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International Monetary Fund. European Dept.
This 2020 Article IV Consultation with Italy reflects discussions with the Italian authorities in January 2020 and is based on the information available as of January 28, 2020. It focuses on Italy’s medium-term challenges and policy priorities and was prepared prior to the outbreak of COVID-19 in Italy. It, therefore, does not cover the outbreak or the related policy response, which has since become the overarching near-term priority. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring this health crisis and will continue to work on assessing its impact and the related policy response in Italy and globally. The overarching challenges are to raise growth and enhance resilience. The IMF staff projects growth in Italy to be the lowest in the European Union over the next five years. High public debt remains a key source of vulnerability. Substantial progress has been made in strengthening bank balance sheets, but important weaknesses remain. In order to durably raise growth and reduce vulnerabilities, Italy needs faster potential growth and medium-term fiscal consolidation.
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.

KEY ISSUES Context. After several years of near-stagnation, France’s economy is recovering, supported by an accommodative external environment, in particular lower oil prices, a depreciated euro, and low interest rates. However, structural rigidities continue to weigh on France’s medium-term growth potential, estimated to average just 1.2 percent, despite steady labor force growth. Policies. The fiscal strategy has rightly shifted to expenditure-based consolidation, but nominal spending containment has not yielded the intended savings in a low growth and inflation environment. Important progress has recently been made on structural reforms, notably by reducing the labor tax wedge and advancing on supply-side reforms. Further efforts are needed to address high unemployment, growth bottlenecks, and record-high public spending. Spending-based fiscal consolidation. To ensure that medium-term fiscal objectives are met, general government primary spending should be kept flat in real terms, starting in 2016. This would deliver structural adjustment of ½ percent of GDP per year, and place public debt on a downward trajectory by 2017. Spending containment should shift to higher quality structural measures based on broad-based expenditure reviews at all levels of government—notably staffing reform, institutional streamlining and tighter budget constraints for local governments, better targeting of social benefits, and a further increase in the effective retirement age. Combating unemployment. Building on recent reforms, broad-based efforts are needed to reduce the high level of structural unemployment and accelerate job creation. Flexibility for social partners to agree at firm level on hours and wages should be expanded. Annual increases in the minimum wage should be limited to inflation as long as unemployment remains high. Job search incentives should be strengthened for recipients of unemployment and welfare benefits. Education and training resources should be better targeted to the youth and the unemployed. Removing growth bottlenecks. The recent momentum on product market reforms should be maintained. Further removing barriers to competition in services would help provide better incentives for innovation and productivity growth. Disincentives for firms to grow beyond certain employee thresholds should be reduced and the process for cutting red tape be made more effective. Further efforts are also needed to alleviate constraints on the supply of affordable housing. Financial sector. The financial sector should continue to adapt to a changing macroeconomic and regulatory environment. The guaranteed interest rates on regulated savings deposits should be reduced, and tax incentives for savings and insurance products reviewed.

International Monetary Fund. European Dept.

This 2013 Article IV Consultation highlights that Germany’s economic rebound of 2010–11 gave way to weakening momentum during the course of 2012. Although exports to non-European trading partners began to recover by mid-2012, in line with improved prospects in the United States and emerging economies, exports to the rest of the euro area continued to decline as the recession in the region continued. Consumption grew robustly as German unemployment remained near post-reunification lows. The outlook for the remainder of 2013 and 2014 is heavily dependent on a gradual recovery in the rest of the euro area and a sustained reduction in uncertainty.

International Monetary Fund. Western Hemisphere Dept.

This Selected Issues paper on United States 2012 Article IV Consultation discusses rebound of manufacturing production. The U.S. share in global manufacturing production declined through most of the past three decades, but it has stabilized since the Great Recession. It currently represents about 20 percent of global manufacturing value added. Interestingly, after a sharp increase during most of the previous decade, China’s share in global manufacturing has also stabilized since the Great Recession, at a level similar to that of the United States. The notion of a manufacturing renaissance has been fuelled partly by the rebound in production since the end of the Great Recession.

International Monetary Fund. European Dept.
Denmark’s public expenditure as a share of GDP is the highest in the OECD. The main difference between Denmark and the median OECD country is the larger amount of social protection expenditure. The public health expenditure of Denmark is the second highest in the OECD. Following years of strong public capital accumulation in facilities as well as in training, education, and research, Denmark’s expenditure on public investment is now low. The composition of Denmark’s expenditures is broadly in line with the high expenditure countries.
International Monetary Fund. European Dept.
Mounting funding pressures has tipped Portugal into an acute economic crisis in 2011. The roots of the crisis could be traced to Portugal’s failure to adapt to the rigors of monetary union. With economic institutions, policies, and incentives ill-adapted to the opportunities, Portugal’s external stability risks also rose gradually. However, the current account has improved substantially with financial imbalances being corrected across private and public sectors. Fiscal adjustment also made substantial progress, while structural reforms have been progressing.