Regional Economic Outlook: Europe Hitting Its Stride

Europe, November 6, 2017

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The European recovery is strengthening and broadening appreciably.
Real GDP growth is projected at 2.4 percent in 2017, up from 1.7 percent in 2016, before easing to 2.1 percent in 2018.
These are large upward revisions—0.5 and 0.2 percentage points for 2017 and 2018, respectively—relative to the April World Economic Outlook.
The European recovery is spilling over to the rest of the world, contributing significantly to global growth.
In a few advanced and many emerging economies, unemployment rates have returned to precrisis levels.
Most emerging European economies are now seeing robust wage growth. In many parts of Europe, however, wage growth is sluggish despite falling unemployment.

Growth is strengthening and broadening across Europe, driven by buoyant domestic demand.
Following a pickup in economic activity in the second half of 2016, the European economy accelerated further in the first half of 2017, with growth outcomes surprising on the upside in most countries.
In advanced Europe, growth is running about 2 percent on average, with some economies seeing appreciably higher rates.
All euro area countries are growing, and the dispersion of growth rates is the lowest in nearly two decades.
The Nordic economies and other advanced European economies are seeing similarly strong domestic demand.
In the United Kingdom, weakness in the pound has led to a squeeze of real incomes and some slowdown in demand.
In emerging Europe, growth increased to about 3 percent in the first half of 2017, up from 1.5 percent in 2016.
This improvement has been helped by a rebound from recession in Russia and a strong, policy-assisted pickup in activity in Turkey, following a dip related to the failed coup attempt.
Several economies, especially those that are EU members, are seeing growth much faster than 3 percent.
In these economies, private consumption is expanding rapidly, as low unemployment and labor shortages have pushed up wages and boosted household confidence; investment is also strengthening.

Based on the experience of Central, Eastern, and Southeastern Europe in the past 25 years, the chapter offers insights on how countries could improve the effectiveness of their judiciary.
Much progress was achieved, but setbacks also happened.
Factors associated with more independent, impartial, and efficient justice systems included:
- a more equal distribution of resources and opportunities,
- stronger state capacity,
- greater transparency.
The EU and the Council of Europe helped catalyze reforms, but their durability depended more on domestic factors.
Recommended focal areas for reforms:
- strong competition policies,
- lower trade and entry barriers,
- redistributive fiscal policies that expand opportunities.
Public sector recommendations:
- public officials need to be selected and promoted strictly on merit,
- guarantee freedom of information,
- enhance transparency by providing information on government performance, the use of public resources, financial interests, and ownership structures.

Banks in the Western Balkan economies are still reeling from the effects of a boom and bust credit cycle; this legacy is constraining credit growth at a time when it is most needed.
In most countries in the region, credit-to-GDP ratios are still below their potential and show little sign of improvement.
Policy recommendations to revive credit provision and banking sector health:
- reduce nonperforming loans and increase profitability through asset quality reviews and supervisory action plans;
- enhance funding bases through better communication with parent banks and home supervisors and by diversifying funding sources;
- address weak bankruptcy and insolvency regimes;
- improve cadastral systems;
- speed up slow court procedures to ease structural impediments to credit growth.

Regional Economic Outlook: Europe Hitting Its Stride — November 2017

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eur-reo-infographic
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