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Business and Economics > Production and Operations Management

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Cover Regional Economic Outlook, Europe, October 2024
Regional Economic Outlook, Europe, October 2024
A Recovery Short of Europe’s Full Potential
International Monetary Fund. European Dept.

Abstract

Europe’s economy is recovering, benefiting from a strong crises’ response. Yet, the recovery is falling short of its full potential. Uncertainty about persistent core inflation, policy directions, and geopolitical conflicts is dampening the near-term outlook. In the longer term, perennially weak productivity growth—a result of limited scale and business dynamism–-amid new headwinds from fragmentation and climate change are holding back growth potential. Steady macro policies are needed to navigate an uncertain environment. This requires transitioning to a neutral monetary policy stance and reducing fiscal deficits without jeopardizing the recovery. Policymakers also need to tackle barriers to higher potential growth. A larger and more integrated single market for goods, services, and capital will incentivize investment, innovation, and generate scale benefits. Deepening European integration will also strengthen economic resilience by insulating businesses and labor markets from global fragmentation pressures. These are formidable policy challenges, but now is the time to bring Europe to its full potential.

Keywords:
Growth; inflation; outlook; potential growth; uncertainty; risk; macroeconomic policy; monetary policy; fiscal policy; financial sector policy; structural policy; EU climate; productivity slump; EU financing; governance framework; EU funds; EU country; competitiveness reform; value chain; inflation expectation; EU level; EU budget; CESEE region; Productivity; Purchasing power parity; Fiscal consolidation; Europe; Global
Cover IMF Staff Country Reports
Turkey: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper on Turkey assesses the role of structural reforms in enhancing productivity growth in advanced and emerging economies and discusses results that are relevant for Turkey. The paper investigates the role of structural reforms in boosting productivity growth and describes the stochastic frontier set-up for analyzing factors that affect output through technical efficiency; and subsequently presents empirical results. It also simulates productivity gains from closing the structural reform gaps between Turkey and its benchmark. Structural reforms to improve hiring and firing regulations, the business and regulatory environment, and skills are found to have the largest estimated long-term productivity gains for Turkey. In order to bolster Turkey’s sustainable medium-term growth prospects, structural reforms should be implemented sooner rather than later, and any possible negative reform impacts in the short run could be limited by a reform sequencing and reform complementarities.
Keywords:
ISCR; CR; center; pay-productivity alignment; production function; productivity gain; B. technical efficiency; policy prioritization; product market efficiency; IMF staff; Structural reforms; Commodity markets; Labor market flexibility; Competition; Total factor productivity; Eastern Europe
Cover Departmental Papers
Demographic Headwinds in Central and Eastern Europe
Cristina Batog
,
Ernesto Crivelli
,
Ms. Anna Ilyina
,
Zoltan Jakab
,
Mr. Jaewoo Lee
,
Anvar Musayev
,
Iva Petrova
,
Mr. Alasdair Scott
,
Ms. Anna Shabunina
,
Andreas Tudyka
,
Xin Cindy Xu
, and
Ruifeng Zhang
The populations of Central and Eastern European (CESEE) countries—with the exception of Turkey—are expected to decrease significantly over the next 30 years, driven by low or negative net birth rates and outward migration. These changes will have significant implications for growth, living standards and fiscal sustainability.
Keywords:
DPPP; DP; CESEE country; labor market; public spending; current account; workforce aging; labor force; retirement age; IMF staff calculation; CESEE economy; CESEE workforce; baseline labor force scenario; EU country; per capita income; CESEE population; physical capital; workforce cohort; Aging; Labor force; Total factor productivity; Western Europe; Europe; Eastern Europe; Baltics; Global
Cover IMF Working Papers
Managing the Tide: How Do Emerging Markets Respond to Capital Flows?
Mr. Atish R. Ghosh
,
Mr. Jonathan David Ostry
, and
Miss Mahvash S Qureshi
This paper examines whether—and how—emerging market economies (EMEs) respond to capital flows to mitigate their untoward consequences. Based on a sample of about 50 EMEs over 2005Q1–2013Q4, we find that EME policy makers respond proactively to capital inflows by using a combination of policy tools: central banks raise the policy interest rate to address economic overheating concerns; intervene in the foreign exchange market to resist currency appreciation pressures; tighten macroprudential measures to dampen credit growth; and deploy capital inflow controls in the face of competitiveness and financial-stability concerns. Contrary to conventional policy advice to EMEs, we find no evidence of counter-cyclical fiscal policy in the face of capital inflows. Overall, policies are more likely to respond, and used in combination, during inflow surges than in more normal times.
Keywords:
WP; capital control; capital flow; inflow control; exchange rate; outflow control; capital flows; policy toolkit; capital controls; emerging market economies; FX intervention; prudential measure; Capital inflows; Central bank policy rate; Output gap; Global
Cover IMF Working Papers
A Fresh Look at Potential Output in Central, Eastern, and Southeastern European Countries
Jiri Podpiera
,
Ms. Faezeh Raei
, and
Ara Stepanyan
Was the postcrisis growth slowdown in Central, Eastern and Southeastern Europe (CESEE) structural or cyclical? We use three different methods—production function approach, basic multivariate filter, and multivariate filter with financial frictions—to evaluate potential growth and output gaps for 18 CESEE countries during 2000-15. Our findings suggest that potential growth weakened significantly after the crisis across most countries in the region. This decline appears to be largely due to stagnant productivity and weaker capital accumulation, which were associated with common external factors, including trading partners’ slow potential growth, but also decline in global trade and stalled expansion of global value chains. Our estimates suggest that output gaps in 2015 were largely closed in many countries in the region.
Keywords:
WP; output gap estimate; CESEE; Potential output; Output gap; Emerging Markets; core inflation; output gap amplitude; MVF FIN; CESEE economy; Capacity utilization; Inflation; Total factor productivity; Global; Baltics; Central and Eastern Europe
Cover Regional Economic Issues, Central, Eastern, and Southeastern Europe
Regional Economic Issues, Central, Eastern, and Southeastern Europe
How to Get Back on the Fast Track
International Monetary Fund. European Dept.

Abstract

This paper discusses the robust growth that continues in most Central and Southeastern European economies as well as in Turkey. Accommodative macroeconomic policies, improving financial intermediation, and rising real wages have been behind the region’s mostly consumption-driven rebound, while private investment remained subdued. In the near-term, strong domestic demand is expected to continue supporting growth amid continued low or negative inflation. The Russian economy went through a sharp contraction last year amid plunging oil prices and sanctions. Other CIS countries were hurt by domestic political and financial woes, as well as by weak demand from Russia. In 2016, output contraction is projected to moderate to around 1½ percent from 4¼ percent in 2015 as the shocks that hit the CIS economies gradually reverberate less and activity stabilizes. In the baseline, a combination of supportive monetary policy and medium-term fiscal consolidation remains valid for many economies in the region.

Keywords:
REO; country; CIS economy; CESEE country; inflation; CESEE economy; investment rate; monetary policy autonomy; CESEE region; Total factor productivity; Productivity; Minimum wages; Income; Domestic savings; Europe; Central and Eastern Europe; Global; Baltics
Cover IMF Staff Country Reports
Turkey: Selected Issue
International Monetary Fund. European Dept.
This paper discusses key issues of Turkey’s economy including private savings in Turkey, increase in the minimum wage for 2016, and nonfinancial corporate sector debt in Turkey. Over the last decade and half, Turkey successfully stabilized its macro economy. In the aftermath of the 1999–2001 economic crises, Turkey pursued a highly successful policy of macroeconomic stabilization. At the same time, however, private sector saving rate decreased significantly, leading to a current account deficit. The minimum wage increased by 30 percent in January 2016, affecting about 8 million workers directly. Nonfinancial corporate sector debt has increased substantially in recent years, on the back of increased foreign currency leverage.
Keywords:
ISCR; CR; minimum wage; NFC FX; TFP growth; total factor productivity; saving rate; minimum wage increase; wage distribution; minimum wage policy; gross wage; NFC FX loan; trend labor force participation rate; Minimum wages; Private savings; Potential output; Production growth; Global; Central Asia
Cover Policy Papers
Structural Reforms and Macroeconomic Performance - Initial Considerations for the Fund
International Monetary Fund
Structural policies have become a prominent feature of today’s macroeconomic policy discussion. For many countries, lackluster economic growth and high unemployment cloud the outlook. With fewer traditional policy options, policymakers are increasingly focused on the complementary role of structural policies in promoting more durable job-rich growth. In particular, the G20 has emphasized the essential role of structural reforms in ensuring strong, sustainable and balanced growth. Against this backdrop, the 2014 Triennial Surveillance Review (TSR) called for further work to enhance the Fund’s ability to selectively provide more expert analysis and advice on structural issues, particularly where there is broad interest among member countries. The purpose of this paper is to engage the Board on staff’s post-TSR work toward strengthening the Fund’s capacity to analyze and, where relevant, offer policy advice on macro-relevant structural issues.
Keywords:
PP; country group; member country; reform experience; TFP growth; Fund analysis; monetary policy; productivity growth; fiscal policy; capacity building activity; fund financing; banking system; financial market; core business; capital market; Structural reforms; Productivity; Total factor productivity; Labor markets; Global
Cover Policy Papers
Structural Reforms and Macroeconomic Performance - Country Cases
International Monetary Fund
As a companion piece to the Board paper on Structural Reforms and Macroeconomic Performance: Initial Considerations for the Fund, this paper presents a selection of case studies on the structural reform experiences of member countries. These papers update the Board on work since the Triennial Surveillance Review toward strengthening the Fund’s capacity to analyze and, where relevant, offer policy advice on macro-relevant structural issues. The paper builds on the already considerable analytical work underway across the Fund, setting out considerations to support a more strategic approach going forward.
Keywords:
PP; authority; reform; enterprise; country; structural reform; reform effort; capital market; financial system; labor market; reform experience; reform strategy; country CasesStructural reform; Structural reforms; Total factor productivity; Competition; Trade liberalization; Global
Cover IMF Working Papers
Structural Transformation and the Volatility of Aggregate Output in OECD Countries
Mr. Constant A Lonkeng Ngouana
This paper finds a negative relationship between the employment share of the service sector and the volatility of aggregate output in the OECD—after controlling for the level of financial development. This result reflects volatility differentials across sectors: labor productivity is more volatile in agriculture and manufacturing than in services. Aggregate output would therefore become less volatile as labor moves away from agriculture and manufacturing and toward the service sector. I examine the quantitative role of these labor shifts—termed structural transformation—on the volatility of aggregate output in OECD countries. I first calibrate to the U.S. economy an indivisible labor model in which the reallocation of labor across sectors emerges endogenously from sectoral labor productivity growth differentials. The setup is then used to generate the time path of labor shares in agriculture, manufacturing and services in individual countries. Finally, I perform a set of counterfactual analyzes in which the reallocation of labor across sectors is constrained endogenously. I find that the secular shift of labor towards the service sector was volatility-reducing in OECD countries during 1970–2006.
Keywords:
WP; service sector; aggregate output; Dynamic general equilibrium; Indivisible labor; Labor productivity; OECD; Output volatility; Structural transformation; growth differential; aggregate output volatility; indivisible labor model; reallocation of labor; service sector employee; sectoral labor reallocation in OECD country; aggregate output growth; service sector's labor share; employment share of the service sector; sectoral labor productivity processes; reallocation in OECD country; reallocation in the model; Services sector; Employment; Global