## Choosing Growth: Reforms for Innovation, Scale, and Resilience ## Source details **Canonical URL:** [Choosing Growth: Reforms for Innovation, Scale, and Resilience](https://www.imf.org/-/media/files/publications/reo/eur/2026/october/english/text.pdf) ## Other formats - [Markdown version](/-/media/files/publications/reo/eur/2026/october/english/text.pdf.md) - [Structured JSON version](/-/media/files/publications/reo/eur/2026/october/english/text.pdf.json) --- ### Executive Summary — Europe Is Growing Slowly in Difficult Circumstances - Europe’s economy continues to grow, but at a slow pace, despite accumulating adverse shocks including the war in the Middle East, a summer heat wave and drought, the COVID-19 pandemic, Russia’s invasion of Ukraine, and increased trade tensions. - Crude oil prices remain elevated and volatile; natural gas prices remain well above prewar levels but significantly below the levels reached after Russia’s invasion of Ukraine. - Gas storage levels are below the norm for this time of year, potentially amplifying the impact of elevated natural gas prices on electricity and heating costs. - Euro area growth (excluding Ireland) was about 1.2 percent (seasonally adjusted annual rate, SAAR) in the second quarter of 2026, higher than anticipated in the April World Economic Outlook forecast after the war. - High-frequency indicators for the third quarter of 2026 are mixed: some business surveys point to continued momentum early in the quarter, but retail sales declined in the euro area and industrial production softened. - Headline inflation in the euro area increased from 1.9 percent year over year in February to 3.8 percent year over year in September 2026; core inflation has been more stable, hovering about 2.1–2.3 percent year over year throughout the year so far. - In some CESEE countries, inflationary pressures were already building at the onset of the conflict (examples: Bulgaria and Romania); in others, inflation was at or below target and the inflationary impact has been more modest (example: Hungary). ### Recent Policy and Cyclical Context - Europe’s adoption of renewables, combined with improved energy efficiency, has reduced the impact of the energy shock on households’ energy spending by about 8 percent, based on IMF Carbon Pricing Assessment Tool model analysis. - As of 2025, close to half of EU electricity generation comes from renewables (wind, solar, hydropower, bioenergy, and waste), compared with one-quarter in the United States. - Central banks have either raised rates or paused easing cycles in 2026. - Fiscal policy has avoided a large discretionary stimulus in the majority of countries and has been broadly neutral on a GDP-weighted basis; deficit levels remain high in some cases. - All countries introduced measures to provide households and firms relief from higher energy prices; these measures amounted to about 0.3 percent of GDP on average in the EU as of mid-September 2026. - Financial conditions: higher central bank interest rates and stricter lending standards (for example, the euro area and the Czech Republic) have added headwinds; sovereign yields have moved up reflecting higher inflation and other factors. ### Structural Weaknesses: Innovation, Scale, and Productivity - The core structural weakness is sluggish productivity growth, which drags down potential growth and leaves Europe more susceptible to adverse shocks. - Europe has fallen behind the global productivity frontier; weak scale and fragmented markets hinder firms’ ability to adjust, scale up, access a larger market, and incentivize investment. - Innovation remains incremental and concentrated in traditional, low-growth industries; trade-driven growth is losing some momentum, particularly in CESEE countries as manufacturing faces stronger foreign competition. - The European economy is threatened by a fragmented energy market and reliance on fragile global supply chains for fossil fuels and critical minerals amid high geopolitical tensions. ### Growth and productivity trends - Medium-term potential growth is stated as 1.1 percent for the euro area and 1.3 percent for the EU. - IMF analysis finds that weak productivity dynamics are damping Europe’s performance in key export markets. - Europe’s labor productivity has been consistently falling behind in the information and communications technology (ICT) sector. ### Innovation, intangible capital, and AI - IMF analysis (Komatsuzaki and others, forthcoming) attributes about ¾ of a percentage point to labor productivity growth in the United States during 2015–24 from the development and use of intangible capital, including early forms of artificial intelligence (AI)—more than twice as much as in the EU. - The region appears to be missing out on the ongoing boom in AI-related investment and exports. - The growth of new AI-related patents has been slower in Europe than in the United States and China; business surveys show European firms have not adopted and used AI in their operations as deeply as US firms. - For the universe of listed firms, IMF (2024a) estimates that Europe’s total factor productivity growth has underperformed the United States across both high-tech and non-high-tech sectors. ### Scale, single market, and firm dynamics - A lack of scale is identified as a key driver of adverse productivity dynamics (IMF 2024a). - Structural constraints cited include an incomplete single market, a fragmented capital market, and a gridlocked domestic reform agenda. - These barriers are associated with low investment returns, high uncertainty, lower firm efficiency, and resources failing to move to the most productive firms. - Innovation incentives are structurally weakened; innovations by European firms are described as not as transformative as in the United States and concentrated in lower-growth, traditional industries. ### Exports, competitiveness, and regional variation - Export-driven growth is faltering in some countries; exports from advanced economies (AEs) have declined modestly in recent years, while CESEE export performance has weakened more markedly. - The export reduction in CESEE is broad based, with exports to both China and the United States declining, whereas AE exports to the United States have remained resilient. - Structurally high energy costs weigh on the cost-competitiveness of exports; CESEE countries were affected more acutely after Russia’s invasion of Ukraine. - Some CESEE countries face further pressure from strong wage growth and real exchange rate appreciation in recent years. - A sharp frontloading of exports to the United States in the first half of 2025 is noted, which subsequently reversed. ### Supply-chain concentration and import dependencies - The EU has diversified its sources of fossil fuel imports but its top trading partners still make up about 70 percent of natural gas imports. - The European manufacturing sector’s dependence on global supply chains for critical minerals is described as stark, with just a few suppliers dominating the entire global market. ### Outlook and medium-term forecasts - The outlook is for mediocre growth this year that continues into the medium term. - The baseline assumes a slow and uneven normalization of energy prices, on account of the still volatile geopolitical situation in the Middle East; natural gas prices are assumed to remain higher in 2027 than assumed in the July World Economic Outlook. - Growth momentum shown in the first half of the year is expected to wane late in 2026 and into 2027 as high global commodity prices continue to be passed through to consumers and firms. - Baseline forecasts: - AEs (excluding CESEE): baseline forecast for growth is to remain broadly unchanged at around 1.3 percent from 2025 to 2027. - Euro area, excluding Ireland: forecast to be 1.2 percent this year and 1.1 percent in 2027. - CESEE countries: growth is expected to slow from 2.4 percent in 2025 to 2.2 percent in 2026, before strengthening the next year. - Forecast assumptions include drought conditions remaining temporary, continued defense spending across the region, higher infrastructure spending in Germany, and the US effective tariff rate on EU imports remaining about 8.5 percent, broadly unaffected by developments after the February 2026 US Supreme Court ruling. ### Inflation and monetary outlook - Inflation is expected to return slowly to target as energy prices normalize. - In AEs (excluding CESEE), inflation is expected to peak at 2.9 percent in 2026 before gradually declining. - In the euro area, inflation is projected to return to the target during 2028. - In CESEE countries, inflation is projected to be 4.0 percent this year but decline in 2027; most CESEE countries are expected to see disinflation by 2028, though in some countries (for example, Poland and Romania) underlying price pressures or one-off factors are projected to leave inflation still elevated. ### Risks and policy implications emphasized - The outlook is described as highly uncertain, with risks tilted toward lower growth and higher-for-longer inflation. - The most important risk is a further re-escalation of the conflict, which would likely keep energy prices elevated or drive them higher, weakening economic activity and making inflation more persistent. - Possible consequences of heightened risks include an increase in medium-term inflation expectations requiring tighter monetary policy and, in some countries, making fiscal consolidation more important. - Other risks noted: stronger recovery in energy demand from Asia and other regions keeping energy prices higher for longer; stronger-than-expected pass-through from energy and food prices to other consumer prices; and a sharp tightening of financial conditions, including from a correction in overstretched asset valuations. ### Policy Priorities: Reforms for Innovation, Scale, and Resilience - Pursue reforms that raise long-term growth potential by addressing structural constraints on innovation and scale rather than relying on protectionist or broad-based insulating interventions that introduce distortions. - Continue the energy transition to lower energy costs and reduce dependence on fossil fuel imports. - Implement domestic-level reforms to remove inefficiencies that prevent firms from scaling up and adjusting. - Continue forceful national and EU-level reforms to complete the single market and reduce remaining barriers that segment product markets and hamper capital and labor mobility. - Interventions to address supply-chain risks should be limited and based on careful cost–benefit analysis. ### CESEE-Specific Recommendations - CESEE countries should adapt policies to ensure sustainable growth in light of eroding cost-competitiveness: - Invest in skills. - Implement reforms to improve labor market reallocation. - Strengthen competition and foster innovation. - EU candidate countries need ambitious reforms to seize opportunities offered by EU accession. ### Gap to Inflation Target — Monetary, Fiscal, and Financial Guidance - IMF analysis shows that at least one further 25 bps increase in policy rates in 2026 will be required to ensure that core inflation remains well contained. - Further tightening is likely to be warranted to ensure that inflation returns to target in 2028. - The European Central Bank has tightened policy by 25 bps in both June and September. - The Bank of England should maintain a restrictive stance through 2027 to put inflation on an assuredly downward path back toward the target. - In some CESEE countries (for example, Czech Republic and Romania), policymakers are more likely to need to tighten policy and keep it restrictive for longer. - In other CESEE countries (for example, Hungary and Poland), central banks may be more able to keep policy on hold with a tightening bias and monitor further developments. - Fiscal policy should avoid adding to price pressures through unnecessary stimulus while still supporting the vulnerable. - Fiscal pressures: it is estimated that higher necessary spending would increase public spending by 4½ percent of GDP by 2040 on average in AE (excluding CESEE) countries and 5½ percent of GDP in CESEE countries. - Around three-quarters of European countries will need structural reforms and deficit-reducing consolidation measures of about 3½ percent of GDP on average over the medium term to keep debt sustainable. - About one-quarter of European countries would need to consolidate by more than 5 percent of GDP to keep public debt sustainable. - Financial sector: the European banking system remains adequately capitalized and liquid, with rising profits and non-performing loans contained in most countries. - Key financial stability concerns and recommended actions include preparedness for sudden market repricing, addressing bank–NBFI linkages, closing data gaps, strengthening system-wide stress testing, and strengthening crisis management (including ratifying the reformed European Stability Mechanism treaty and introducing European deposit insurance). ### Cross-Country Industrial and Residential — Electricity, Single Market, and Structural Reform Gains - Electricity prices are volatile and dispersed across countries for industrial and residential users (US$ cent per kilowatt-hour, 2025). - Falling levelized costs make clean energy increasingly cost-effective in France, Germany, and Italy. - IMF analysis (D’Arcangelo and others, forthcoming) finds that stronger cross-border interconnectivity and expanded low-carbon generation capacity can fully offset upward pressure on electricity prices from rising demand and carbon pricing. - Planned initiatives such as the European Commission’s 2025 Grid Package should be implemented without delay. - A common EU energy-system roadmap is recommended to ensure infrastructure investment is located where renewable resources are abundant and where demand is growing rapidly. - Continued implementation of the EU ETS1 and the rollout of ETS2 will help preserve clear carbon-price signals and support long-term investment decisions. - IMF analysis (Carton and others 2026) shows that if ETS1 and ETS2 carbon prices rise in line with emissions targets and part of the revenues are recycled into well-targeted green investment support, then the macroeconomic effects would remain moderate, whereas projected ETS revenues over the next decade would exceed the public investment needed for decarbonization. - Tax distortions that raise electricity prices unnecessarily should be removed: electricity excise taxes should not exceed those on fossil fuels, and a standard value-added tax rate should be maintained. ### Single market, productivity gaps, and potential gains from reforms - Eliminating all remaining domestic policy distortions and removing cross-border obstacles to EU trade and labor mobility have the potential to raise EU productivity by about 20 percent (IMF 2025a). - Higher productivity could crowd in up to €800 billion in additional investment over a decade and increase GDP per capita by about 35 percent over time. - Financial reforms that integrate and deepen banking and venture capital markets can raise output further. - Completing the Single Market Roadmap through the end of 2027 should be complemented by a financial system that unlocks savings and allocates capital efficiently within and across borders. - Completing the savings and investment union (SIU) by advancing the banking union, harmonizing corporate insolvency law, expanding the supply of long-term risk capital, and reducing barriers to cross-border equity investment could ease cross-border banking frictions and increase the availability of venture capital. - Establishing a voluntary 28th enterprise regime would further reduce legal fragmentation and facilitate firm scale-up across the single market. - A comprehensive, rescue-oriented insolvency regime can have significant macroeconomic benefits by improving predictability and facilitating value-preserving restructuring. ### Domestic structural reform priorities and housing - Stronger labor market performance and human capital formation are identified as top national reform priorities, alongside product and capital market measures to foster innovation and firm dynamism. - Low housing affordability constrains labor mobility; inadequate housing supply has been a prominent driver of dwelling price increases. - Policy actions to expand housing supply include releasing land for residential construction, streamlining permitting processes, and improving access to financing for developers. - Reforms should consider political feasibility and implementation capacity: early public engagement, effective communication, learning from best performers, and smart sequencing and bundling. ### Barriers to firm scaling and CESEE / accession guidance - Barriers hindering firm scaling include overly restrictive labor market regulations, tax rules that discourage investment, fragmented insolvency regimes, and limited availability of skilled labor locally. - IMF staff analysis (Ayerst and others, forthcoming) finds that after filing their first transformative patent, sales of firms in places with more stringent constraints on scaling up and scaling down will grow only about 60 percent as fast as those in the least-constrained locations. - CESEE countries need reforms beyond single-market deepening to sustain convergence; policies include preserving competitiveness, increasing labor force participation, reducing skill mismatch, strengthening governance, and ensuring fiscal sustainability. - EU accession is a transformative opportunity for the Western Balkans and Moldova, but realizing full potential will require ambitious domestic reforms. - Experience from previous enlargement rounds and structural model simulations shows that income levels could be about 30 percent higher within a decade of accession, with productivity improvements accounting for about two-thirds of overall income gains from accession. ### Annex Table 1.1. Real GDP Growth — Key regional aggregates (October 2026 WEO) - Europe — 1.6 2025, 1.5 2026, 1.6 2027, 1.7 2028. - Advanced European Economies — 1.4 2025, 1.4 2026, 1.3 2027, 1.5 2028. - Euro Area — 1.2 2025, 1.1 2026, 1.2 2027, 1.3 2028. - Euro Area excl. Ireland — 1.0 2025, 1.2 2026, 1.1 2027, 1.2 2028. - CESEE — 2.1 2025, 1.7 2026, 2.1 2027, 2.3 2028. - World (memorandum) — 3.5 2025, 3 .1 2026, 3.4 2027, 3.3 2028. *Source: Choosing Growth: Reforms for Innovation, Scale, and Resilience, October 2026, INTERNATIONAL MONETARY FUND.* ### Executive Summary......................................................................................................v ### Executive Summary ### Europe Is Growing Slowly in Difficult Circumstances - Europe’s economy continues to grow, but at a slow pace, despite accumulating adverse shocks including the war in the Middle East, a summer heat wave and drought, the COVID-19 pandemic, Russia’s invasion of Ukraine, and increased trade tensions. - Crude oil prices remain elevated and volatile; natural gas prices remain well above prewar levels but significantly below the levels reached after Russia’s invasion of Ukraine. (See Figure 1.) - Gas storage levels are below the norm for this time of year, potentially amplifying the impact of elevated natural gas prices on electricity and heating costs. - Euro area growth (excluding Ireland) was about 1.2 percent (seasonally adjusted annual rate, SAAR) in the second quarter of 2026, higher than anticipated in the April World Economic Outlook forecast after the war. (See Figures 3–4.) - Across Europe, high-frequency indicators for the third quarter of 2026 are mixed: some business surveys point to continued momentum early in the quarter, but retail sales declined in the euro area and industrial production softened. - Headline inflation in the euro area increased from 1.9 percent year over year in February to 3.8 percent year over year in September 2026; core inflation has been more stable, hovering about 2.1–2.3 percent year over year throughout the year so far. (See Figures 5–6.) - In some CESEE countries, inflationary pressures were already building at the onset of the conflict, reflecting loose fiscal policy and strong growth of wages and credit (examples: Bulgaria and Romania); in others, inflation was at or below target and the inflationary impact has been more modest (example: Hungary). ### Recent Policy and Cyclical Context - Europe’s adoption of renewables, combined with improved energy efficiency, has reduced the impact of the energy shock on households’ energy spending by about 8 percent, based on IMF Carbon Pricing Assessment Tool model analysis. - As of 2025, close to half of EU electricity generation comes from renewables (wind, solar, hydropower, bioenergy, and waste), compared with one-quarter in the United States. (See Figure 7.) - Central banks have either raised rates or paused easing cycles in 2026. (See Figure 8.) - Fiscal policy has avoided a large discretionary stimulus in the majority of countries and has been broadly neutral on a GDP-weighted basis, although deficit levels remain high in some cases. All countries introduced measures to provide households and firms relief from higher energy prices; these measures amounted to about 0.3 percent of GDP on average in the EU as of mid-September 2026. (See Figure 9.) - Financial conditions: higher central bank interest rates and stricter lending standards (for example, the euro area and the Czech Republic) have added headwinds; sovereign yields have moved up reflecting higher inflation and other factors. (See Figure 2.) ### Structural Weaknesses: Innovation, Scale, and Productivity - The core structural weakness is sluggish productivity growth, which drags down potential growth and leaves Europe more susceptible to adverse shocks. - Europe has fallen behind the global productivity frontier; weak scale and fragmented markets hinder firms’ ability to adjust, scale up, access a larger market, and incentivize investment. - Innovation remains incremental and concentrated in traditional, low-growth industries; trade-driven growth is losing some momentum, particularly in CESEE countries as manufacturing faces stronger foreign competition. - The European economy is threatened by a fragmented energy market and reliance on fragile global supply chains for fossil fuels and critical minerals amid high geopolitical tensions. ### Outlook and Risks - Growth is set to remain modest into the medium term. A period of above-target headline inflation is expected, even if medium-term inflation expectations remain anchored. (See Figures 18–19.) - Underlying price pressures in some CESEE countries, driven by strong wage growth and loose fiscal policy, could complicate disinflation. - Policymakers need vigilance against a broadening of price pressures; monetary policy may have to do more, and expansionary fiscal policy should be avoided to keep pressure off inflation. - If energy price relief policies are extended or new policies introduced, they should be tightly targeted at the most vulnerable and not distort energy prices, to preserve incentives to increase energy efficiency. - Financial sector policymakers should monitor resilience beyond banks, as a global correction of overstretched asset valuations and rising sovereign yields could affect financial stability, magnified through bank–nonbank linkages. ### Policy Priorities: Reforms for Innovation, Scale, and Resilience - Europe should pursue reforms that raise long-term growth potential by addressing structural constraints on innovation and scale rather than relying on protectionist or broad-based insulating interventions that introduce distortions. - Continuing the energy transition is imperative to lower energy costs and reduce dependence on fossil fuel imports. - Domestic-level reforms are needed to remove inefficiencies that prevent firms from scaling up and adjusting. - National and EU-level reforms should continue forcefully to complete the single market and reduce remaining barriers that segment product markets and hamper capital and labor mobility. - Interventions to address supply-chain risks should be limited and based on careful cost–benefit analysis. ### CESEE-Specific Recommendations - CESEE countries should adapt policies to ensure sustainable growth in light of eroding cost-competitiveness: - Invest in skills. - Implement reforms to improve labor market reallocation. - Strengthen competition and foster innovation. - These reforms aim to help firms diversify into new products and markets and strengthen performance in external markets. - EU candidate countries need ambitious reforms to seize opportunities offered by EU accession. *International Monetary Fund, Regional Economic Outlook—Europe, October 2026.* ### 1.1 percent, even modest shocks threaten to tip the euro area into recession, and at 1.3 percent, EU medium- ### Choosing Growth: Reforms for Innovation, Scale, and Resilience ### Growth and productivity trends - Medium-term potential growth is stated as 1.1 percent for the euro area and 1.3 percent for the EU. - IMF analysis finds that weak productivity dynamics are damping Europe’s performance in key export markets. - The EU was once at the global productivity frontier but has fallen behind; Europe’s labor productivity has been consistently falling behind in the information and communications technology (ICT) sector. ### Innovation, intangible capital, and AI - IMF analysis (Komatsuzaki and others, forthcoming) attributes about ¾ of a percentage point to labor productivity growth in the United States during 2015–24 from the development and use of intangible capital, including early forms of artificial intelligence (AI)—more than twice as much as in the EU. - The region appears to be missing out on the ongoing boom in AI-related investment and exports, which has provided some support to growth elsewhere, particularly in Asia. - The growth of new AI-related patents has been slower in Europe than in the United States and China; business surveys show European firms have not adopted and used AI in their operations as deeply as US firms. - For the universe of listed firms, IMF (2024a) estimates that Europe’s total factor productivity growth has underperformed the United States across both high-tech and non-high-tech sectors. ### Scale, single market, and firm dynamics - A lack of scale is identified as a key driver of adverse productivity dynamics (IMF 2024a). - Structural constraints cited include an incomplete single market, a fragmented capital market, and a gridlocked domestic reform agenda that leave barriers hindering firms from adjusting size, accessing adequate finance, reaching a larger market, and benefiting from agglomeration externalities. - These barriers are associated with low investment returns, high uncertainty, lower firm efficiency, and resources failing to move to the most productive firms. - Innovation incentives are structurally weakened; innovations by European firms are described as not as transformative as in the United States and concentrated in lower-growth, traditional industries rather than at the high-growth frontier (manufacturing and ICT). ### Exports, competitiveness, and regional variation - Export-driven growth is faltering in some countries; exports from advanced economies (AEs) have declined modestly in recent years, while CESEE export performance has weakened more markedly. - The export reduction in CESEE is broad based, with exports to both China and the United States declining, whereas AE exports to the United States have remained resilient. - Structurally high energy costs are cited as a key factor weighing on the cost-competitiveness of exports; CESEE countries were affected more acutely after Russia’s invasion of Ukraine. - Some CESEE countries face further pressure from strong wage growth and real exchange rate appreciation in recent years. - A sharp frontloading of exports to the United States in the first half of 2025 is noted, which subsequently reversed. ### Supply-chain concentration and import dependencies - The EU has diversified its sources of fossil fuel imports but its top trading partners still make up about 70 percent of natural gas imports, leaving Europe vulnerable to supply disruptions. - The European manufacturing sector’s dependence on global supply chains for critical minerals is described as stark, with just a few suppliers dominating the entire global market. ### Outlook and medium-term forecasts - The outlook is for mediocre growth this year that continues into the medium term. - The baseline assumes a slow and uneven normalization of energy prices, on account of the still volatile geopolitical situation in the Middle East; natural gas prices are assumed to remain higher in 2027 than assumed in the July World Economic Outlook. - Growth momentum shown in the first half of the year is expected to wane late in 2026 and into 2027 as high global commodity prices continue to be passed through to consumers and firms. - Baseline forecasts: - AEs (excluding CESEE): baseline forecast for growth is to remain broadly unchanged at around 1.3 percent from 2025 to 2027. - Euro area, excluding Ireland: forecast to be 1.2 percent this year and 1.1 percent in 2027. - CESEE countries: growth is expected to slow from 2.4 percent in 2025 to 2.2 percent in 2026, before strengthening the next year. - Forecast assumptions include drought conditions remaining temporary, continued defense spending across the region, higher infrastructure spending in Germany, and the US effective tariff rate on EU imports remaining about 8.5 percent, broadly unaffected by developments after the February 2026 US Supreme Court ruling. ### Inflation and monetary outlook - Inflation is expected to return slowly to target as energy prices normalize. - In AEs (excluding CESEE), inflation is expected to peak at 2.9 percent in 2026 before gradually declining. - In the euro area, inflation is projected to return to the target during 2028. - In CESEE countries, inflation is projected to be 4.0 percent this year but decline in 2027; most CESEE countries are expected to see disinflation by 2028, though in some countries (for example, Poland and Romania) underlying price pressures or one-off factors are projected to leave inflation still elevated. ### Risks and policy implications emphasized - The outlook is described as highly uncertain, with risks tilted toward lower growth and higher-for-longer inflation. - The most important risk is a further re-escalation of the conflict, which would likely keep energy prices elevated or drive them higher, weakening economic activity and making inflation more persistent. - Possible consequences of heightened risks include an increase in medium-term inflation expectations requiring tighter monetary policy and, in some countries, making fiscal consolidation more important. - Other risks noted: stronger recovery in energy demand from Asia and other regions keeping energy prices higher for longer; stronger-than-expected pass-through from energy and food prices to other consumer prices; and a sharp tightening of financial conditions, including from a correction in overstretched asset valuations. *Source: Choosing Growth: Reforms for Innovation, Scale, and Resilience, October 2026, INTERNATIONAL MONETARY FUND.* ### 2. Gap to Inflation Target ### 2. Gap to Inflation Target ### Medium-term inflation outlook and risks - IMF analysis shows that at least one further 25 bps increase in policy rates in 2026 will be required to ensure that core inflation remains well contained. - While policy beyond 2026 should evolve based on how incoming data affects the inflation outlook, further tightening is likely to be warranted to ensure that inflation returns to target in 2028. - In the euro area, the European Central Bank has appropriately tightened policy by 25 bps in both June and September, as inflationary pressures have mounted. - In the United Kingdom, the Bank of England should maintain a restrictive stance through 2027 so as to put inflation on an assuredly downward path back toward the target. - In some CESEE countries (for example, Czech Republic and Romania), where inflation was above target when the conflict began or underlying inflationary pressures are persistent, policymakers are more likely to need to tighten policy and keep it restrictive for longer. - In other CESEE countries (for example, Hungary and Poland), where inflationary pressures have been more contained, central banks may be more able to keep policy on hold with a tightening bias and monitor further developments, standing ready to act if needed. - Upside and downside risks identified: - Downside risks include a prolonged adverse shock from the war in Ukraine, more severe weather events, and a renewed flare-up of global trade tensions. - Upside possibilities include a faster-than-expected resolution of the war in the Middle East, strong progress on domestic and single market reforms, or swifter AI development and adoption. ### Monetary policy guidance - Monetary policy must stand ready to tackle a broadening of price pressures. - Although current monetary policy settings are adequate in most countries, more policy action by central banks may be needed if signs of broader price pressures emerge. - To keep inflation expectations well anchored, central banks should continue to communicate their reaction functions and establish clearly how policy would respond to changes in economic conditions. - Any monetary easing should be resumed cautiously, based on firm evidence that pressures on core inflation are receding, to manage the risk of having to reverse course at a later stage. ### Fiscal policy stance and priorities - Fiscal policy should ensure that it does not add to price pressures through unnecessary stimulus, while still supporting the vulnerable. - On average across both AEs and CESEE countries, fiscal balances are expected to deteriorate only slightly this year, without a large expansionary impulse, which is appropriate to avoid adding to price pressures. - Fiscal support to mitigate the effects of higher energy prices, if not carefully calibrated, could undermine disinflation efforts. - If support is extended, or a new relief is introduced, given the ongoing energy price volatility, these measures should be tightly targeted at supporting the most vulnerable (for example, targeted cash transfers), while leaving the price signal intact. - Fiscal policymakers will have to face mounting sustainability challenges from higher necessary spending: - It is estimated that these pressures would increase public spending by 4½ percent of GDP by 2040 on average in AE (excluding CESEE) countries and 5½ percent of GDP in CESEE countries. - Around three-quarters of European countries will need a combination of structural reforms and deficit-reducing consolidation measures of about 3½ percent of GDP on average, over the medium term, to keep debt sustainable. - In EU countries, the amount of consolidation planned in MTFSPs averages about 2 percent of GDP, falling short of what will be required in some countries. - About one-quarter of European countries would need to consolidate by more than 5 percent of GDP to keep public debt sustainable. ### Financial sector resilience and systemic risks - The European banking system remains adequately capitalized and liquid, with rising profits and non-performing loans contained in most countries. - Global bank stress tests continue to indicate resilience of the banking sector to severe shocks overall, while pointing to vulnerabilities in a tail of weaker institutions. - Key financial stability concerns and recommended actions: - Risks of sudden market repricing: - Asset valuations are stretched in several sectors, particularly those exposed to AI, while house prices are also elevated in some European countries. - Sovereign debt markets have become more susceptible to repricing, given a more price-sensitive investor base for sovereign bonds, including hedge funds. - A sudden sell-off could put sovereign bond yields under pressure, create valuation losses, reduce credit availability, and weigh on economic activity. - Policymakers should remain prepared to deploy existing safeguards, including releasing macroprudential buffers if severe stress risks amplifying a credit crunch. - Bank–NBFI linkages: - Rapid balance sheet growth of NBFIs, leverage, and liquidity mismatches in some investment strategies could intensify redemption pressures, margin calls, and asset sales during periods of stress. - Risks are compounded by the growing role of some NBFIs, including offshore hedge funds, in sovereign bond markets. - Policymakers should continue to close data gaps (particularly regarding cross-border and bank–NBFI exposures); strengthen system-wide stress testing; and enhance supervisory monitoring. - In the euro area, liquidity backstops could be extended to selected NBFIs during periods of systemic stress, subject to robust safeguards and oversight. - Strengthen crisis management: - Resilience could be enhanced by strengthening the crisis management framework, including by ratifying the reformed European Stability Mechanism treaty to have a fully operational backstop for the Single Resolution Fund and introducing European deposit insurance. ### Structural and market reforms for growth, innovation, and resilience - The key task is to make Europe more dynamic, innovative, and resilient from within through: - Continuing the energy transition. - Deepening the single market. - Advancing complementary national reforms in both real and financial sectors. - Reforms aimed at innovation, scale, and resilience should: - Enhance energy security and lower exposure to volatile gas and coal prices. - Reduce fragmentation in electricity markets to lower wholesale electricity prices and price volatility, and to strengthen incentives for investment in renewables. - Remove barriers in goods and services markets, increase labor mobility, and reduce capital market fragmentation to boost productivity and enable firms to scale. - Trade policy guidance: - Giving in to broad-based protectionism is cautioned against; where well-identified market failures exist, industrial policies can play a role but should be coordinated at the European level and remain consistent with international trade obligations. - Efforts to reduce dependence on critical inputs and diversify trade linkages may be warranted but involve an inherent risk-efficiency trade-off that policymakers must weigh carefully alongside fiscal costs. *INTERNATIONAL MONETARY FUND • October 2026* ### 2. Cross-Country Industrial and Residential ### 2. Cross-Country Industrial and Residential ### Electricity prices, volatility, and implications for electrification - Figure 24 documents volatility and dispersion of European electricity prices (US$ cent per kilowatt-hour, 2025) with measures of within-country and across-country dispersion for industrial and residential users. - Falling levelized costs make clean energy increasingly cost-effective in France, Germany, and Italy (Figure 25), supporting continued electrification and expansion of renewable generation. - IMF analysis (D’Arcangelo and others, forthcoming) finds that stronger cross-border interconnectivity and expanded low-carbon generation capacity can fully offset upward pressure on electricity prices stemming from rising demand and carbon pricing. - Continued expansion of sources of concentrated demand—such as data centers—will place greater pressure on the system. ### Energy-market integration and policy recommendations - Planned initiatives such as the European Commission’s 2025 Grid Package—which aims to accelerate renewables integration, clear connection queues, and improve cross-border energy independence—should be implemented without delay. - A common EU energy-system roadmap is recommended to cover generation, storage, transmission, and demand management, ensuring infrastructure investment is located where renewable resources are abundant and where demand is growing rapidly, while investing in regions most exposed to weather-related risks. - EU-level financing, clear mechanisms to share costs and gains across countries, and coordinated policy instruments are essential for coordination and avoidance of wasteful duplication.6 - A credible and predictable emissions reduction framework is needed to incentivize private investments in clean technologies. Continued implementation of the EU ETS1 and the rollout of ETS2 will help preserve clear carbon-price signals and support long-term investment decisions. - IMF analysis (Carton and others 2026) shows that if ETS1 and ETS2 carbon prices rise in line with emissions targets and part of the revenues are recycled into well-targeted green investment support, then the macroeconomic effects would remain moderate, whereas projected ETS revenues over the next decade would exceed the public investment needed for decarbonization. - Tax distortions that raise electricity prices unnecessarily should be removed: electricity excise taxes should not exceed those on fossil fuels, and a standard value-added tax rate should be maintained. 6. EU-level financing, such as the Connecting Europe facility, helps overcome coordination problems that contribute to structural underinvestment in interconnectors. Mechanisms to share costs and gains across countries align investment incentives by linking cost allocation more closely to the distribution of benefits, as under the Cross-Border Cost Allocation framework. Coordinated policy instruments help preserve system-wide efficiency and avoid wasteful duplication, such as those arising when national capacity mechanisms encourage investment in domestic backup capacity that could otherwise be provided through cross-border balancing. ### Single market, productivity gaps, and potential gains from reforms - IMF staff analysis shows that eliminating all remaining domestic policy distortions and removing the still existing cross-border obstacles to EU trade and labor mobility have the potential to raise EU productivity by about 20 percent (IMF 2025a). - Higher productivity could crowd in up to €800 billion in additional investment over a decade and increase GDP per capita by about 35 percent over time (Figure 26; Kammer, Ayerst, and Tang 2026). - Financial reforms that integrate and deepen banking and venture capital markets can raise output further and strengthen the impact of real-sector reforms. - Completing the Single Market Roadmap through the end of 2027 should be complemented by a financial system that unlocks savings and allocates capital efficiently within and across borders. - Completing the savings and investment union (SIU) by advancing the banking union, harmonizing corporate insolvency law, expanding the supply of long-term risk capital through pension and insurance reforms, and reducing barriers to cross-border equity investment could ease cross-border banking frictions and increase the availability of venture capital (Brandao-Marques and others 2026). - Establishing a voluntary 28th enterprise regime would further reduce legal fragmentation and facilitate firm scale-up across the single market by addressing a cross section of domestic and EU-level reform needs. - A comprehensive, rescue-oriented insolvency regime can have significant macroeconomic benefits by improving predictability for investors and creditors while facilitating value-preserving restructuring (Figure 27; Fotiou, Dizioli, and Garrido 2026). 7. Brandao-Marques and others (2026) consider a financial reform scenario where regulatory distances affecting cross-border banking are reduced by 30 percent, and domestic policy gaps constraining the availability of risk capital are halved. Under this scenario, European output will increase by about 4 percent. A real sector counterpart of such a scenario would be one that closes the policy gap by half, which is associated with a 15 percent output increase, instead of the 35 percent that would eventuate when all gaps are closed as in Kammer, Ayerst, and Tang (2026). Therefore, the total output gain would be 19 percent if real and financial sector reforms are implemented jointly. ### Domestic structural reform priorities and housing - IMF staff identify stronger labor market performance and human capital formation as top national reform priorities, alongside product and capital market measures to foster innovation and firm dynamism (Budina and others 2025). - IMF staff analysis finds that low housing affordability constrains labor mobility, with inadequate housing supply emerging as a prominent driver of dwelling price increases in recent years. - Policy actions to expand housing supply include releasing land for residential construction, streamlining permitting processes, and improving access to financing for developers. - Reforms should be designed with political feasibility and implementation capacity in mind: early public engagement, effective communication, learning from best performers, and smart sequencing and bundling can help strengthen outcomes. ### Barriers to firm scaling and implications for innovation - Firms face barriers that hinder scaling up and scaling down—such as overly restrictive labor market regulations and tax rules that discourage investment and growth, compounded by an incomplete single market (for example, fragmented insolvency regimes or limited availability of skilled labor locally). - IMF staff analysis (Ayerst and others, forthcoming) finds that after filing their first transformative patent, sales of firms in places with more stringent constraints on scaling up and scaling down will grow only about 60 percent as fast as those in the least-constrained locations (Figure 28). - Making it easier for firms to scale up and scale down can significantly incentivize innovation in high-growth sectors and help Europe push the productivity frontier. - Other policy interventions—such as direct R&D support to specific firms or sectors, or a broad relaxation of merger rules—should be used cautiously because they risk creating distortions that may weaken long-term productivity growth. ### CESEE: adapting policies for sustainable convergence - CESEE countries need reforms to sustain convergence to higher income levels; reforms required go beyond single-market deepening and include region-specific measures. - Recent performance benefited from EU integration, strong productivity growth, and capital accumulation (IMF 2024b), but pockets of weakness are emerging: manufacturing exports have come under pressure because of wages outstripping productivity, real effective exchange rate appreciation, lower foreign direct investment, and intensified external competition. - Current account deficits have widened as a result, to which persistent fiscal deficits may have contributed (Figure 29). - To reignite convergence, CESEE growth should rely less on external factors and cost-competitiveness and shift toward innovation and productivity growth. Policies include preserving competitiveness in existing industries through a credible institutional environment, a more skilled workforce, stronger domestic private investment, continued leverage of single market opportunities, and strategic use of EU funds (Galante and others, forthcoming). - Loose fiscal policies in some countries need recalibration toward ensuring fiscal sustainability, given rising spending pressures. - In the Baltics, labor shortages are pressing structural challenges that need to be addressed by increasing labor force participation and reducing skill mismatch. ### Western Balkans and Moldova: accession gains and policy requirements - EU accession is a transformative opportunity for the Western Balkans and Moldova, but realizing full potential will require ambitious domestic reforms (Figure 30). - Experience from previous enlargement rounds and structural model simulations shows that income levels could be about 30 percent higher within a decade of accession (Ayerst and others 2026a). - Productivity improvements account for about two-thirds of overall income gains from accession. - Sustained productivity growth requires effective implementation of the EU acquis and broad domestic reforms: stronger governance and institutions, labor market reforms, enhanced competition, and innovation policies. - Effective use of EU funding and deeper integration into the EU single market are critical. Policymakers should manage transition risks by strengthening fiscal institutions, ensuring the quality of public investment, and enhancing financial sector oversight to safeguard financial stability. *Source: INTERNATIONAL MONETARY FUND, "Choosing Growth: Reforms for Innovation, Scale, and Resilience," October 2026 (Chapter 2: Cross-Country Industrial and Residential).* ### Annex Table 1.1. Real GDP Growth ### Annex Table 1.1. Real GDP Growth ### Regional aggregates - Europe — October 2026 WEO: 1.6 2025, 1.5 2026, 1.6 2027, 1.7 2028; April 2026 WEO: 1.5 2026, 1.6 2027, 1.8 2028; Difference: 0.0 2026, 0.0 2027, -0 .1 2028 - Advanced European Economies — October 2026 WEO: 1.4 2025, 1.4 2026, 1.3 2027, 1.5 2028; April 2026 WEO: 1.2 2026, 1.3 2027, 1.5 2028; Difference: 0.2 2026, 0.0 2027, 0.0 2028 - Euro Area — October 2026 WEO: 1.2 2025, 1.1 2026, 1.2 2027, 1.3 2028; April 2026 WEO: 1.1 2026, 1.2 2027, 1.4 2028; Difference: 0.0 2026, 0.0 2027, -0 .1 2028 ### Selected Advanced European economies (October 2026 WEO; April 2026 WEO; Difference) - Austria — 0.8 2025, 0.6 2026, 0.9 2027, 1.2 2028; April: 0.7 2026, 1.0 2027, 1.3 2028; Difference: -0 .1 2026, -0 .1 2027, -0 .1 2028 - Belgium — 1.0 2025, 0.7 2026, 1.1 2027, 1.2 2028; April: 0.7 2026, 1.1 2027, 1.1 2028; Difference: 0.0 2026, 0.0 2027, 0 .1 2028 - Bulgaria — 3 .1 2025, 2.6 2026, 2.7 2027, 2.6 2028; April: 2.8 2026, 2.5 2027, 2.8 2028; Difference: -0.2 2026, 0.2 2027, -0.2 2028 - Croatia — 3.4 2025, 2.2 2026, 2.3 2027, 2.4 2028; April: 2.6 2026, 2.6 2027, 2.6 2028; Difference: -0.4 2026, -0.3 2027, -0.2 2028 - Cyprus — 3.8 2025, 2.9 2026, 3.2 2027, 3 .1 2028; April: 3.0 2026, 3.0 2027, 3.0 2028; Difference: -0 .1 2026, 0.2 2027, 0 .1 2028 - Estonia — 1.3 2025, 2.1 2026, 2.2 2027, 1.9 2028; April: 1.4 2026, 1.9 2027, 2.3 2028; Difference: 0.7 2026, 0.3 2027, -0.4 2028 - Finland — 0.8 2025, 1.7 2026, 1.4 2027, 1.2 2028; April: 1.0 2026, 1.5 2027, 1.4 2028; Difference: -0 .1 2026, -0.2 2027, 0.0 2028 - France — 0.9 2025, 0.4 2026, 0.7 2027, 1.2 2028; April: 0.9 2026, 0.9 2027, 1.2 2028; Difference: -0.5 2026, -0.2 2027, 0.0 2028 - Germany — 0.2 2025, 1.3 2026, 1.1 2027, 1.1 2028; April: 0.8 2026, 1.2 2027, 1.2 2028; Difference: 0.5 2026, -0 .1 2027, -0 .1 2028 - Greece — 2.1 2025, 1.8 2026, 1.8 2027, 1.7 2028; April: 1.8 2026, 1.7 2027, 1.8 2028; Difference: 1.6 2026, 0.0 2027, .10 .1 2028 - Ireland — 8.0 2025, -1.0 2026, 3.7 2027, 2.9 2028; April: 2.5 2026, 2.4 2027, 2.6 2028; Difference: -3.5 2026, 1.3 2027, 0.3 2028 - Italy — 0.5 2025, 0.8 2026, 0.6 2027, 0.7 2028; April: 0.5 2026, 0.5 2027, 0.8 2028; Difference: 0.3 2026, .1 2027, -0 .1 2028 - Latvia — 2.1 2025, 2.3 2026, 1.8 2027, 2.1 2028; April: 2.2 2026, 2.4 2027, 2.4 2028; Difference: 0.1 2026, -0.6 2027, -0.3 2028 - Lithuania — 2.9 2025, 2.7 2026, 2.1 2027, 2.6 2028; April: 2.9 2026, 2.2 2027, 2.6 2028; Difference: -0.2 2026, -0 .1 2027, 0.0 2028 - Luxembourg — 0.6 2025, 1.1 2026, 1.6 2027, 2.1 2028; April: 1.6 2026, 1.7 2027, 2.1 2028; Difference: -0.5 2026, -0 .1 2027, 0.0 2028 - Malta — 4.7 2025, 4.2 2026, 4.0 2027, 4.0 2028; April: 3.7 2026, 3.8 2027, 4.0 2028; Difference: 0.5 2026, 0.2 2027, 0.0 2028 - Netherlands — 1.6 2025, 1.5 2026, 1.3 2027, 1.4 2028; April: 1.2 2026, 1.4 2027, 1.4 2028; Difference: 0.3 2026, -0 .1 2027, 0.0 2028 - Portugal — 1.9 2025, 2.1 2026, 1.9 2027, 1.8 2028; April: 1.9 2026, 1.8 2027, 1.8 2028; Difference: 0.2 2026, .10.0 2027, 0.0 2028 - Slovak Republic — 0.8 2025, 0.8 2026, 1.6 2027, 2.6 2028; April: 0.6 2026, 1.6 2027, 2.6 2028; Difference: 0.2 2026, 0.0 2027, 0.0 2028 - Slovenia — 1.5 2025, 3.2 2026, 2.2 2027, 2.1 2028; April: 2.0 2026, 2.1 2027, 2.2 2028; Difference: 1.2 2026, -0 .1 2027, 0.0 2028 - Spain — 2.6 2025, 2.5 2026, 1.8 2027, 1.8 2028; April: 2.1 2026, 1.8 2027, 1.8 2028; Difference: 0.4 2026, 0.0 2027, 0.0 2028 ### Nordic economies (October 2026 WEO; April 2026 WEO; Difference) - Nordic Economies — 1.8 2025, 2.5 2026, 1.9 2027, 1.7 2028; April: 1.8 2026, 1.6 2027, 1.7 2028; Difference: 0.7 2026, 0.3 2027, 0.0 2028 - Denmark — 3.5 2025, 3.7 2026, 2.0 2027, 1.8 2028; April: 2.0 2026, 1.6 2027, 1.6 2028; Difference: 1.7 2026, 0.4 2027, 0.2 2028 - Iceland — 1.1 2025, 1.4 2026, 1.8 2027, 2.1 2028; April: 1.9 2026, 2.1 2027, 2.4 2028; Difference: -0.5 2026, -0.3 2027, -0.3 2028 - Norway — 1.1 2025, 1.5 2026, 1.3 2027, 1.1 2028; April: 1.5 2026, 1.3 2027, 1.1 2028; Difference: 0.0 2026, 0.0 2027, 0.0 2028 - Sweden — 1.4 2025, 2.5 2026, 2.2 2027, 2.1 2028; April: 2.0 2026, 1.9 2027, 2.1 2028; Difference: 0.5 2026, 0.3 2027, 0.0 2028 ### Other European advanced economies (October 2026 WEO; April 2026 WEO; Difference) - Other European Advanced Economies — 1.6 2025, 1.7 2026, 1.6 2027, 1.9 2028; April: 1.3 2026, 1.7 2027, 1.9 2028; Difference: 0.4 2026, -0 .1 2027, 0.0 2028 - Andorra — 3.9 2025, 1.9 2026, 1.7 2027, 1.7 2028; April: 2.1 2026, 1.8 2027, 1.7 2028; Difference: -0.2 2026, -0 .1 2027, 0.0 2028 - Czech Republic — 2.6 2025, 1.8 2026, 1.9 2027, 2.2 2028; April: 2.2 2026, 2.2 2027, 2.2 2028; Difference: -0.4 2026, -0.3 2027, 0 .1 2028 - Israel — 3.5 2025, 4.5 2026, 4.4 2027, 3.6 2028; April: 3.5 2026, 4.4 2027, 3.7 2028; Difference: 1.0 2026, 0.0 2027, -0 .1 2028 - San Marino — 1.5 2025, 1.3 2026, 1.0 2027, 1.2 2028; April: 1.3 2026, 1.2 2027, 1.3 2028; Difference: -0.2 2026, -0 .1 2027, 0.0 2028 - Switzerland — 1.6 2025, 1.9 2026, 1.2 2027, 1.9 2028; April: 1.3 2026, 1.3 2027, 1.8 2028; Difference: -0 .1 2026, 0 .1 2027, 0.6 2028 - United Kingdom — 1.2 2025, 1.3 2026, 1.2 2027, 1.6 2028; April: 0.8 2026, 1.3 2027, 1.6 2028; Difference: 0.5 2026, -0 .1 2027, 0.0 2028 ### Emerging European economies (October 2026 WEO; April 2026 WEO; Difference) - Emerging European Economies — 2.0 2025, 1.7 2026, 2.1 2027, 2.3 2028; April: 2.0 2026, 2.1 2027, 2.3 2028; Difference: -0.3 2026, 0.0 2027, 0.0 2028 - Central and Southeastern European EU Member States — 2.4 2025, 2.2 2026, 2.4 2027, 2.4 2028; April: 2.4 2026, 2.4 2027, 2.6 2028; Difference: -0.2 2026, 0.0 2027, -0.2 2028 - Hungary — 0.5 2025, 1.9 2026, 2.1 2027, 2.3 2028; April: 1.7 2026, 2.0 2027, 2.3 2028; Difference: 0.2 2026, 0 .1 2027, 0.0 2028 - Poland — 3.7 2025, 3.4 2026, 2.5 2027, 2.5 2028; April: 3.3 2026, 2.4 2027, 2.6 2028; Difference: 0 .1 2026, -0 .1 2027, 0.1 2028 - Romania — 0.7 2025, -0.5 2026, 2.2 2027, 2.5 2028; April: 0.7 2026, 2.5 2027, 2.7 2028; Difference: -1.2 2026, -0.3 2027, -0.2 2028 ### Eastern Europe and Southeastern non-EU (October 2026 WEO; April 2026 WEO; Difference) - Eastern Europe — 1.1 2025, 0.9 2026, 1.2 2027, 1.3 2028; April: 1.2 2026, 1.3 2027, 1.3 2028; Difference: -0.3 2026, -0 .1 2027, 0.0 2028 - Belarus — 1.3 2025, 1.9 2026, 1.2 2027, 1.1 2028; April: 1.2 2026, 1.0 2027, 1.0 2028; Difference: 0.7 2026, 0.2 2027, 0 .1 2028 - Moldova — 2.4 2025, 1.5 2026, 2.3 2027, 3.2 2028; April: 1.9 2026, 3.2 2027, 3.6 2028; Difference: -0.4 2026, -0.9 2027, -0.4 2028 - Russia — 1.0 2025, 0.9 2026, 0.9 2027, 1.0 2028; April: 1.1 2026, 1.1 2027, 1.1 2028; Difference: -0.2 2026, -0.2 2027, 0.0 2028 - Ukraine — 1.8 2025, 1.0 2026, 3.5 2027, 4.2 2028; April: 2.0 2026, 3.5 2027, 4.2 2028; Difference: -1.0 2026, 0.0 2027, 0.0 2028 - Southeastern European Non-EU Member States — 2.6 2025, 3.2 2026, 3.5 2027, 3.3 2028; April: 2.9 2026, 3.3 2027, 3.3 2028; Difference: 0.3 2026, 0.2 2027, 0.0 2028 - Albania — 3.7 2025, 3.5 2026, 3.2 2027, 3.2 2028; April: 3.4 2026, 3.2 2027, 3.2 2028; Difference: 0 .1 2026, 0.0 2027, 0.0 2028 - Bosnia and Herzegovina — 2.4 2025, 2.3 2026, 2.6 2027, 3.0 2028; April: 2.2 2026, 2.7 2027, 3.0 2028; Difference: -0 .1 2026, 0.0 2027, 0.0 2028 - Kosovo — 3.6 2025, 3.5 2026, 3.6 2027, 4.0 2028; April: 3.3 2026, 3.8 2027, 4.0 2028; Difference: -0.2 2026, 0.0 2027, 0.0 2028 - Montenegro — 2.7 2025, 3.0 2026, 2.8 2027, 3.0 2028; April: 2.8 2026, 2.7 2027, 3.2 2028; Difference: -0.2 2026, 0.2 2027, 0.1 2028 - North Macedonia — 3.5 2025, 3.5 2026, 3.2 2027, 3.0 2028; April: 3 .1 2026, 3.0 2027, 3.0 2028; Difference: 0.4 2026, 0.2 2027, 0.0 2028 - Serbia — 2.0 2025, 3.3 2026, 4.0 2027, 3.5 2028; April: 2.8 2026, 3.5 2027, 3.5 2028; Difference: 0.5 2026, 0.5 2027, 0.0 2028 - Türkiye — 3.7 2025, 2.7 2026, 3.6 2027, 4.0 2028; April: 3.4 2026, 3.5 2027, 3.8 2028; Difference: -0.7 2026, 0 .1 2027, 0.2 2028 ### Memorandum (October 2026 WEO; April 2026 WEO; Difference) - World — 3.5 2025, 3 .1 2026, 3.4 2027, 3.3 2028; April: 3 .1 2026, 3.2 2027, 3.2 2028; Difference: 0.0 2026, 0.2 2027, 0 .1 2028 - Advanced economies — 2.0 2025, 2.1 2026, 1.8 2027, 1.7 2028; April: 1.8 2026, 1.8 2027, 1.7 2028; Difference: 0.3 2026, 0.1 2027, 0.0 2028 - Emerging market and developing economies — 4.5 2025, 3.7 2026, 4.4 2027, 4.3 2028; April: 3.9 2026, 4.2 2027, 4.2 2028; Difference: -0.2 2026, 0.2 2027, 0 .1 2028 - European Union — 1.5 2025, 1.4 2026, 1.4 2027, 1.5 2028; April: 1.3 2026, 1.4 2027, 1.6 2028; Difference: -0 .1 2026, 0.0 2027, 0.0 2028 - Euro Area excl. Ireland — 1.0 2025, 1.2 2026, 1.1 2027, 1.2 2028; April: 1.0 2026, 1.2 2027, 1.3 2028; Difference: -0 .1 2026, -0 .1 2027, 0.2 2028 - Emerging and developing Europe — 2.0 2025, 1.7 2026, 2.1 2027, 2.3 2028; April: 2.0 2026, 2.1 2027, 2.3 2028; Difference: -0.3 2026, 0.0 2027, 0.0 2028 - Emerging Europe excl. Belarus, Russia, Türkiye and Ukraine — 2.5 2025, 2.3 2026, 2.5 2027, 2.6 2028; April: 2.5 2026, 2.5 2027, 2.7 2028; Difference: -0.2 2026, 0.0 2027, -0 .1 2028 - CESEE — 2.1 2025, 1.7 2026, 2.1 2027, 2.3 2028; April: 2.0 2026, 2.1 2027, 2.3 2028; Difference: -0.3 2026, 0.0 2027, 0.0 2028 - CESEE excl. Belarus, Russia, Türkiye and Ukraine — 2.4 2025, 2.2 2026, 2.4 2027, 2.5 2028; April: 2.4 2026, 2.4 2027, 2.6 2028; Difference: -0.2 2026, 0.0 2027, -0 .1 2028 - United States — 2.3 2025, 2.3 2026, 2.3 2027, 2.1 2028; April: 2.3 2026, 2.1 2027, 2.1 2028; Difference: 0.0 2026, 0.2 2027, 0.0 2028 - China — 5.0 2025, 4.5 2026, 4.0 2027, 4.0 2028; April: 4.4 2026, 4.0 2027, 4.0 2028; Difference: 0 .1 2026, 0.0 2027, 0.0 2028 --- _Source: https://www.imf.org/-/media/files/publications/reo/eur/2026/october/english/text.pdf_