## Regional Economic Outlook: Europe _Europe, November 6, 2019_ ## Source details **Canonical URL:** [Regional Economic Outlook: Europe](https://www.imf.org/en/publications/reo/eu/issues/2019/10/24/reo-eur-1119) ## Other formats - [Markdown version](/en/publications/reo/eu/issues/2019/10/24/reo-eur-1119/index.md) - [Structured JSON version](/en/publications/reo/eu/issues/2019/10/24/reo-eur-1119/index.json) - [Bundle manifest](/en/publications/reo/eu/issues/2019/10/24/reo-eur-1119/bundle-manifest.json) ## Bibliographic details - Published: November 6, 2019 - Series: Europe --- ### Economic outlook and recent developments - Economic activity in Europe has slowed on the back of weakness in trade and manufacturing; for most of the region, the slowdown remains externally driven. - Services and domestic consumption have been buoyant but are tightly linked to labor market conditions, which, despite some easing, remain robust. - Expansionary fiscal policy in many countries and looser financial conditions have supported domestic demand. - Growth projections: - 2018 growth: 2.3 percent - 2019 projected growth: 1.4 percent (decline from 2.3 percent in 2018) - 2020 projected growth: 1.8 percent (modest recovery as global trade is expected to pick up and some economies recover from past stresses) - The 2019 projection represents the lowest growth rate since 2013. - Regional revisions (2019): - Advanced Europe growth revised down by 0.1 percentage point to 1.3 percent. - Emerging Europe growth revised up by 0.5 percentage point to 1.8 percent. ### Downside risks and scenarios - Key near-term risk: a no-deal Brexit, which could have a sizeable negative impact on economies in the region. - Other downside risks: - Intensification of trade tensions and related uncertainty, dampening investment. - Weakness in trade and manufacturing spreading to other sectors—notably services—faster and to a greater extent than currently envisaged. - Abrupt declines in risk appetite and financial vulnerabilities. - Re-emergence of deflationary pressures in advanced economies. - Geopolitical risks. - Given elevated downside risks and limited scope for monetary policy action, contingency plans should be at the ready; a synchronized fiscal response could become suitable if risks materialize, albeit appropriately differentiated across countries. ### Monetary policy, inflation, and financial stability - Subdued inflationary pressures and slowing economic activity in many European countries call for monetary policy to remain accommodative. - Extending loose monetary policy for longer calls for heightened monitoring of financial sector vulnerabilities—such as rising house prices—and active use of macroprudential measures as needed. ### Fiscal policy guidance and structural reforms - With unemployment rates projected to remain close to or below levels reached during the pre-crisis boom, fiscal stances should generally remain guided by medium-term objectives. - Overall fiscal balances should be allowed to absorb cyclical fluctuations in activity. - Policy prescriptions: - Countries with ample fiscal space should take measures to boost potential output. - Countries with elevated debt and deficit levels should generally proceed with fiscal consolidation. - Contingency plans for stimulus should be ready in case of a sharper downturn. - Reinvigorating structural reforms remains vital to raise potential output and address long-term challenges, including: - Raising labor force participation. - Enhancing human capital and infrastructure. - Strengthening governance. ### Wages, inflation, and passthrough (Chapter 2 findings) - Observation: Wages have been rising faster than productivity in many European countries, yet underlying consumer price pressures remain limited. - Key findings: - Historically, wage growth has been an important determinant of price developments in Europe; wage growth leads to higher inflation. - The impact of wage growth on inflation has weakened since 2009. - The wage-to-price passthrough is significantly lower when: - Inflation expectations are subdued. - Firms face greater competitive pressures. - Corporate profitability is robust. - Implication: The recent pickup in wage growth is likely to have a more muted impact on inflation than in the past. *Regional Economic Outlook: Europe, November 2019* --- ## Content in this bundle - **Executive Summary** - [Executive Summary (Markdown version)](/-/media/files/publications/reo/eur/2019/november/czech/execsum.pdf.md){rel="alternate" type="text/markdown"} - [Executive Summary (PDF)](/-/media/files/publications/reo/eur/2019/november/czech/execsum.pdf){rel="external" type="application/pdf"} - **Chapter 1** - [Chapter 1 (Markdown version)](/-/media/files/publications/reo/eur/2019/november/english/ch1.pdf.md){rel="alternate" type="text/markdown"} - [Chapter 1 (PDF)](/-/media/files/publications/reo/eur/2019/november/english/ch1.pdf){rel="external" type="application/pdf"} - **Chapter 2** - [Chapter 2 (Markdown version)](/-/media/files/publications/reo/eur/2019/november/english/ch2.pdf.md){rel="alternate" type="text/markdown"} - [Chapter 2 (PDF)](/-/media/files/publications/reo/eur/2019/november/english/ch2.pdf){rel="external" type="application/pdf"} - **Executive Summary** - [Executive Summary (Markdown version)](/-/media/files/publications/reo/eur/2019/november/english/execsum.pdf.md){rel="alternate" type="text/markdown"} - [Executive Summary (PDF)](/-/media/files/publications/reo/eur/2019/november/english/execsum.pdf){rel="external" type="application/pdf"} - **Online Annex 2.1 Empirical Methodologies Using Aggregate Data** - [Online Annex 2.1 Empirical Methodologies Using Aggregate Data (Markdown version)](/-/media/files/publications/reo/eur/2019/november/english/onlineannex21.pdf.md){rel="alternate" type="text/markdown"} - [Online Annex 2.1 Empirical Methodologies Using Aggregate Data (PDF)](/-/media/files/publications/reo/eur/2019/november/english/onlineannex21.pdf){rel="external" type="application/pdf"} - **The European Regional Economic Outlook in the Global Context** - [The European Regional Economic Outlook in the Global Context (Markdown version)](/-/media/files/publications/reo/eur/2019/november/english/reo-launch-fall-2019-final-print.pdf.md){rel="alternate" type="text/markdown"} - [The European Regional Economic Outlook in the Global Context (PDF)](/-/media/files/publications/reo/eur/2019/november/english/reo-launch-fall-2019-final-print.pdf){rel="external" type="application/pdf"} - **Full Report** - [Full Report (Markdown version)](/-/media/files/publications/reo/eur/2019/november/english/text.pdf.md){rel="alternate" type="text/markdown"} - [Full Report (PDF)](/-/media/files/publications/reo/eur/2019/november/english/text.pdf){rel="external" type="application/pdf"} --- ## References - [https://www.imf.org/en/News/Articles/2019/11/05/na110619-europe-facing-spillovers-from-trade-and-manufacturing](https://www.imf.org/en/News/Articles/2019/11/05/na110619-europe-facing-spillovers-from-trade-and-manufacturing) - [Europe’s Wage-Price Puzzle](https://blogs.imf.org/2019/11/11/europes-wage-price-puzzle/) - [Sign up to receive free e-mail notices when new series and/or country items are posted on the IMF website.](https://www.imf.org/en/email-subscription/index) - [Modify your profile](https://www.imf.org/en/email-subscription/login) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/publications/reo/eu/issues/2019/10/24/reo-eur-1119_