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Business and Economics > Production and Operations Management

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Cover IMF Staff Country Reports
Euro Area Policies: 2024 Annual Consultation-Press Release; Staff Report; and Statement by the Executive Director for Member Countries
International Monetary Fund. European Dept.
The 2024 Article IV Consultation explains that the euro area is recovering gradually, with a modest acceleration of growth projected for 2024, gathering further speed in 2025. Increasing real wages together with some drawdown of household savings are contributing to consumption, while the projected easing of financing conditions is supporting a recovery in investment. A modest pickup in growth is projected for 2024, strengthening further in 2025. This primarily reflects expected stronger consumption on the back of rising real wages and higher investment supported by easing financing conditions. Inflation is projected to return to target in the second half of 2025. The economy is confronting important new challenges, layered on existing ones. Beyond returning inflation to target and ensuring credible fiscal consolidation in high-debt countries, the euro area must urgently focus on enhancing innovation and productivity. Higher growth is essential for creating policy space to tackle the fiscal challenges of aging, the green transition, energy security, and defense.
Keywords:
EU institution; EU industrial; headline inflation; EU climate; two-sided inflation risk; Inflation; Labor markets; Fiscal consolidation; Europe; Global
Cover IMF Staff Country Reports
Austria: Selected Issues
International Monetary Fund. European Dept.
Selected Issues
Keywords:
C. firm dynamism; labor market issue; spending measure; productivity in Austria; economic scarring; COVID-19; Productivity; Financial statements; Labor markets; Unemployment; Europe; Global
Cover IMF Working Papers
Trade, Productivity and (Mis)allocation
Antoine Berthou
,
John Jong-Hyun Chung
,
Kalina Manova
, and
Charlotte Sandoz
We examine the gains from globalization in the presence of firm heterogeneity and potential resource misallocation. We show theoretically that without distortions, bilateral and export liberalizations increase aggregate welfare and productivity, while import liberalization has ambiguous effects. Resource misallocation can either amplify, dampen or reverse the gains from trade. Using model-consistent measures and unique new data on 14 European countries and 20 industries in 1998-2011, we empirically establish that exogenous shocks to export demand and import competition both generate large aggregate productivity gains. Guided by theory, we provide evidence consistent with these effects operating through reallocations across firms in the presence of distortions: (i) Both export and import expansion increase average firm productivity, but the former also shifts activity towards more productive firms, while the latter acts in reverse; (ii) Both export and import exposure raise the productivity threshold for survival, but this cut-off is not a sufficient statistic for aggregate productivity; (iii) Efficient institutions, factor and product markets amplify the gains from import competition but dampen those from export access.
Keywords:
WP; math display; total factor productivity; International trade; export demand; import competition; productivity; allocative efficiency; misallocation; aggregate productivity; resource misallocation; employment share; real value; productivity gain; firm productivity; Exports; Imports; Trade liberalization; Competition; Global
Cover IMF Working Papers
Productivity Growth and Value Chains in Four European Countries
Ms. Izabela Karpowicz
and
Mrs. Nujin Suphaphiphat
Advanced economies have been witnessing a pronounced slowdown of productivity growth since the global financial crisis that is accompanied in recent years by a withdrawal from trade integration processes. We study the determinants of productivity slowdown over the past two decades in four closely integrated European countries, Austria, Denmark, Germany and the Netherlands, based on firm-level data. Participation in global value chains appears to have affected productivity positively, including through its effect on TFP when facilitated by higher investment in intangible assets, a proxy for firm innovation. Other contributors to productivity growth in firms are workforce aging, access to finance, and skills mismatches.
Keywords:
WP; firm; global value chain; increase productivity; firm Innovation proxy; productivity dynamics; data availability; firm level; Labor productivity; Productivity; Total factor productivity; Capital productivity; Global value chains; Global; Europe; firms; GVC
Cover IMF Staff Country Reports
Switzerland: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper on Switzerland models the evolving behavior of the Swiss franc relative to the world’s major reserve currencies and considers possible reasons for the shifts. Economic fundamentals, including country-partners and currency of denomination of Swiss trade and finance, are likely to affect which currencies the franc co-moves with, although these factors tend to change only slowly. The behavior of the Swiss franc may have also been affected by the global financial crisis and its aftermath, as well as the shift in recent years from synchronized to divergent monetary policies by the major central banks. Identifying reserve currency blocks and the de facto behavior of currencies is an ongoing pursuit. The two dimensions of exchange regimes—the anchor currency (basket) and the degree of exchange rate flexibility—should be identified simultaneously. The implied regimes align well with Switzerland’s de facto exchange rate arrangements and monetary policy frameworks. The approach used in this paper identifies how the franc co-moves with the major reserve currencies but is agnostic about the driving forces behind these moves.
Keywords:
ISCR; CR; wage; franc; currency; SNB; monetary policy; brake rule; wage gap; gap vis-à-vis; liquidity mismatch; long-run wage-productivity relationship; SNB's FX purchase; reserve portfolio; wage Phillips curve; Currencies; Wage gap; Wages; Labor productivity; Real wages; Global; Europe; Eastern Europe
Cover Staff Discussion Notes
A Central Fiscal Stabilization Capacity for the Euro Area
Mr. Nathaniel G Arnold
,
Ms. Bergljot B Barkbu
,
H. Elif Ture
,
Hou Wang
, and
Jiaxiong Yao
This note outlines a concrete proposal for a euro area central fiscal capacity (CFC) that could help smooth both country-specific and common shocks. Specifically, it proposes a macroeconomic stabilization fund financed by annual contributions from countries that are used to build up assets in good times and make transfers to countries in bad times, as well as a borrowing capacity in case an exceptionally large shock exhausts the fund’s assets. To address moral hazard risks, transfers from the CFC—beyond a country’s own net contributions—would be conditional on compliance with the EU fiscal rules. The note also discusses several features aimed at avoiding permanent transfers between countries and making the CFC function as automatically as possible—to limit the scope for disputes over its operation—both of which are important points to make it politically acceptable.
Keywords:
SDN; moving average; Euro Area; Fiscal Integration; Macroeconomic Stabilization; CFC transfer; debt group; asset target; CFC assets; shock scenario; trend unemployment rate; aggregate CFC contribution target; CFC asset; deviation trigger; stabilization power; Unemployment rate; Fiscal rules; Return on investment; Output gap; Fiscal stabilization; Global; CFC proposal; inflation impact; usage premium; calibrating contribution; Stress testing
Cover IMF Working Papers
The Granular Origins of Macroeconomic Fluctuations in Europe
Mr. Christian H Ebeke
and
Kodjovi M. Eklou
This paper investigates the microeconomic origins of aggregate economic fluctuations in Europe. It examines the relevance of idiosyncratic shocks at the top 100 large firms (the granular shocks) in explaining aggregate macroeconomic fluctuations. The paper also assesses the strength of spillovers from large firms onto SMEs. Using firm-level data covering over 14 million firms and eight european countries (Austria, Belgium, Finland, France, Germany, Italy, Portugal and Spain), we find that: (i) 40 percent of the variance in GDP in the sample can be explained by idiosyncratic shocks at large firms; (ii) positive granular shocks at large firms spill over to domestic SMEs’ output, especially if SMEs’ balance sheets are healthy and if SMEs belong to the services and manufacturing sectors.
Keywords:
WP; productivity growth; Idiosyncratic shocks; Aggregate fluctuations; SMEs; Balance Sheets; large firm; firm size distribution; productivity shock; firms sales; Productivity; Small and medium enterprises; Labor productivity; Spillovers; Services sector; Global; Europe
Cover IMF Staff Country Reports
Austria: Austria: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper discusses structural and fiscal reforms in Austria that could increase potential output. Structural measures focused on further liberalization of professional services, and lowering of the barriers to trade and investment to increase potential output. Although Austria is among the countries with least restrictive business environment, there is a room for further improvement. The policy recommendations focus mostly on startups, professional services (legal, accounting, architecture, and engineering professions), competition in network industries, and barriers to foreign direct investment, resulting in an estimated impact of roughly 1.5 percent of GDP in the medium term.
Keywords:
ISCR; CR; Austria; bank; economic activity; credit growth; TFP growth; return on equity; banking system; OECD indicator; bank equity price index; output effect; Credit; Public investment spending; Total factor productivity; Bank credit; Potential output; Europe; Global
Cover IMF Staff Country Reports
Euro Area Policies: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper discusses the impact of workforce aging on productivity in the euro area. The euro area population has aged considerably over the past few decades, and the process is expected to accelerate in the years ahead. At the same time, labor productivity growth in the euro area has been sluggish, posing risks to long-term growth prospects. It is estimated that workforce aging could significantly retard total factor productivity (TFP) growth over the medium to long term. Given current demographic projections from the Organisation for Economic Co-operation and Development, the aging of the workforce in the euro area could lower TFP growth by about 0.2 percentage points each year between 2014 and 2035. Appropriate policies can, however, mitigate the adverse effects of aging.
Keywords:
ISCR; CR; euro; rate; Area budget; Euro area policy; IMF staff calculation; deposit rate; euro area treasury; Aging; Deposit rates; Total factor productivity; Labor force; Central bank policy rate; Global; Europe
Cover IMF Working Papers
Youth Unemployment in Advanced Europe: Okun’s Law and Beyond
Angana Banerji
,
Ms. Huidan Huidan Lin
, and
Mr. Sergejs Saksonovs
The crisis has intensified what was previously a chronic unemployment problem in Europe; youth unemployment is now at unprecedented highs in some European countries. This paper assesses the main drivers of youth unemployment in Europe. It finds that much of the increase in youth unemployment rates during the crisis can be explained by output dynamics and the greater sensitivity of youth unemployment to economic activity than adult unemployment. Labor market institutions also play a significant role in explaining the persistently high levels of youth unemployment, especially the tax wedge, minimum wages relative to the median wage, spending on active labor market policies, the opportunity cost of working (measured by the unemployment benefits), vocational training, and labor market duality. This suggests that policies to address youth unemployment should be comprehensive and country-specific, focused on reviving growth and advancing labor market reforms.
Keywords:
WP; business cycle; product market; Youth employment; youth unemployment; Okun’s law; labor market factors; labor market feature; labor market factor; labor market outcome; labor market duality; replacement ratio; youth employment condition; product market feature; labor market variable; documents labor market dynamics; paper documents labor market dynamics; replacement rate; Labor markets; Unemployment rate; Unemployment; Employment; Output gap; Global; Europe