than 70 percent.
  - The cost of support is measured by estimated fiscal expenditure as a share of GDP; benefits are measured by the share of households shielded from financial distress (Figure 12).

### Fiscal policy: consolidate at a faster pace using recent fiscal windfalls
- Current projections and needs:
  - Some mild fiscal consolidation is projected over the 2023–24 period, but stronger and sustained effort is needed in most countries.
  - Advanced European economies: meaningful fiscal consolidation is expected only next year.
  - Emerging European economies: set to improve fiscal balance more meaningfully in 2023 despite a significant loosening last year.
  - Projected consolidation is less than in the October 2022 Regional Economic Outlook: Europe, partly reflecting far-reaching support packages to counter the cost-of-living crisis adopted last fall.
- Use of fiscal windfalls:
  - Recent fiscal windfalls (sharp decline in energy prices and tax revenue buoyancy from high inflation) strengthen the case for larger and faster consolidation.
  - Example fiscal savings from lower energy prices compared with October 2022 WEO:
    - Denmark and Finland: about 0.1 percent of GDP.
    - Montenegro and Slovenia: about 0.5 percent of GDP.
  - Governments should factor in that revenue buoyancy is not projected to last and that interest burdens will rise as governments roll over maturing debt and fund new deficits at higher interest rates.
- Targeting and unwinding support:
  - Better targeting of energy relief measures can contribute to fiscal adjustment while continuing to help those most in need.
  - In many countries (such as the Baltics and Hungary) support was largely untargeted.
  - In some cases (France and Spain) limited pass-through of higher energy prices partly muted reductions in energy demand.
  - Amid lower energy prices, fiscal policy should unwind support that is no longer needed, target remaining measures better, and allow domestic prices to reflect price signals.
  - Direct transfers should reach only the most vulnerable; support should be coordinated across countries to avoid unwarranted asymmetries that hinder international competitiveness.
- Longer-term fiscal needs and reforms:
  - Make room for lasting spending pressures from pensions, health, energy security, and the green transition.
  - Announce clear, credible, and in some cases more ambitious medium-term adjustment paths.
  - Consider growth-enhancing tax and expenditure reforms such as broadening tax bases or shifting taxation away from labor toward taxes on property and wealth.
  - Budget pressures from Ukrainian refugee inflows will remain a challenge for major recipient countries (the Czech Republic, Estonia, and Poland).
- Windfall taxes:
  - Windfall taxes imposed ex post and singling out particular sectors (energy and banking) should be avoided; where introduced they should remain strictly temporary and be carefully monitored to minimize adverse investment and financial stability effects.
- Tailoring fiscal stance:
  - Countries with elevated debt-to-GDP ratios (a few euro area economies) need further consolidation in 2023.
  - Debt ratios are projected to decline somewhat in the medium term in low-debt advanced economies but remain broadly stable in high-debt counterparts.
  - Public debt interest burdens as a share of GDP will rise more in emerging European economies.
  - Countries with limited fiscal space should cut deficits decisively in 2023, especially where labor markets remain resilient and economic slack limited.
  - Countries with more ample fiscal space can afford slower consolidation (for example, Latvia).
  - The European Council’s endorsement of broad principles of EU fiscal governance reform is an important step toward a risk-based fiscal framework.

*Source: Regional Economic Outlook—Europe, April 2023, INTERNATIONAL MONETARY FUND.*

### 1. Primary Balance Projections

### 1. Primary Balance Projections

### Figure highlights and key statistics
- Panel 1: Primary Balance Projections (Percent of potential GDP, 2021–26) — comparative series for Advanced European economies and Emerging European economies (years shown: 2022, 2023, 2026).
- Panel 2: General Government Taxes on Goods and Services (Year-over-year percent change) — scale shown from 0 to 20.
- Panel 3: Interest Payments Projections (Percent of GDP) — scale shown from 0.0 to 3.0 with ticks at 0.5 increments.
- Panel 4: Targeting of Household Support Measures (Percent of GDP) — series for Advanced European economies and Emerging European economies across 2021–26; note: panel 4 displays the cumulative fiscal cost over 2021–23.
- Sources for figures: IMF, World Economic Outlook database; and IMF staff calculations.
- Note: Country abbreviations are International Organization for Standardization country codes. AE = advanced European economies; EE = emerging European economies; WEO = World Economic Outlook.

### Fiscal policy guidance and projections
- Fiscal frameworks:
  - Maintain medium-term fiscal plans while keeping the 3 and 60 percent of GDP reference values for fiscal deficits and public debt, respectively.
  - A swift agreement on a new framework—including clarification of its implementation—would help support a sustained consolidation tailored to country-specific circumstances.
- Role of fiscal policy relative to monetary policy:
  - Fiscal policy should support monetary policy in bringing inflation back to target in most scenarios.
  - Consolidation paths should be adjusted if major adverse shocks significantly reduce activity and inflation.
- Policy options under shocks:
  - If major adverse shocks occur:
    - Countries with available fiscal space could allow automatic stabilizers to work and slow the pace of consolidation to smooth weakening aggregate demand and support the vulnerable.
    - Economies with limited fiscal space should offset additional support by reducing other spending—except avoiding harmful reductions in health and education spending and in public investment—or by increasing less distortive and progressive taxes, such as those on property.
  - Smaller temporary demand shocks, or long-lasting adverse supply shocks, would not warrant delaying fiscal consolidation plans, especially where greater-than-projected consolidation would be desirable under the baseline.

### Structural policies: labor supply and matching
- Priorities to ease growth-inflation trade-offs quickly and effectively:
  - Increase labor supply by enhancing labor force participation and worker job transitions.
  - Improve matching between workers and vacancies.
- Specific reforms recommended (country-specific priorities vary):
  - Enhance childcare policies and cut second-earner taxation to raise female labor force participation.
  - Reduce disincentives to continued work for older workers through pension reforms.
  - Scale up and better design active labor market policies.
  - Ease employment protection legislation for regular workers relative to temporary workers.
- Refugee-hosting economies:
  - Provide language training as part of targeted active labor market policies to speed up labor market integration.

### Green transition, investment needs, and EU initiatives
- Investment needs:
  - The European Commission estimates that achieving Europe’s emissions-reduction goals will require additional investment of some €3–4 trillion through 2030.
- EU support and instruments:
  - The European Union has made €225 billion in loans available under the Recovery and Resilience Facility, with additional grants and voluntary transfers from different sources.
  - Continued progress on implementing Recovery and Resilience Plans is important; about one-third of countries are lagging behind their plans, about half of which are experiencing significant delays in general (Hungary, Poland) or on selected significant reforms (Belgium, Bulgaria, Romania).
  - Completion of the Capital Markets Union could stimulate investment and growth, including support for the EU’s climate goals.
- Green Deal Industrial Plan:
  - If well-designed, it could complement ongoing initiatives to achieve climate neutrality while preserving competitiveness.
  - The recommended approach: protect competitiveness while minimizing trade distortions and pursuing aims such as speedy decarbonization and development policy goals.
- Design principles for subsidies:
  - Any subsidies to green industries should be limited in scope, well-targeted, and minimize distortions to international trade and the single market.
  - Work cooperatively with other countries committed to the green transition.

### Energy security and renewables deployment
- Renewables deployment target and pace:
  - Renewable deployment needs to double from its 2000–21 average speed to achieve the European Union’s target for the share of renewables in final energy consumption of 42.5 percent.
- Policy tools:
  - Policies incentivizing and enabling investment are critical, including subsidies and simplified procedures for utility-scale renewable generation.
- Limits of renewables alone for energy security:
  - Over the past two decades, the share of net gas imports (in total gross available energy) rose along with the EU’s share of renewables, as gas substituted for coal and was used for heating.
  - Fully decarbonizing the power sector would reduce dependence on imported fossil fuels, but the decline would be modest.
- Complementary policies to reduce dependence decisively:
  - Targeted measures, e.g., curbing extensive use of gas for heating by incentivizing heat pumps.
  - Broad-based measures, e.g., expanding coverage and raising the price of carbon in Europe, including continuing to expand and tighten the EU’s emission trading program.

### Box 1 — Recent economic developments in Ukraine and Russia
- Ukraine:
  - Russia’s invasion led to a contraction of Ukraine’s GDP of approximately 30 percent in 2022.
  - About 35 percent of the population fled their homes.
  - The World Bank assessed that the poverty rate increased fivefold to about 20 percent since the war started.
  - Baseline projection: GDP to remain about flat in 2023.
  - Current account deficit projected to reach $6.5 billion.
  - Goods exports expected to decline another 20 percent after their one-third drop in 2022.
  - Agricultural headwinds: a 40 percent drop in harvest volumes in 2022, leaving less inventory to ship in 2023.
  - Rebuilding costs are substantial; bilateral and multilateral support will continue to be required for urgent repairs and medium-term reconstruction; structural reforms toward EU accession could boost productivity, trade, and recovery.
- Russia:
  - The economy contracted 2.1 percent in 2022.
  - Growth projected at 0.7 percent in 2023.
  - A large improvement in the terms of trade and resilient oil export volumes drove oil and gas revenues to record highs in 2022.
  - Sharp rise in government spending in the second half of 2022 provided a further boost to GDP of about 4 percent of potential GDP.
  - Current account surplus rose to a record $227 billion.
  - Sanctions and policy actions:
    - On December 5, 2022, the European Union’s crude oil import ban and a price cap of $60 per barrel on exports to third countries came into effect.
    - On February 5, 2023, an additional import ban and price cap on oil products came into effect.
  - Outlook and vulnerabilities:
    - Staff forecasts show a sharp decline in fiscal revenues in 2023 as oil and gas prices fall.
    - Staff revised down the estimate of potential growth in the Russian economy to less than 1 percent per year.
    - Russia’s output in 2027 is projected to be about 8 percent lower than forecasted prior to Russia’s invasion of Ukraine.
    - Low potential growth implies Russia’s per capita income levels would no longer converge toward richer countries and could fall further behind.

### Box 2 — Türkiye: Macroeconomic impact of the recent earthquakes
- Human and financial toll:
  - Turkish authorities estimated the total financial burden at $104 billion (11 percent of 2022 GDP).
- Fiscal impact and reconstruction financing:
  - Public sector will likely bear most of the cost of recovery and reconstruction.
  - Staff’s baseline assumes that the earthquakes will add a combined 2.5 percent of GDP to the fiscal deficit in 2023–24.
  - Public debt remains low and reconstruction financing needs appear manageable, but a sharp rise in domestic borrowing could increase banks’ sovereign exposure and weigh on their performance.
- Growth impact:
  - Staff’s baseline includes a 0.8 percentage point drag on growth in 2023 and a 0.6 percentage point boost in 2024, assuming frontloaded reconstruction spending.
- Current account and inflation risks:
  - Higher imports to meet reconstruction needs and temporary reduction in exports from affected provinces are expected to slow the projected improvement in the current account deficit by about 1.3 percentage point of GDP in 2023.
  - This will be only partly offset by transfers from abroad as a result of announced international support.

### Box 3 — Risks to housing markets and household and bank balance sheets in Europe
- House price dynamics and valuation:
  - Real house prices have doubled since 2015 in the Czech Republic, Hungary, Iceland, Luxembourg, The Netherlands, and Portugal.
  - Since the pandemic, divergence between house prices and income, and between house prices and rents, has widened further.
  - Price-to-income ratios currently stand at more than 30 percent above their long-term trends.
  - Empirical models point to an overvaluation of 15–20 percent in most European countries.
- Household balance sheet stress:
  - The share of households that could struggle to afford basic expenses is likely to increase by 10 percentage points in 2023, accounting for about 25 percent of mortgage debt.
  - Under adverse scenarios featuring higher living costs and mortgage rates:
    - About 45 percent of households could be stretched financially.
    - More than 80 percent of lower-income households could be stretched.
    - Stretched households would hold more than 40 percent of mortgage debt and 45 percent of consumer debt.
- Banks and financial stability:
  - Impacts on bank balance sheets should be generally contained under baseline scenarios, but outcomes would be bleaker under combined adverse shocks.

*International Monetary Fund, Regional Economic Outlook—Europe, April 2023.*

### Box 3. (continued)

### Box 3. (continued)

### Macro-financial shock scenarios and bank capital impacts
- Under the baseline (Common Equity Tier 1), capital depletion from rising household debt default would not exceed 100 basis points in most countries.
- A 20 percent downturn in the housing market would push up losses into the 100–300 basis point range, with southern and eastern European countries affected most severely.
- Such losses could lead to tighter credit standards and increase the chances of adverse macro-financial feedback loops among bank balance sheets, housing (and other asset) prices, and the real economy.

*Prepared by the authors of the source.*

---

### Box 4. Spillovers of European Central Bank Monetary Policy on Emerging European Economies

### Recent episode (summer 2022) and empirical patterns
- Emerging European economies experienced exchange rate and bond yield pressures when expectations of future ECB monetary tightening shifted significantly in the summer of 2022.
- Capital outflows were accompanied by currency depreciations and increases in borrowing costs.
- Bond yields rose amid rising policy rates and risk premiums.
- Countries with funding constraints and sizable trade deficits financed by foreign currency–denominated debt were more exposed (for example, Romania and Serbia).

### Historical analysis (Q1 1999–Q3 2022) using local projections
- ECB monetary tightening surprises are found to have increased emerging European economies government bond yields more than one to one.
- Tightening also generated sizable increases in sovereign spreads and depreciations in domestic currencies.
- Domestic output decreased following a contractionary monetary policy shock from the ECB, reaching a trough after about 10 quarters.
- More flexible exchange rate regimes and strong fundamentals—reflected in:
  - greater domestic financial market development,
  - stronger reserve cushions,
  - lower public gross financing needs—
  tended to mitigate these spillovers.

### Role of conventional vs unconventional tightening (model exercise)
- A two-country dynamic stochastic general equilibrium model calibrated to the current context compares:
  - Scenario A: interest rate hikes complemented by a gradual and predictable unwinding of the ECB’s asset purchase program stock (broadly in line with ECB communication as of March 2023).
  - Scenario B (counterfactual): only the interest rate hike is considered.
- Both tightening strategies lead to lower output in emerging European economies, with tightening via interest rate policy accounting for a somewhat larger share of the overall output losses.
- Adverse spillover effects tend to be more elevated under a fixed exchange rate regime than under the baseline of an inflation targeting regime with a freely floating currency.
- For countries with fixed exchange rate regimes, foreign exchange intervention can be an effective line of defense in terms of output and inflation stabilization when the ECB pursues both conventional and unconventional tightening.
- These results underscore the potential costs of a fixed exchange rate regime when the economy is exposed to large shocks with potentially asymmetric effects.

Model calibration and assumptions (as provided)
- Interest rate hike calibration:
  - Resembles tightening that occurred between July 2022 and March 2023.
  - Assumes the policy rate is increased by 50 basis points above the prediction from a standard Taylor rule in four steps over one year.
- Quantitative tightening calibration:
  - Mimes the ECB’s announcement of December 2022.
  - Envisions a quarterly pace of reduction of asset purchase program holdings of €45 billion.

*Prepared by Gianluigi Ferrucci, Philipp Engler, and Tianxiao Zheng.*

---

### Box 5. What Does the Taylor Rule Say about the Stance of Monetary Policy across Europe?

### Taylor rule specification used
- General form:
  it = ρ it – 1 + (1 – ρ) [r* + π* + βCPI (πt – π*) + βY (yt – y*)]
  - it is the short-term rate.
  - ρ is the interest rate smoothing parameter.
  - r* is the natural real rate.
  - π* is the inflation target.
  - πt is the average headline inflation in t and t + 1.
  - (yt – y*) is the deviation of output growth from its average value.

### Parameter space for simulations
- ρ ∈ (0.4,0.6)
- r* ∈ (rC* – 1, rC* + 1)
- βCPI ∈ (1.0,1.5)
- βY ∈ (0,0.4)
- rC* groups:
  - rC* = 2 for Moldova and Türkiye;
  - rC* = 0 for the Czech Republic, euro area, Norway, Sweden, Switzerland, and the United Kingdom;
  - rC* = 1 for all others.
- Simulations are based on observed data and IMF staff projections for inflation and output growth, starting in 2022.
- Inflation targets are the respective countries’ targets, or the midpoints of the range for countries with upper and lower bounds.

### Key findings and interpretation
- The parameter-implied uncertainty makes the approach less suited for precise policy-rate advice but informative about whether policy rates are more likely to be on the low or high side.
- Current policy rates are generally found to be at the lower end of the Taylor rule–implied range.
- Under the baseline projection, for several countries it is likely that policy rates will still need to increase and remain higher for some time.
- Using a hybrid Taylor rule (with a forward-looking inflation term) increases the case for higher policy rates relative to a rule using only contemporaneous inflation, particularly where inflation expectations are less well anchored.

*Prepared by Sebastian Weber.*

---

### Box 6. The State of the European Banking Sector

### Recent stress episode (early 2023) and drivers
- Rising interest rates, the failure of a US regional bank, and the rescue of Credit Suisse triggered worries about broader vulnerabilities.
- Main driver of stress was market sentiment rather than direct contagion through counterparty exposures.
- Stock prices, default insurances, and secondary market rates for selected bank debt suffered setbacks.

### Strengthened buffers and liquidity
- Average (asset-weighted) Common Equity Tier 1 (CET1) ratio in European banks exceeds 16 percent.
- Liquidity coverage ratios average more than 150 percent across Europe (high-quality liquid assets to net cash flow).
- Reliance of euro area global systemically important banks on wholesale funding and unsecured deposits from nonfinancial corporations (NFCs) range between 22 and 37 percent.

### Pockets of vulnerability
- Unrealized losses: fast-rising interest rates exposed banks with large fixed-income assets; selling these assets under stress could realize losses.
  - Unrealized losses associated with sovereign assets held to maturity are significant for a number of countries but are on average within headroom above CET1 thresholds even before accounting for possible unrealized gains from fixed-rate liabilities, hedges, or other offsetting factors.
- Asset quality risks:
  - Nonperforming loan (NPL) ratios are at a historic low.
  - Stage 2 loans (for which banks are less certain of credit quality) and corporate insolvency filings are increasing.
- Nonbank financial institutions (NBFIs), especially if leveraged, could amplify market stress and create adverse feedback loops to banks.
- Risks would rise if persistently high underlying inflation led to sharply higher-than-expected interest rates.

### Policy recommendations and priorities
- Supervisory actions:
  - Enhance the transparency of banks’ unrealized losses on hold-to-maturity exposures and offsetting factors.
  - Routinely perform stress tests.
  - Verify the feasibility and stability of bank funding structures.
- Regulatory implementation:
  - Faithful implementation of Basel III standards remains critical.
- NBFI policy priorities:
  - Monitor leverage- and liquidity-related risks.
  - Develop macroprudential policy tools.
  - Work actively on closing data gaps.
- Structural reforms and European integration:
  - Progress on the capital and banking unions remains paramount.
  - The European Commission’s recent capital market union legislative package includes steps toward harmonizing insolvency processes across member states.
  - Stronger insolvency frameworks would expand firms’ access to credit, help banks resolve NPLs, promote entrepreneurship, and deepen European debt markets.
  - Important to make progress on finalizing the Banking Union, including:
    - the European deposit insurance scheme,
    - full ratification of the European Stability Mechanism treaty to give a backstop to the Single Resolution Fund,
    - conclusion of the Commission’s Review of the Crisis Management Framework.

*Prepared by Luis Brandao-Marques, Lev Ratnovski and Sebastian Weber.*

---

*Source: Box 3. (continued); Box 4; Box 5; Box 6 from the provided IMF Regional Economic Outlook—Europe text.*

### Annex Table 1.2. Headline Inflation

### Annex Table 1.2. Headline Inflation

### Europe (regional aggregate)
- Current WEO (2021, 2022, 2023, 2024): 4.8,15.2,10.4,6.3
- October 2022 WEO (2022, 2023, 2024): 15.1,10.6,5.1
- Difference (2022, 2023, 2024): 0.1–0.21.2

### Advanced European Economies (aggregate)
- Current WEO (2021, 2022, 2023, 2024): 2.5,8.4,5.6,3.0
- October 2022 WEO (2022, 2023, 2024): 8.3,6.2,2.9
- Difference (2022, 2023, 2024): 0 .1–0.60 .1

#### Euro Area (aggregate)
- Current WEO (2021, 2022, 2023, 2024): 2.6,8.4,5.3,2.9
- October 2022 WEO (2022, 2023, 2024): 8.3,5.7,2.7
- Difference (2022, 2023, 2024): 0 .1–0.40.2

Selected Euro Area member entries (Current WEO | October 2022 WEO | Difference)
- Austria — Current WEO (2021, 2022, 2023, 2024): 2.8,8.6,8.2,3.0; October 2022 WEO (2022, 2023, 2024): 7 .75, .12.50.93 .10.5
- Belgium — Current WEO (2021, 2022, 2023, 2024): 3.2,10.3,4.7,2.1; October 2022 WEO (2022, 2023, 2024): 9. 54.91.80.8–0.20.3
- Croatia — Current WEO (2021, 2022, 2023, 2024): 2.7,10.7,7.4,3.6; October 2022 WEO (2022, 2023, 2024): 9. 85.53.90.91.9–0.3
- Cyprus — Current WEO (2021, 2022, 2023, 2024): 2.2,8 .13.9,2.5,8.0; October 2022 WEO (2022, 2023, 2024): 3.82.10 .10 .10.4
- Estonia — Current WEO (2021, 2022, 2023, 2024): 4.5,19.4,9.7,4 .1; October 2022 WEO (2022, 2023, 2024): 21.09. 52.5–1.60.21.6
- Finland — Current WEO (2021, 2022, 2023, 2024): 2.1,7. 2,5.3,2.5; October 2022 WEO (2022, 2023, 2024): 6.53.51.80.71.80.7
- France — Current WEO (2021, 2022, 2023, 2024): 2.1,5.9,5.0,2.5; October 2022 WEO (2022, 2023, 2024): 5.84.62.40 .10.40 .1
- Germany — Current WEO (2021, 2022, 2023, 2024): 3.2,8.7,6.2,3 .1; October 2022 WEO (2022, 2023, 2024): 8.57. 23.50.2–1.0–0.4
- Greece — Current WEO (2021, 2022, 2023, 2024): 0.6,9. 3,4.0,2.9; October 2022 WEO (2022, 2023, 2024): 9. 23.21.60 .10.81.3
- Ireland — Current WEO (2021, 2022, 2023, 2024): 2.4,8 .1,5.0,3.2; October 2022 WEO (2022, 2023, 2024): 8.46.53.0–0.3–1.50.2
- Italy — Current WEO (2021, 2022, 2023, 2024): 1.9,8.7,4.5,2.6; October 2022 WEO (2022, 2023, 2024): 8.75.21.70.0–0.70.9
- Latvia — Current WEO (2021, 2022, 2023, 2024): 3.2,17. 2,9.7,3.5; October 2022 WEO (2022, 2023, 2024): 16.58.02.90.71.70.6
- Lithuania — Current WEO (2021, 2022, 2023, 2024): 4.6,18.9,10.5,5.8; October 2022 WEO (2022, 2023, 2024): 17. 68.43.21.32.12.6
- Luxembourg — Current WEO (2021, 2022, 2023, 2024): 3.5,8 .1,2.6,3 .1; October 2022 WEO (2022, 2023, 2024): 8.43.72.3–0.3–1.10.8
- Malta — Current WEO (2021, 2022, 2023, 2024): 0.7,6 .1,5.8,3.4; October 2022 WEO (2022, 2023, 2024): 5.94.62.60.21.20.8
- Netherlands, The — Current WEO (2021, 2022, 2023, 2024): 2.8,11. 6,3.9,4.2; October 2022 WEO (2022, 2023, 2024): 12.08.02.7–0.4– 4 .11.5
- Portugal — Current WEO (2021, 2022, 2023, 2024): 0.9,8 .1,5.7,3 .1; October 2022 WEO (2022, 2023, 2024): 7.94.72.60.21.00.5
- Slovak Republic — Current WEO (2021, 2022, 2023, 2024): 2.8,12.1,9 .5,4.3; October 2022 WEO (2022, 2023, 2024): 11.910 .14.40.2–0.6– 0 .1
- Slovenia — Current WEO (2021, 2022, 2023, 2024): 1.9,8.8,6.4,4.5; October 2022 WEO (2022, 2023, 2024): 8.95 .13.3– 0 .11.31.2
- Spain — Current WEO (2021, 2022, 2023, 2024): 3.0,8.3,4.3,3.2; October 2022 WEO (2022, 2023, 2024): 8.84.93.5–0.5–0.6–0.3

### Nordic Economies (aggregate)
- Current WEO (2021, 2022, 2023, 2024): 2.7,7. 6,5.8,2.6
- October 2022 WEO (2022, 2023, 2024): 6.55.83.01.10.0–0.4

Selected Nordic entries
- Denmark — Current WEO: 1.9,8.5,4.8,2.8; October 2022 WEO: 7. 23.82.41.31.00.4
- Iceland — Current WEO: 4.5,8.3,8 .1,4.2; October 2022 WEO: 8.46.74 .1– 0 .11.40 .1
- Norway — Current WEO: 3.5,5.8,4.9,2.8; October 2022 WEO: 4.73.82.71.11.10 .1
- Sweden — Current WEO: 2.7,8 .1,6.8,2.3; October 2022 WEO: 7. 28.43.50.9–1.6–1. 2

### Other European Advanced Economies (aggregate)
- Current WEO (2021, 2022, 2023, 2024): 2.3,8.4,6.5,3 .1
- October 2022 WEO (2022, 2023, 2024): 8.67. 63.2–0.2–1.1– 0 .1

Selected other advanced entries
- Andorra — Current WEO: 1.7,6.2,5.6,2.9; October 2022 WEO: 5.32.81.90.92.81.0
- Czech Republic — Current WEO: 3.8,15 .1,11. 8,5.8; October 2022 WEO: 16. 38.62.5–1. 23.23.3
- Israel — Current WEO: 1.5,4.4,4.3,3 .1; October 2022 WEO: 4.53.62.5– 0 .10.70.6
- San Marino — Current WEO: 2.1,7.1,4.6,2.7; October 2022 WEO: 6.94.51.50.20 .11.2
- Switzerland — Current WEO: 0.6,2.8,2.4,1.6; October 2022 WEO: 3 .12.41.5–0.30.00 .1
- United Kingdom — Current WEO: 2.6,9.1,6.8,3.0; October 2022 WEO: 9.19.03.70.0–2.2–0.7

### Emerging European Economies (aggregate)
- Current WEO (2021, 2022, 2023, 2024): 9.7,30.2,21.0,13.9
- October 2022 WEO (2022, 2023, 2024): 30.9,20.9,20.9
- Difference (2022, 2023, 2024): 10.2–0.70 .13.7

Subgroups and select countries
- Central Europe — Current WEO: 5 .1,14.4,13 .1,5.9; October 2022 WEO: 13.8,14 .1,4.5; Difference: 0.6–1.01.4
  - Hungary — Current WEO: 5 .1,14.4,17. 7,5.4; October 2022 WEO: 13.9,13. 35.60.64.4–0.2
  - Poland — Current WEO: 5 .1,14.4,11.9,6 .1; October 2022 WEO: 13.8,14. 34.30.6–2.41.8
- Eastern Europe — Current WEO: 7.1,14.4,8.2,4.8; October 2022 WEO: 14.0,5.5,4.3; Difference: 0.42.70.5
  - Belarus — Current WEO: 9. 5,14.8,7. 5,10 .1; October 2022 WEO: 16.513 .111.7–1.7–5.6–1.6
  - Moldova — Current WEO: 5 .1,28.6,13.8,5.0; October 2022 WEO: 28.513.85.00 .10.00.0
  - Russia — Current WEO: 6.7,13.8,7.0,4.6; October 2022 WEO: 13.85.04.00.02.00.6
  - Ukraine — Current WEO: 9.4,20.2,21.1,1.2; October 2022 WEO: 0.6..–0.4..
- Southeastern European EU Member States — Current WEO: 4.6,13.6,9. 8,5.0; October 2022 WEO: 13 .19. 83.30.50.01.7
  - Bulgaria — Current WEO: 2.8,13.0,7.5,2.2; October 2022 WEO: 12.45.22.20.62.30.0
  - Romania — Current WEO: 5.0,13.8,10.5,5.8; October 2022 WEO: 13. 311. 03.60.5–0.52.2
- Southeastern European Non–EU Member States — Current WEO: 3.2,11.9,9.2,4.2; October 2022 WEO: 10.66.53.61.32.70.6
  - Albania — Current WEO: 2.0,6.7,5.0,3.4; October 2022 WEO: 6.24.33.00.50.70.4
  - Bosnia and Herzegovina — Current WEO: 2.0,14.0,6.0,3.0; October 2022 WEO: 10.54.53.53.51.5–0.5
  - Kosovo — Current WEO: 3.3,11.7,5.5,2.6; October 2022 WEO: 12.05.02.6–0.30.50.0
  - Montenegro — Current WEO: 2.4,13.0,9.7,5.0; October 2022 WEO: 12.89. 24.50.20.50.5
  - North Macedonia — Current WEO: 3.2,14. 2,9 .2,3.5; October 2022 WEO: 10.64.52.43.64.71.1
  - Serbia — Current WEO: 4 .1,12.0,12. 2,5.3; October 2022 WEO: 11. 58.34.20.53.91.1
- Türkiye — Current WEO: 19. 6,72.3,50.6,35.2; October 2022 WEO: 73 .151. 224.2–0.8–0.611. 0

### Memorandum series (selected global/economy aggregates)
- World — Current WEO: 4.7,8.7,7.0,4.9; October 2022 WEO: 8.8,6.5,4 .1– 0 .10.50.8
- Advanced economies — Current WEO: 3 .1,7. 3,4.7,2.6; October 2022 WEO: 7. 24.42.40 .10.30.2
- Emerging market and developing economies — Current WEO: 5.9,9. 8,8.6,6.5; October 2022 WEO: 9.98 .15.3– 0 .10.51.2
- Emerging Europe excl. Belarus, Russia, Türkiye and Ukraine — Current WEO: 4.8,14 .1,11.7,5.5; October 2022 WEO: 13. 512.04 .10.6–0.31.4
- European Union — Current WEO: 2.9,9. 3,6.3,3.3; October 2022 WEO: 9. 26.83.00 .1–0.50.3
- United States — Current WEO: 4.7,8.0,4.5,2.3; October 2022 WEO: 8 .13.52.2– 0 .11.00 .1
- China — Current WEO: 0.9,1.9,2.0,2.2; October 2022 WEO: 2.2,2.21.9–0.3–0.20.3
- Japan — Current WEO: –0.2,2.5,2.7,2.2; October 2022 WEO: 2.01.41.00.51.31.2

*Sources: IMF, World Economic Outlook (WEO) database; and IMF staff calculations.*

---


_Source: https://www.imf.org/-/media/files/publications/reo/eur/2023/april/english/text.pdf_