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Europe > Ukraine

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Cover IMF Staff Country Reports
Germany: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper highlights impact of high-energy prices on Germany’s potential output. The surge in energy prices since Russia’s invasion of Ukraine has led to a contraction in the energy-intensive sector’s production, while the nonenergy intensive sector’s industrial production has remained resilient. Permanently higher energy prices could reduce Germany’s potential output, but some of the impact is expected to be offset by firms’ endogenous response to improving energy efficiency. Some decline in Germany’s potential output level because of higher energy prices is likely unavoidable. However, good policies can help mitigate this loss and avoid exacerbating it. Increased energy efficiency is key to mitigating the adverse effects of the energy price shock. Higher labor and capital productivity can help offset output losses from higher energy prices. Government policy can help boost productivity by fostering innovation and human capital development, as discussed in more detail in the 2023 and previous year’s Article IV reports. Government interventions can help direct the transition to cleaner energy. It is important that Germany respond to the energy shock in ways that also support the green transition, given Germany’s goals to significantly reduce its CO2 emissions.
Keywords:
baseline energy price path; housing market crash scenario; house prices in Germany; reference scenario; price effect; BORROWER-BASED MACROPRUDENTIAL instruments in Germany; Energy prices; Housing prices; Energy conservation; Mortgages; Loans; Global
Cover Selected Issues Papers
Residential Property Price Developments and (Mis)alignments in Cyprus
Robert C. M. Beyer
and
Nina Biljanovska
Residential house prices in Cyprus show no signs of overvaluation in international comparison, and various indicators confirm that prices are aligned with economic fundamentals. However, still-high household debt poses a risk. Regional disparities raise some concerns about affordability, notably in Limassol, calling for supply-side measures to increase housing supply.
Keywords:
Cyprus; Residential Housing Prices; Housing Debt; Limassol; property price development; house price trend; household debt; C. debt vulnerability; default probability; Housing prices; Housing; Mortgages; Land prices; Global
Cover IMF Staff Country Reports
Denmark: 2023 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. European Dept.
The 2023 Article IV Consultation discusses that the Danish economy recovered strongly from the pandemic. Economic activity is set to soften in the first half of 2023, followed by a gradual recovery. Denmark’s recovery from the pandemic was impressive, but strong output and employment growth has contributed to inflationary pressures. Gross domestic product growth is expected to slow in 2023, while inflation will remain elevated in the near term. Risks to growth are broadly balanced while upside risks dominate inflation. Near-term fiscal policy should support disinflation, given persistently elevated inflation. There is uncertainty regarding the contractionary effects assumed in the fiscal plan, while positive output gaps and high inflation are expected in the near term. Medium-term fiscal policy should be recalibrated as needed to adhere to the fiscal rules. The structural balance will weaken to a deficit over the medium term mainly due to defense and demographic-related spending.
Keywords:
government finance statistics data; liability positions vis-à-vis nonresident; money market rate; consumer price index inflation; data provision; upside risk; Inflation; Housing prices; Fiscal stance; Mortgages; Securities; Global; Europe
Cover IMF Staff Country Reports
Cyprus: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper discusses the causes and implications of elevated inflation in Cyprus and describes recent inflation trends. The paper also analyses drivers of inflation in with an augmented Phillips Curve and investigates how wages adjust to inflation. Estimating a pass-through from inflation shocks to wages can further help assess domestic price pressures. Fiscal policies should help containing price pressures. While external developments drove inflation dynamics in 2022, domestic developments will increasingly determine inflation going forward. Given the historical pass-through, wage pressures are expected to intensify this year, aggravated by labor market tightness. Fiscal policy should hence support the battle against inflation, while protecting vulnerable households, which have been impacted disproportionally by the cost-of-living crisis. Spending plans in the 2023 budget are sufficiently tight to help contain inflation pressures from aggregate demand. Any upwards, revisions to the automatic cost-of-living allowance would risk sustaining high inflation and weakening the economy structurally.
Keywords:
C. inflation driver; inflation expectation; inflation trend; E. inflation outlook; wage pass-through; Inflation; Housing prices; Housing; Mortgages; Energy pricing; Europe; Global
Cover IMF Staff Country Reports
Republic of Poland: 2023 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. European Dept.
This 2023 Article IV Consultation analyses that the Polish economy has slowed significantly amid still-high inflation. The Polish economy in 2022 faced energy and food price shocks, which exacerbated inflationary pressures and slowed economic growth. With Russia’s war in Ukraine, the authorities seek to increase defense expenditures and energy security. The economy has slowed considerably, though inflation remains well above the target. While the economy is projected to rebound in late 2023 and 2024 and inflation to decline, the pace of growth and underlying inflation are subject to considerable uncertainty, highlighting the policy challenges related to returning inflation to the target without incurring an excessive loss of output. In the near term, the authorities should avoid a new fiscal expansion. Energy price measures should be temporary and move toward greater targeting. Over the medium term, the authorities should create fiscal space to accommodate new defense expenditures without placing public debt on an upward trajectory. In addition, the authorities should consider carbon taxation to meet decarbonization targets and continue to facilitate Ukrainian refugees’ integration into Polish labor markets.
Keywords:
financial asset; IMF staff calculation; price pressure; NBP in cooperation; asset price development; monetary policy transmission; households Poland; Inflation; Energy prices; Government finance statistics; Mortgages; Credit; Central and Eastern Europe; Baltics; Global
Cover IMF Staff Country Reports
Australia: 2022 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Asia and Pacific Dept
The 2022 Article IV Consultation discusses that with a rapid post-pandemic economic recovery and favorable terms of trade, Australia has reached a stronger cyclical position than many other advanced economies, with limited scarring. Inflation has risen to significantly above target, prompting decisive monetary policy tightening. Financial conditions have since tightened, and housing prices started declining from their peak. Australia is on a narrow path to a soft landing. Growth is expected to slow to 1.6 percent in 2023 from 3.6 percent in 2022 as higher interest rates and weaker global growth cut into domestic demand and net exports. Inflation is projected to decelerate slowly toward the 2-3 percent inflation target by the end of 2024. Downside risks to the economic outlook dominate, with significant uncertainty regarding global growth, commodity prices, and domestic developments surrounding wages, housing prices, and the effect of tighter monetary conditions. Structural policies can help foster sustainable, equitable and inclusive growth. The new climate change mitigation targets should be supported with strong policies, while continued structural reform efforts can help address the labor productivity slowdown and achieve greater inclusion.
Keywords:
CPI expenditure weight; inflation expectation; CPI indicator; ABS implementation; liability positions vis-à-vis nonresident; volume terms; Inflation; Housing prices; Housing; Mortgages; Financial statements; Global; Asia and Pacific
Cover IMF Staff Country Reports
Norway: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Norway
International Monetary Fund. European Dept.
The economy bounced back strongly from the first wave of Covid-19 pandemic, and the recovery is well entrenched in 2022. However, risks to the outlook are considerable, given the uncertainty over spillovers from the war in Ukraine, the intensity of the pandemic globally, and in Europe, in particular, and supply bottlenecks. Given the strong fundamentals, Norway is relatively shielded and there are both upside (higher energy prices and export volumes) and downside risks (lower demand from Europe for non-energy exports). The forecast is especially sensitive to where energy prices settle, whether energy supply to Europe will be disrupted, and Norway’s capacity to increase gas supplies to Europe.
Keywords:
liability positions vis-à-vis nonresident; money market rate; inflation pressure; normalising economy; core inflation; Inflation; Mortgages; Climate change; Global; Europe
Cover IMF Staff Country Reports
Slovak Republic: 2022 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. European Dept.
This 2022 Article IV Consultation discusses that the war in Ukraine has clouded the outlook for the Slovak economy while it was still recovering from the pandemic. The effects of the war are already felt through surging commodity prices, input shortages, subdued confidence, weaker global demand, and heightened energy security risks, given Slovakia’s heavy reliance on Russian energy imports. Fiscal policy needs to be flexible and ready to adjust, while avoiding adding to inflationary pressures. The immediate policy priority is to mitigate the economic fallout of the war and minimize the humanitarian crisis. Rebuilding fiscal buffers should begin once the economy is on a solid growth path, to create room for maneuver and accommodate rising ageing-related spending. Recent reforms to the fiscal framework and the pension system could significantly strengthen public finances. The multiyear spending ceilings should strengthen fiscal discipline, while the link between retirement age and life expectancy will improve fiscal sustainability.
Keywords:
money market rate; climate mitigation goal; policy priority; Policy recommendation; liability positions vis-à-vis nonresident; IMF's transparency policy; Inflation; Housing prices; Mortgages; Labor markets; Global; Europe
Cover IMF Staff Country Reports
Denmark: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Alternate Executive Director for Denmark
International Monetary Fund. European Dept.
The strength of the economic recovery bodes well for the rebound in activity to persist, but uncertainty remains high due to the war in Ukraine and the pandemic, with risks tilted to the downside. With employment above pre-pandemic levels, however, labor market pressures have increased. High energy prices have propelled inflation to a historic high. The current account remains elevated. High household debt constitutes a key source of risk as house price growth remains strong.
Keywords:
government support package; government finance statistics data; liability positions vis-à-vis nonresident; money market rate; headline inflation; Labor markets; COVID-19; Mortgages; Securities; Global