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International Monetary Fund. European Dept.
This Selected Issues paper explores the links between wage policies, non-wage cost developments, and competitiveness. A series of program-era policies helped to partially reverse this trend, including labor market policies that cushioned the effect of the crisis on employment and brought unit labor costs broadly in line with trading partners. However, the resulting more competitive wage structure only partly translated into price adjustments due to product market rigidities (with firms retaining some profit margin) and rising non-wage cost factors (e.g., taxes and financing costs). This incomplete internal devaluation and subsequent low productivity gains reinforce the view that Greece has further to go to address its external imbalances. However, labor policy reversals following program exit in August 2018 threaten this objective. The paper shows that Greece must preserve its labor cost competitiveness while increasing efforts to facilitate price adjustment in product markets and reduce non-wage costs.
International Monetary Fund. European Dept.


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. However, some signs of softer domestic demand have started to appear, especially in investment. Services and domestic consumption have been buoyant so far, but their resilience is tightly linked to labor market conditions, which, despite some easing, remain robust. Expansionary fiscal policy in many countries, and looser financial conditions, have also supported domestic demand. On balance, Europe’ s growth is projected to decline. A modest recovery is forecast for 2020 as global trade is expected to pick up and some economies recover from past stresses. This projection, broadly unchanged from the April 2019 World Economic Outlook, masks significant differences between advanced and emerging Europe. Growth in advanced Europe has been revised down, while growth in emerging Europe has been revised up. Amid high uncertainty, risks remain to the downside, with a no-deal Brexit the key risk in the near term. An intensification of trade tensions and related uncertainty could also dampen investment. More broadly, the weakness in trade and manufacturing could spread to other sectors—notably services—faster and to a greater extent than currently envisaged. Other risks stem from abrupt declines in risk appetite, financial vulnerabilities, the re-emergence of deflationary pressures in advanced economies, and geopolitics.

International Monetary Fund. European Dept.
This Selected Issues papers provide details of the sources and uses of the non-financial corporation saving and highlights the role of multinational corporations (MNCs). The paper also discusses the implications to the external sector assessment and policy recommendations. The large Dutch international investment position reflects its status as an international corporate center. The study shows that large trade surpluses and small primary income balances are consistent with the dominance of MNCs in the Netherlands’ external positions. Separating MNCs’ activities from the Dutch current account for the external sector assessment is expected to help identify underlying policy distortions. Separating MNCs’ activities would help identify imbalances of other economic sectors. The small and medium enterprises are stagnant and remain financially constrained. Small household net saving hides the fact that households are still highly leveraged, and their consumption constrained by a stagnating disposable income. Therefore, improving statistics and separating MNCs’ activities from both internal and external accounts would help identify domestic policy distortions and address imbalances effectively.
International Monetary Fund. Middle East and Central Asia Dept.

Morocco: Selected Issues