## Europe’s Economic Outlook

_IMF Blog, April 11, 2014_

## Source details

**Canonical URL:** [Europe’s Economic Outlook](https://www.imf.org/en/blogs/articles/2014/04/11/europes-economic-outlook)

## Other formats

- [Markdown version](/en/blogs/articles/2014/04/11/europes-economic-outlook/index.md)
- [Structured JSON version](/en/blogs/articles/2014/04/11/europes-economic-outlook/index.json)
- [Bundle manifest](/en/blogs/articles/2014/04/11/europes-economic-outlook/bundle-manifest.json)

## Bibliographic details
- Authors: Reza Moghadam
- Published: April 11, 2014

---

### Economic growth
- Economic growth across Europe is slowly picking up.
- The recovery is still modest; measures to boost economic growth and create jobs are important.

### Western Europe: picking up the pace
- The recovery projected last October for the euro area has solidified.
- Revised forecasts: the 2014 forecast for the euro area is up from 1 percent last October to 1.2 percent now.
- Important upgrades in countries like Spain.
- Revisions reflect:
  - stronger data flow on the back of past policy actions,
  - the revival of investor confidence,
  - the waning drag from fiscal consolidation.
- Positive impact on program countries: improving economies, lower spreads, and evidence of market access.
- UK growth: almost 3 percent is expected for 2014.
- Remaining headwinds in the euro area:
  - debt overhangs in firms and households,
  - fragmented financial markets,
  - policy uncertainty.
- Banking Union steps highlighted as important:
  - the single supervisor,
  - the asset quality review,
  - stress tests — important to ensuring the adequacy of bank capital and market confidence.
- Concern about “lowflation”: a large and persistent undershoot relative to the ECB’s medium-term inflation target of 2 percent.
  - Persistently low inflation puts pressure on debtors, real lending rates, relative price adjustment and jobs.
  - The ECB is paying attention and is considering further action, including unconventional policies within its mandate.
- Structural reforms emphasized for reviving longer-term growth after several years of under-investment and unemployment.
  - Referenced book: Jobs and Growth: Supporting the European Recovery.
  - Three medium-term priorities from the book:
    - reducing high levels of public and private debt;
    - implementing product and labor market reforms;
    - taking advantage of new growth opportunities through innovation and further integration into global supply chains.

### Emerging Europe: strengthening policies
- Growth in most of Central, Eastern and Southeastern Europe is recovering in the wake of euro area recovery.
- Region-wide growth will be held back — marked down since last October — by:
  - the expected contraction in Ukraine,
  - slowdowns in Russia and Turkey.
- External funding conditions have become more challenging.
  - Capital flows into the region had started to reverse, with portfolio flows turning negative in late 2013.
  - This comes on top of ongoing bank deleveraging the region has faced.
- Near-term effect: these forces will offset—perhaps even more than offset—the tailwind from Euro Area recovery.
- Countries with stronger policy frameworks and fundamentals have been less hurt by the reversal in capital flows.
- Policy guidance:
  - those with exchange rate and monetary policy flexibility should continue to use it as the first line of defense against volatility;
  - all countries, especially those with weaker fundamentals, need to address legacy issues and problems exposed by the crisis:
    - structural weaknesses that hold back growth and keep unemployment high;
    - non-performing loans that hamstring credit;
    - exhausted fiscal buffers.

### Ukraine
- Ukraine faces a confluence of a geo-political crisis and an economic one.
- Authorities are taking unprecedented action to tackle immediate and chronic problems, including actions to:
  - ensure exchange rate flexibility and competitiveness;
  - stabilize the financial system and confidence in banks;
  - gradually reduce the fiscal deficit;
  - adjust energy prices from far-below-world levels (with safeguards for the poor);
  - implement wider reforms to tackle corruption, governance and the business climate.
- Remaining tasks: finalize some actions and ensure that the program is financed.
- If all goes well, expectation is that the IMF Board will consider the program in late April/early May.

*Source: Europe’s Economic Outlook — Reza Moghadam, April 11, 2014.*

---


## References

- [lowflation](http://blogs.imf.org/2014/03/04/euro-area-deflation-versus-lowflation/)
- [Jobs and Growth: Supporting the European Recovery](http://www.imf.org/external/np/seminars/eng/2014/EURbook/index.htm)
- [webcast](http://www.imf.org/external/mmedia/view.aspx?vid=3457465978001)

_Source: https://www.imf.org/en/blogs/articles/2014/04/11/europes-economic-outlook_