- International Monetary Fund. European Dept.
- Published Date:
- November 2017
World Economic and Financial Surveys
Regional Economic Outlook
Europe Hitting Its Stride
©2017 International Monetary Fund
Names: Decressin, Jörg. | International Monetary Fund. European Department. | International Monetary Fund.
Title: Europe : Europe hitting its stride.
Other titles: Europe hitting its stride. | Regional economic outlook. | World economic and financial surveys.
Description: [Washington, DC] : International Monetary Fund, 2017. | Regional economic issues | World economic and financial surveys | Nov 2017. | Prepared by the staff of the IMF’s European Department under the general guidance of Jörg Decressin. | Includes bibliographical references.
Identifiers: ISBN 9781484319611 (paper)
Subjects: LCSH: Economic development—Europe. | Economic forecasting—Europe. | Judicial process—Europe. | Banks and banking—Europe.
Classification: LCC HC240.E87 2017
ISBN: 978-1-48431-961-1 (Paper)
ISBN: 978-1-48432-661-9 (Web PDF)
Please send orders to:
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The November 2017 Regional Economic Outlook for Europe was prepared by a staff of the IMF’s European Department under the general guidance of Jörg Decressin. Chapter 1 was prepared by a staff team including Cristina Batog, Vizhdan Boranova, Raju Huidrom, Sylwia Nowak, Faezeh Raei, and Yan Sun, and was led by Emil Stavrev. Chapter 2 was prepared by a staff team including Vizhdan Boranova, Raju Huidrom, Mariusz Jarmuzek, Martin Petri, Faezeh Raei, Tiberiu Scutaru, Ara Stepanyan, and Svetlana Vtyurina, and was led by Laura Papi. Chapter 3 was prepared by a staff team consisting of Ezequiel Cabezon, Dilyana Dimova, Patrick Gitton, Haonan Qu, Alaina Rhee, Ruud Vermeulen, and Jason Weiss, and was led by Bas Bakker and Jacques Miniane. The European Department country teams provided useful feedback to the report.
In addition, Georgia Babici, Nadeem Ilahi, Ricardo Llaudes, Pamela Madrid Angers, Francisco Parodi, Brett Rayner, Jason Weiss, and Ruifeng Zhang provided inputs to Chapter 2. The chapter benefited from discussions during the Croatia National Bank-IMF co-sponsored conference on the Role of Governance and Institutions held in Dubrovnik, Croatia, in July 2017 and the exchange of views with the Central, Eastern, and Southeastern European authorities during the IMF/World Bank October 2017 Annual Meetings in Washington, DC and their subsequent comments. Many colleagues from the Council of Europe, the European Commission, the European Bank for Reconstruction and Development, the World Bank, and the Fund provided helpful comments and suggestions. Chapter 3 benefited from the data provided by non-EU Western Balkan country teams and discussions with the non-EU Western Balkan authorities during the 2017 Annual Meetings.
Administrative support was provided by Gilda Ordoñez-Baric. Colleagues of the Communications Department Marjorie Henriquez, Wiktor Krzyzanowski, David Pedroza, and Rhoda Weeks provided invaluable support, and Linda Long coordinated editing and production, with editing help from David Einhorn and Lucy Morales. Heidi Grauel performed layout services.
Approved by Poul M. Thomsen.
The following abbreviations are used:ALB
Bosnia and HerzegovinaBIS
Bank for International SettlementsBLR
Central Bank of KosovoCE
Central and Eastern EuropeCEPEJ
European Commission for the Efficiency of JusticeCESEE
Central, Eastern, and Southeastern EuropeCHE
Commonwealth of Independent StatesCoE
Council of EuropeCSO
Civil society organizationCVM
Cooperation and Verification MechanismCYP
European Bank for Reconstruction and DevelopmentEC
European Central BankEFF
Extended Fund FacilityEIB
European Investment BankEM
Emerging Markets Bond Index GlobalEPFR
Emerging Portfolio Fund ResearchESP
Economic and Monetary UnionFBiH
Federation of Bosnia and HerzegovinaFDI
Foreign direct investmentFIN
Financial System Stability AssessmentFSI
Financial Soundness IndicatorsFX
Global Competitiveness IndexGDP
Gross domestic productGFDD
Global Financial Development DatabaseGFSR
Global Financial Stability ReportGMM
Generalized Method of MomentsGRC
Group of States against CorruptionHICP
Harmonized Index of Consumer PricesHRV
International Country Risk GuideIFS
International Financial StatisticsIMF
International Monetary FundISL
Justice System Reform StrategyLatam
Monetary and Financial StatisticsMKD
Former Yugoslav Republic of MacedoniaMLT
National Anti-corruption Bureau of UkraineNDL
National Salvation FrontOECD
Organisation for Economic Co-operation and DevelopmentOFC
Other financial corporationsOHR
Office of the High RepresentativeOSCE
Organization for Security and Co-operation in EuropeOSI
Open Society InstitutePEA
Private Enforcement AgentPMI
Purchasing Managers IndexPPP
Purchasing power parityPOL
Regional Economic IssuesROU
Stabilization and Association ProcessSCM
Superior Council of the MagistracySJC
State Judicial CouncilSEE
Southeastern European EU member statesSEE-non-EU
Southeastern European non-EU member statesSMR
Total factor productivityTPI
United States Agency for International DevelopmentV-Dem
Varieties of Democracy InstituteWB
World Development IndicatorsWDR
World Development ReportWEF
World Economic ForumWEO
World Economic OutlookWGI
Worldwide Governance Indicators
Regional Economic Outlook
Europe: Country Groups
Note: Country weights are based on 2016 GDP in purchasing-power-parity terms. The country groups are color coded, and the weights refer to the respective group. EU = European Union. The boundaries, colors, denominations, and any other information shown on the maps do not imply, on the part of the International Monetary Fund, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries. In this report, statistical data on Crimea and the City of Sevastopol are included as part of the data for Russia.
Europe: Country Groups and Weights (2016)
Note: Country weights are based on 2016 GDP in purchasing-power-parity terms. The country groups are color coded, and the weights refer to the respective group.
|Europe’s strengthening and broadening recovery …||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 point 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 market European economies are now seeing robust wage growth. In many parts of Europe, however, wage growth is sluggish despite falling unemployment.|
|… is contributing significantly to global growth.|
|Risks are more balanced now, but tilted to the downside in the medium term.||Risks appear more balanced over the near term, but are still tilted to the downside over the medium term. The recovery may be stronger than projected in the short run. But the sustainability of the rebound remains in question. Over the longer term, adverse demographic trends and subdued productivity are likely to hold back growth. The outlook is also subject to several important domestic and external downside risks.|
|Policymakers should take advantage of the recovery.||Policymakers should take advantage of the improved prospects to rebuild fiscal buffers and enhance the economy’s capacity to grow and absorb shocks. Many advanced and market emerging economies need to reduce still-elevated fiscal deficits in a growth-friendly way. This task is particularly important for those with high public debt, as interest rates will likely rise over time. For countries with stronger fiscal positions, available space should be used to lift growth potential and support structural reforms. For now, monetary policy can stay accommodative in most of Europe, given subdued inflation pressures. But where wages have accelerated, central banks should be ready to gradually withdraw stimulus to keep inflation expectations firmly anchored.|
|Reduce fiscal deficits where debt is high and support long-term growth where fiscal positions are strong.|
|Keep monetary policy accommodative in most countries.|
|Structural policies need to reinvigorate convergence, which has slowed since the crisis, and increase growth potential. Priorities differ across countries.|
|Advance structural reforms to raise productivity and deal with crisis legacies.||For many advanced economies, faster progress on structural reforms is needed to raise productivity growth, for example, by making product markets more competitive and improving labor markets as well as education and training. Regarding crisis legacies, cleaning up the balance sheets of weak banks remains a priority.|
More needs to be done to strengthen the European Union, notably the resilience of the euro area to shocks. This requires completing the banking and capital markets unions and building a euro area fiscal capacity to provide a macroeconomic stabilization mechanism. In parallel, action is needed to resolve banking sector legacies and strictly implement the common fiscal rules.
In emerging market economies, the business environment should be further improved. After a period of rapid catch-up, countries in the region have generally seen a significant slowdown in convergence with their more advanced peers in Europe. To reaccelerate convergence, the focus should be on the next generation of reforms, especially reforms of institutions and governance.
|Institutions and governance are key for productivity and inclusive growth.||Institutions are key for growth, and the legal framework is a critical institution and a vital element of the business environment. Strong institutions are conducive to a level playing field that promotes competition, help retain and attract skilled people, and ensure that growth is inclusive and sustainable. Based on the experience of Central, Eastern, and Southeastern Europe in the past 25 years, Chapter 2 offers some insights on how countries could improve the effectiveness of their judiciary. Much progress was achieved, but setbacks also happened. A more equal distribution of resources and opportunities, stronger state capacity, and greater transparency resulted in more independent, impartial, and efficient justice systems. The European Union and the Council of Europe helped catalyze reforms, but their durability depended more on domestic factors. Moving forward, reforms should focus on strong competition policies, lower trade and entry barriers, and redistributive fiscal policies that expand opportunities. Public officials need to be selected and promoted strictly on merit. Besides guaranteeing freedom of information, transparency can be enhanced by providing information on government performance, the use of public resources, financial interests, and ownership structures.|
|Improving resource distribution, state capacity, and transparency fosters more effective justice systems.|
|Reducing high NPLs via supervisory action, enhanced bankruptcy and insolvency regimes, and speeding up court procedures will help boost credit and growth in the Western Balkans.||Chapter 3 discusses the specific banking challenges facing the Western Balkan economies. In many ways, banks in this region 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. Policymakers should act on several fronts. Nonperforming loans can be reduced and profitability increased through asset quality reviews and supervisory action plans. Funding bases can be enhanced through better communication with parent banks and home supervisors and by diversifying funding sources. Addressing weak bankruptcy and insolvency regimes, improving cadastral systems, and speeding up slow court procedures should help ease the structural impediments to credit growth.|