Europe
October 2024
Europe’s economy is recovering, benefiting from a strong crises’ response. Yet, the recovery is falling short of its full potential. Uncertainty about persistent core inflation, policy directions, and geopolitical conflicts, is dampening the near-term outlook. In the longer term, perennially weak productivity growth—a result of limited scale and business dynamism–-amid new headwinds from fragmentation and climate change are holding back growth potential.
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April 2024
A soft landing for Europe’s economies is within reach. Securing the baseline of growth with price stability will require careful monetary policy calibration. Faster fiscal consolidation would ensure buffers are adequate to tackle future shocks, while structural fiscal reforms would help address mounting long-term expenditure pressures. Beyond the near-term recovery, raising potential growth prospects calls for efforts at both the domestic and European levels. Measures should aim to raise labor force participation, prepare the workforce for looming structural shifts, set an enabling environment for private investment, and promote innovation on a level European playing field—especially when it comes to the green transition, including through a strong commitment to carbon pricing. Greater European integration would amplify the effect of these reforms. Formulating an ambitious set of growth-enhancing reforms should be a key priority of a new EU commission.
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April 2023
Economic growth has tumbled across Europe, inflation remains too high, and financial sector risks have materialized. Taming sticky inflation while avoiding financial stress and a recession will require tighter macroeconomic policies—tailored to changing financial conditions, stronger financial regulation and supervision, and bolder supply-side reforms that heal scars from the COVID-19 and energy crises.
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October 2022
The war in Ukraine is taking a growing toll on Europe’s economies. The worsening energy crisis has depressed households’ purchasing power and raised firms’ costs, only partly offset by new government support. Central banks in the region and the world are acting more forcefully to bring high and persistent inflation down to targets, and global financial conditions have tightened. European policymakers are facing severe trade-offs and tough policy choices. A tightening macroeconomic policy stance is needed to bring down inflation, while helping vulnerable households and viable firms weather the energy crisis. But policies need to stay nimble and agile and adjust should additional shocks materialize.
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April 2022
The Russian invasion of Ukraine created a humanitarian catastrophe. In two months since the invasion, about 5 million people, mostly women and children, have fled Ukraine, and thousands have been wounded or killed. The war will also have severe economic consequences for Europe, having struck when the recovery from the pandemic was still incomplete.
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October 2021
An increasingly resilient recovery is taking hold in Europe, buttressed by gradual increases in vaccination rates and mobility. Strongly accommodative macroeconomic policies and COVID-19 support schemes have paved the way for the recovery by helping preserve employment relationships and protecting private sector balance sheets. However, uncertainty remains elevated, not least because of the risk of new infection waves and virus variants amid uneven vaccination rates across countries. It is therefore imperative to continue increasing vaccinations, notably in emerging European economies, and to strongly support international efforts to speed up vaccine access globally.
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April 2021
With new waves of COVID-19 infections hitting Europe, the recovery remains halting. However, vaccinations are progressing and thus Europe’s GDP growth is projected to rebound by 4.5 percent in 2021. The main priority is to quickly ramp up the production and administration of vaccines. At the same time, policymakers need to continue providing emergency support to households and firms. And they need to prepare measures to stimulate hiring and investment once the pandemic is under control. Such measures will foster a quicker and fuller recovery, by reducing scarring from unemployment, missed education and training, and low investment.
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