Annexes to COM(2015)691 - Alert Mechanism Report 2016 (prepared in accordance with Articles 3 and 4 of Regulations (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances)

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dossier COM(2015)691 - Alert Mechanism Report 2016 (prepared in accordance with Articles 3 and 4 of Regulations (EU) No 1176/2011 on the prevention ...
document COM(2015)691 EN
date November 26, 2015
Annex for the full set of statistics on the basis of which this economic reading and the full report has been prepared.

Belgium: In February 2015, the Commission concluded that Belgium was experiencing macroeconomic imbalances, in particular involving competitiveness. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely losses in export market shares, private and government sector debt as well as the increase in long-term and youth unemployment.


Following a second year of gains in export market shares, the indicator improved in 2014 and is gradually approaching the threshold. This improvement concurs with a strengthening of the current account balance and stable unit labour costs developments. Both are expected to strengthen further in 2015 given favourable terms of trade and low labour cost growth. Overall, while still indicating issues the scoreboard points to a stable or even improving external performance. Indebtedness indicators have been broadly stable for several years, though at a level significantly above the respective thresholds. The high corporate debt reflects the impact of widespread intra-group lending which needs to be taken into account. The level of household debt remains moderate with risks partially offset by an accumulation of financial assets. Public debt is stable, while contingent liabilities of the public sector to financial institutions have further abated. The financial sector continued its deleveraging, in spite of rising liabilities. The observed increase in unemployment indicators, including long-term and youth unemployment, is mainly driven by the business cycle.


Overall, the economic reading highlights issues relating to matters of competitiveness for which deeper analysis is warranted in order to conclude whether dynamics are indeed shifting into the right direction. Therefore, the Commission finds it useful, also taking into account the identification of an imbalance in February, to examine further the persistence of imbalances or their unwinding.


Bulgaria: In February 2015, the Commission concluded that Bulgaria was experiencing excessive macroeconomic imbalances requiring decisive policy action and specific monitoring, in particular linked to the concerns about financial sector practices, which carry significant financial and macroeconomic risks. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the net international investment position (NIIP), private sector debt, unit labour costs and unemployment as well as an increase in long-term unemployment.


The high stock of external liabilities remains a source of vulnerability. However, the net external position has continued to improve, due to a positive current and capital account as well as growing external assets. At the same time, gains in export market shares have decelerated but so have also increases in unit labour costs. While the financial sector appears to have stabilised, the institutional and regulatory problems that became apparent with the failure of Corporate Commercial Bank have yet to be adequately tackled. Private sector debt, concentrated in the non-financial corporate sector, remains high. Deleveraging pressures could dampen investment and economic growth in the short term and could be an additional source of vulnerability, if they are not dealt with in an orderly manner. Despite past efforts to improve the business environment, the insufficient development of Bulgarian pre-insolvency and insolvency frameworks slow down deleveraging, increase uncertainty among market participants and reduce the country's overall attractiveness to investors. Persistent structural issues on the Bulgarian labour market, such as long-term unemployment and skill- and qualification mismatches, impair its matching function, leading to underutilisation of human capital and ultimately to higher economic and social costs.


Overall, the external and internal vulnerabilities, in particular in the financial sector are still present. Therefore the Commission finds it useful, also taking into account the identification of an excessive imbalance in February, to examine further the persistence of macroeconomic risks and to monitor progress in the unwinding of excessive imbalances.


Czech Republic: In the previous round of the MIP, no macroeconomic imbalances were identified in the Czech Republic. In the updated scoreboard the net international investment position (NIIP) is beyond the indicative threshold.



The current account balance has improved considerably in recent years, turning into an annual surplus in 2014. The NIIP has been gradually reduced and remains only slightly beyond the threshold. Risks related to the external position are limited as much of the foreign liabilities are accounted for by foreign direct investment and, consequently, net external debt is very low. Nevertheless, this position gives rise to primary income outflows which require sustained trade surpluses in order to maintain sustainability. Competitiveness appears stable with contained growth in nominal unit labour costs. There was a substantial depreciation of the real effective exchange rate in 2014, reflecting the introduction of an exchange rate floor vis-à-vis the euro by the Czech National Bank at the end of 2013. These factors contributed to an overall gain in export market shares in 2014, reversing the trend of previous years. Risks of internal imbalances appear low given relatively low private indebtedness and subdued private-sector credit flows. The largely foreign-owned banking sector has remained stable, with total financial sector liabilities increasing only moderately in 2014 and an overall low percentage of NPL. Public debt has continued to fall and remains comfortably below threshold. Unemployment fell in 2014, with a rapid decline recorded in the first half of 2015, and house price growth turned moderately positive.

Overall, the economic reading points to improving external competitiveness and low internal risks. Therefore, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.


Denmark: In the previous round of the MIP, no macroeconomic imbalances were identified in Denmark. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the current account surplus, losses in export market shares and private sector debt as well as a decrease in activity rates.


The current account balance continues to show large surpluses, slightly surpassing the upper threshold of the scoreboard for the second year in a row. This reflects continued weak recovery of domestic demand in Denmark and high revenues from investment abroad. The net international investment position is high, mostly due to a growing net stock of foreign direct investment. The current account surplus is expected to decrease as the recovery gains a firmer grip. Losses in export market shares again recorded in 2014 and remain large in cumulative terms, also compared to other industrialised countries. Cumulated losses to a large extent reflect high wage and weak productivity growth before the crises and remain a challenge for the economic recovery. Nevertheless, price competitiveness indicators have been stable in recent years. Private sector debt is very high while macro-economic risks remain contained in relation to both the real economy and financial stability. In particular, relatively high household gross debt related to the specific mortgage system in place. House prices have adjusted over time and are now in a recovery phase. Households have been able to handle the house price adjustments since 2007, with high levels of debt matched by high levels of assets. The regulatory and supervisory measures introduced over the last years seem to have strengthened financial sector stability. After the crisis the employment situation has stabilised, with low and decreasing unemployment, including long-term even if activity rates have been slightly reduced it is from a high level and in context of a decrease of NEET rates.

Overall, the economic reading points to issues related to export performance but limited external risks and contained private sector debt risks. Therefore, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.


Germany: In February 2015, the Commission concluded that Germany was experiencing macroeconomic imbalances which require decisive action and monitoring, in particular involving increasing risks stemming from the persistence of insufficient private and public investment, which negatively affects growth and contributes to the very high current account surplus. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the current account surplus, losses in export market shares and government debt.

The current account surplus has continued to increase, further boosted also by lower oil prices and favourable exchange rate developments, and the surplus is expected to remain high in coming years. In 2014, the relative importance of the euro area and the rest of the world for the external surplus have stayed largely stable. The net international investment position is very large and growing rapidly. Gross fixed capital formation has remained broadly at the same level since 2011. The indicator for export market share losses improved on the back again of small gains in 2014 but remains above the threshold in cumulated terms. Unit labour costs increase above the euro area average but in accumulated terms negative gaps to euro area partners remains. Private sector deleveraging continued while private sector credit flows were positive but low. Although deflated house prices have been rising during the last years – with strong regional disparities – the indicator remains within the threshold but there is a need for close monitoring. The public debt ratio in Germany is above the threshold, although it continued to decrease in 2014. Very low and declining unemployment rates reflect the robust labour market in Germany.


Overall, the very large and increasing external surplus and strong reliance on external demand expose growth risks and underlines the need for continued rebalancing towards domestic sources. Therefore, the Commission finds it useful, also taking into account the identification in February of imbalances requiring decisive action and monitoring, to examine further the risks involved in the persistence of imbalances or their unwinding.

Estonia: In the previous rounds of the MIP, no macroeconomic imbalances were identified in Estonia. In the updated scoreboard, a number of indicators are beyond the indicative thresholds, namely the net international investment position (NIIP), unit labour costs and house prices.

The negative NIIP remains beyond the threshold but it has been improving and more than half of the external liabilities consist of FDI which reduce risks. The current account has been in surplus since 2014, supported by growing exports of services. While there are large cumulated gains in export market shares, annual gains were marginal in 2014. The significant increase in nominal unit labour costs reflects constrained labour supply, domestic demand-led economic growth, but also still catching-up effects. Continued high wage growth could negatively affect cost-competitiveness. Rapidly rising house prices, after the burst of the credit bubble of 2008-9, reflect the recently strong growth in wages, favourable lending conditions as well as the predominance of transactions in the more expensive capital-city area. The private sector debt is below the threshold and is on a deleveraging path supported by robust nominal GDP growth and moderate private sector credit growth, but it is still relatively high compared with peers. In contrast, government debt remains the lowest in the EU. The long-term unemployment rate, the youth unemployment rate and the severe material deprivation rate have markedly improved.

Overall, the economic reading highlights issues related to a renewed build-up of pressures in the domestic economy. Therefore, the Commission finds it useful to further examine the risks involved in an in-depth analysis with a view to assess whether an imbalance exits.

Ireland: In February 2015, the Commission concluded that Ireland was experiencing macroeconomic imbalances which require decisive action and specific monitoring, in particular involving financial sector developments, private and public sector indebtedness, high gross and net external liabilities and the labour market. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the net international investment position (NIIP), losses in export market shares, private and government debt, house prices and unemployment.


Adjustment in the current account position continues and there is now a substantial surplus also reflecting high export growth. The NIIP remained highly negative in 2014 but improved significantly compared to 2013 and remains on an improving path. The net position hides major changes in the composition of external assets and liabilities. Ireland lost export market shares over the 5 years to 2014 but is now very close to the threshold as there was a large gain in 2014. This reflects strong export growth which is supported by significant price and cost competitiveness restoration in previous years and ULC growth remains moderate on the back on increases in productivity while real effective exchange rate developments are supportive. Private sector debt as a percentage of GDP fell sharply in 2014 as a result of GDP growth and a contraction in credit flow but the ratio remains elevated, in part because of corporate sector debt on the balance sheet of Irish affiliates of multinationals. The non-performing loans ratio is also on a declining trend, though it remains high.


The average house price increase exceeded the threshold in 2014 but this comes after a steep downward correction in the previous five years. Recent pressures largely reflect supply constraints especially in large urban areas. Pressures are also mounting on the rental market. Public sector debt as a percentage of GDP fell for the first time in 2014 but remains very high. A significant part of the drop in 2014 was due to technical factors but the downward trajectory is expected to be sustained. The unemployment indicator remains above the threshold, with still elevated levels of long-term and youth unemployment, but this hides a persistent decline in the unemployment rate since early 2013.


Overall, the economic reading highlights issues relating to the NIIP, financial sector developments, private and public debt and the property market. Therefore, the Commission finds it useful, also taking into account the identification in February of imbalances requiring decisive action and specific monitoring, to examine further the risks involved in the persistence of imbalances or their unwinding. This will be coordinated with the continuing post-programme surveillance.


Spain: In February 2015, the Commission concluded that Spain was experiencing macroeconomic imbalances which require decisive action and specific monitoring, in particular involving risks related to the high levels of private, public and external indebtedness in context of very high unemployment.


In the updated scoreboard, a number of indicators are above the indicative threshold, namely the net international investment position (NIIP), losses in export market shares, both private and government debt, unemployment as well as the increase in long-term and youth unemployment.


External rebalancing has continued and the current account balance is expected to remain in moderate surplus over the medium term. However the NIIP has not yet improved significantly, mainly due to negative valuation effects. The cumulated loss of export market shares remains beyond the threshold but the indicator improves on the back of annual gains in the past two years. The improvement in export performance is in part attributable to restored cost competitiveness, visible in negative nominal unit labour cost growth and real effective exchange rate depreciation. Private sector deleveraging continued throughout 2014 on the back of negative credit growth. More recent data indicate a slow-down as credit has started flowing again, especially to the corporate sector. By contrast, government debt has kept increasing, reflecting a significant yet improving public deficit. Deflated house prices seem to have bottomed out. Although unemployment has been declining rapidly, it remains very high, especially among the youth, and the long term unemployed. Besides, the improvement in the labour market has not yet translated in a reduction of poverty indicators, which remain among the highest in the EU.


Overall, the economic reading highlights issues relating to external sustainability, private and public debt, and labour market adjustment. Therefore, the Commission finds it useful, also taking into account the identification of excessive imbalances requiring decisive action and specific monitoring, to examine further the persistence of macroeconomic risks and to monitor progress in the unwinding of excessive imbalances. This will be coordinated with the continuing post programme surveillance (PPS).


France: In February 2015, the Commission concluded that France experienced excessive macroeconomic imbalances, which require decisive policy action and specific monitoring, in particular involving risks related to a deterioration of competitiveness and the high level of public indebtedness. In the updated scoreboard, a number of indicators remain above their indicative thresholds, namely losses in export market shares, private debt, government debt, unemployment as well as the increase in long-term unemployment.


The current account balance has remained stable showing a moderate deficit while the net international investment position has remained negative and further deteriorated in 2014. Accumulated losses in export market shares remain well above the threshold despite limited annual gains in 2014 laying the ground for improved indicator values in coming years. Labour costs remain high and continue to weigh on the cost-competitiveness of firms. Private debt is above the threshold but deleveraging pressures are limited in a context of mildly positive credit growth. The very high general government sector indebtedness further increased in 2014 and risks from public debt dynamics in a context of low growth and inflation remain. Real house prices are slowly correcting. Adjustment in the labour market is an issue where unemployment has been increasing, and is now beyond the threshold, accompanied by increases in long-term and youth unemployment.


Overall, the economic reading highlights issues linked to competitiveness developments and the high level of general government debt in a context of low growth and low inflation. Therefore the Commission finds it useful, also taking into account the identification of an excessive imbalance in February, to examine further the persistence of macroeconomic risks and to monitor progress in the unwinding of excessive imbalances.


Croatia: In February 2015, the Commission concluded that Croatia was experiencing excessive macroeconomic imbalances requiring decisive policy action and specific monitoring, in particular involving risks related to weak competitiveness, large external liabilities and rising public debt, coupled with weak public sector governance, and dismal employment performance in a context of subdued growth. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the net international investment position (NIIP), losses in export market shares, government debt, unemployment as well as the increase in long-term and youth unemployment.


The current account turned into a surplus in 2013 as growth of export volumes picked up and outpaced that of imports. The negative NIIP, as well as high net external debt, did not improve and remains at high levels. Despite recent annual gains in export market shares the cumulative losses remain very substantial. Cost competitiveness indicators show some adjustment as unit labour cost growth is negative while the real effective exchange rate is stable. Even if below the threshold private sector debt is high compared to peer countries. While banks are well-capitalized, credit growth remains weak in a context of deleveraging pressures, high NPLs and a weak macroeconomic outlook. Public sector debt has been steadily increasing at a sustained pace since 2008 on the back of high deficits and the assumption of contingent liabilities. Past compression of economic activity coupled with limited wage adjustment has taken a toll on employment, including long term and youth unemployment. People at risk of poverty or social exclusion continue to represent a relatively large share of the population. That said there are recent positive economic developments and an improved economic outlook.


Overall, the economic reading highlights risks as regards external and public debt sustainability and labour market adjustment. Therefore, the Commission finds it useful, also taking into account the identification of an excessive imbalance in February, to examine further the persistence of macroeconomic risks and to monitor progress in the unwinding of excessive imbalances.


Italy: In February 2015, the Commission concluded that Italy was experiencing excessive macroeconomic imbalances requiring decisive policy action and specific monitoring, particularly involving risks stemming from the very high public debt and the weakness of both cost and non-cost competitiveness in a context of weak growth and productivity dynamics. In the updated scoreboard, a number of indicators are beyond the indicative thresholds, namely losses of export market shares, government debt, unemployment as well as the increase in long-term and youth unemployment.


The current account surplus further increased in 2014, helping to reduce the negative net international investment position, driven by expanding exports and weak domestic demand which however is recovering in 2015. Export market share losses recovered some ground, supported by contained increases in cost competitiveness indicators. The decline of labour productivity and the low-inflation environment hold back further competitiveness gains however. While the private-sector debt-to-GDP ratio has remained stable, the public debt ratio has risen further in 2014, driven by negative real growth, low inflation and continued budgetary deficits. Economic weakness was also reflected in the declining share of investment in GDP, partially driven by the further slight contraction of private-sector credit in 2014. Financing conditions, despite some improvements since mid-2014, continue to be affected by banks’ large stock of non-performing loans. The unemployment rate peaked in 2014, as did the long-term and youth unemployment rates in a context of high NEET rates. Poverty and social indicators were broadly stable in 2014, albeit at worryingly high levels.


Overall, the economic reading highlights issues relating to subdued productivity growth, holding back growth prospects and improvements in competitiveness and making it more challenging to reduce public indebtedness. Therefore, the Commission finds it useful, also taking into account the identification of excessive imbalances in February, to examine further the persistence of macroeconomic risks and to monitor progress in the unwinding of excessive imbalances.


Cyprus: Since March 2013, Cyprus has been implementing a macroeconomic adjustment programme with financial assistance.

Therefore, the surveillance of imbalances has taken place in the context of the programme, and not under the MIP. Under the programme, Cyprus has implemented a number of important measures aimed at correcting its excessive imbalances and the economy is now recovering and the banking system is in the process of stabilising. Nevertheless, in the updated scoreboard, a number of indicators remain beyond the indicative thresholds, namely, the current account deficit, the net international investment position (NIIP), losses in export market shares, private sector debt, government debt, unemployment as well as the increase in long-term and youth unemployment.


The current account deficit remains high despite some adjustment, and insufficient to stabilise the large stock of net external liabilities. Furthermore, the current account adjustment has taken place mostly through a contraction of imports, while accumulated losses in export market shares are substantial even if there has been a limited gain on an annual basis in 2014. There have been gains in cost competitiveness, as reflected in the significant reduction in unit labour costs and decline in the HICP-based real effective exchange rate. Private sector debt remains very high and the deleveraging progress is proving slow both for households and for corporations and despite important reforms helping to address the excessively high ratio of non-performing loans in the banking system. House prices continue to decline, in response to the on-going adjustment in the housing market, but the pace of decline has decelerated. Government debt is very high and risks to fiscal sustainability present. The unemployment rate increased significantly as a consequence of the adverse economic developments including long term and youth unemployment.


Overall, the economic adjustment programme has helped Cyprus reduce its excessive macroeconomic imbalances and to manage the related risks. The situation of Cyprus in the context of the MIP will be assessed at the end of the current financial assistance programme and will also depend on the post programme arrangements to be agreed.


Latvia: In the previous round of the MIP, no macroeconomic imbalances were identified in Latvia. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the net international investment position (NIIP), unit labour costs and unemployment.


The current account remains in deficit and the negative NIIP ratio significantly beyond the threshold, although it is improving over time. At the same time, a very large share of this liability reflects FDI stocks and net external debt is at a moderate level and also declines. There are gains of export market shares although at a decreasing pace. The improving trade balance helps to limit the current-account deficit. Meanwhile exports have been undergoing significant readjustment in products and markets in the context of a volatile external environment and significant disruptions in trade with Russia. Unit labour costs have continued to rebound from the sharp drop during the crisis and the indicator is now marginally above the threshold. House prices are recovering from a low level. The financial sector remains robust and the process of deleveraging is still ongoing despite low interest rates. Public and private debt ratios remain significantly below the thresholds. Unemployment is on a decreasing trend, although still above the threshold. Both long-term and youth unemployment have decreased substantially over the past two years.


Overall, the economic reading highlights risks, although limited on the external side in a context of progressive internal rebalancing. Therefore, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.


Lithuania: In previous rounds of the MIP, no macroeconomic imbalances were identified in Lithuania. In the updated scoreboard a number of indicators are beyond the indicative threshold, namely the net international investment position (NIIP), unit labour costs, house prices and unemployment.


Against a background of a current account adjustment the negative NIIP has continuously improved over the past years. Inward FDI implies a substantially lower net external debt. There are cumulated gains in export market shares but the pace has declined substantially as a result of declining exports mainly to Russia. There have been some limited losses in cost competitiveness with a slightly appreciating real effective exchange rate and nominal ULC growing at a pace slightly below the threshold. Both private sector and government debt ratios remained relatively low, with the private sector continuing to deleverage. Financial sector liabilities were on the rise, and credit flows to non-financial corporations showed a small increase in 2014. Deflated house prices had stabilised after previous sharp corrections. Unemployment continued to decline towards the threshold and long term and youth unemployment show significant improvements.


Overall, the economic reading highlights issues relating to the external performance although of limited risk. Therefore, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.


Luxembourg: In the previous round of the MIP, no macroeconomic imbalances were identified for Luxembourg. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely private sector debt, the growth rate of financial sector liabilities as well as the youth unemployment rate.

Luxembourg’s substantial current account surplus was further reduced on the back of sharp increase of the deficit of primary income that more than offset the improvement of the balance of trade and services. Partially due to a positive contribution of productivity, unit labour cost growth abated in 2014, contributing to the sizeable gains of export market shares. Private sector indebtedness (consolidated figures but not for cross border intra company loans which are high) remained well above the threshold in 2014. In spite of high level of indebtedness, deleveraging does not take place. The government debt is low. While financial sector liabilities grew substantially the leverage of the financial sector remains low and even if there are risks given the size of the sector they are limited. Real house prices growth continued to accelerate in 2014 where supply and demand mismatches on housing market remain which reduce the likelihood of a strong price correction. Youth unemployment increased although in a context of low unemployment.

Overall, the economic reading highlights a gradually improving economic environment with reduced risks. Therefore, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.

Hungary: In February 2015, the Commission concluded that Hungary was experiencing macroeconomic imbalances which require decisive action in particular involving the continued adjustment of the negative net international investment position (NIIP) and the relatively high public debt. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the net international investment position, losses in export market shares and government debt.

The strengthening of the current account to a surplus since 2010 has ensured a very rapid and sustained decrease in the NIIP even if it remains at a high level. The improvement in the current account has been mainly driven by weak domestic demand. Unit labour cost growth has been relatively dynamic but this mainly reflected a terms of trade effect, while the real effective exchange rate has depreciated. Annual gains in export market shares continued in 2014 reducing cumulated losses. Private sector debt is deleveraging and the level of non-performing loans remains high, a burden on the financial sector, which contribute to negative credit flows. Since mid-2013, growth has picked up strongly. The pace of deleveraging has slowed down, also impacted by the subsidised lending schemes by the Central Bank. The decline in real housing prices seems to have come to a halt. General government debt has continued to decline gradually, although at a rather slow pace. The constrained growth potential of the economy may still aggravate the country’s vulnerabilities. The unemployment indicator fell below the threshold due to higher employment. Poverty indicators indicate that the overall rate of people at-risk of poverty or social exclusion decreased, although still high.

Overall, the economic reading highlights external risks, although reduced, while the internal recovery is hampered by deleveraging pressures in a context of a low growth potential. Therefore, the Commission finds it useful, also taking into account the identification in February of imbalances requiring decisive action to examine further the risks involved in the persistence of imbalances or their unwinding.


Malta: In the previous round of the MIP, no macroeconomic imbalances were identified in Malta. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely losses in export market shares, private and public debt.


The current account balance and the net international investment position improved considerably in 2014. The improvement in the net international investment position also reflects favourable developments on the economy’s financial account, supported by market valuation changes and exchange rate movements. There have however been losses in export market shares in recent years, which, if persisting, may indicate risks of competitiveness erosion even if cost competitiveness developments moderated in 2014 as the growth in unit labour costs decelerated while the real effective exchange rate remained unchanged. Private debt is still elevated, particularly due to the corporate sector but the debt-to-GDP ratio is correcting, reflecting strong economic growth as well as subdued credit growth. General government debt is adjusting slowly as the budget balance consolidates, mainly thanks to higher budget revenues, also reflecting favourable macroeconomic environment. The economy’s adjustment capacity is supported by strong labour market performance, in particular robust gains in employment and a low unemployment rate, including youth unemployment.


Overall, the economic reading highlights risks from a weak export performance, limited external risks and an ongoing domestic deleveraging. Therefore, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.


Netherlands: In February 2015, the Commission concluded that the Netherlands was experiencing macroeconomic imbalances, particularly involving risks stemming from the high level of private debt while the high current account surplus may reflect an inefficient allocation of capital. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the current account surplus, losses in export market shares, private sector debt, government debt as well as the increase in long-term and youth unemployment.


The current account surplus, has been increasing until 2013, on the back of household deleveraging, remains significantly above the threshold. The surplus is partially due to structural features of the economy, such as a structurally high re-exports balance and capital flows of multinationals. It also reflects high retained earnings, and thus high savings of the corporate sector, compared to its relatively weak investment. However, overall investment activity, including residential investment, seems to have been gaining strength in 2015 and is expected to recover further. There are still cumulated losses in export market shares but the annual gains in 2013/2014 point to an improvement looking forward. Cost competitiveness indicators are stable. Private sector debt remains significantly above the threshold but overall stable even if there are deleveraging pressures in the household sector given the large share of households with negative net housing equity. Policy measures such as lowering mortgage interest deductibility and loan-to-value ratios are expected to contribute to a gradual, but slow reduction of household debt and a more resilient financial sector. Public debt is moderately above the threshold and stable. Unemployment is relatively contained. Youth unemployment has increased from low levels but it is improving. Long-term unemployment has been on an increasing trend, mainly driven by unemployment of older workers.


Overall, the economic reading highlights issues relating to the high private debt levels and persistent savings and investment differences reflected in a high current account surplus. Therefore, the Commission finds it useful, also taking into account the identification of an imbalance in February, to examine further the persistence of imbalances or their unwinding.


Austria: In the previous round of the MIP, Austria was not identified as experiencing imbalances. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely losses in export market shares and government debt as well as the increase in youth unemployment.


The current account and the net international investment position are in positive positions. However, accumulated losses in export market share remain substantial while cost competitiveness concerns appear contained, with unit labour cost growing moderately and the real effective exchange rate mildly appreciating. In 2014 the general government debt increased considerably, reflecting a continued strong impact on public finances of restructuring and winding down distressed financial institutions and pointing to still large feedback loops between the financial sector and the general government. The protracted restructuring of such banks is also connected with the uncertainty around its legal framework. Funding cost pressures have increased in connection with rating downgrades of Austrian banks, and risks connected the exposure to Central-, Eastern, and South-Eastern Europe, in particular regarding recent geopolitical developments in Russia and Ukraine. In conjunction with asset restructuring to meet regulatory requirements, these developments are potentially weighing on the banks' lending capacity and could cause negative spillovers on credit growth and economic activity at home and abroad. Private sector debt remains slightly below the threshold at a relatively stable level, while credit flows to the private sector moderately decrease. House prices increases have decelerated. The unemployment rate remains stable at relatively low levels while youth unemployment has increased but also at low levels.

Overall, the economic reading highlights issues related to the financial sector, notably its high exposure to developments abroad, the actual and potential spillovers between the financial sector and public finances and the impact on credit provided to the private sector. Therefore, the Commission finds it useful to examine further the risks involved in an in-depth analysis with a view to assess whether an imbalance exists.


Poland: In the previous round of the MIP, no macroeconomic imbalances were identified in Poland. In the updated scoreboard, the net international investment position (NIIP) is beyond the indicative threshold.


The current account has been adjusting for a number of years and now shows a stable but moderate deficit. This improvement is chiefly explained by stronger merchandise export and a lower income account deficit. While the highly negative NIIP improved marginally, external vulnerability is contained as FDI accounts for a large part of foreign liabilities. There are gains in export market shares in accumulated terms and quite substantial gains in annual terms both 2013 and 2014. Cost competitiveness indicators also show a benign picture with reduction in ULC. Private sector debt has been broadly stable at a level well below the indicative thresholds. Also public sector debt is well below the threshold and was reduced in 2014 due to a one-off transfer of assets from the second pillar private pension fund to the general government following the partial reversal of the 1999 systemic pension reform. The banking sector remained well capitalized, liquid and profitable, despite a sizable stock of loans denominated in foreign-currency. After five years of decline, real house prices increased again in 2014. Compared to last year, the unemployment rate moved below the indicative threshold.


Overall, the economic reading points to some issues related to the external position but with contained risks. Therefore, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.


Portugal: In February 2015, the Commission concluded that Portugal was experiencing excessive macroeconomic imbalances requiring decisive policy action and specific monitoring particularly involving risks from high levels of external, public and private debt, deleveraging pressures and elevated unemployment. In the updated scoreboard a number of indicators are still beyond the indicative threshold, namely the net international investment position (NIIP), private sector debt, government debt, unemployment as well as the decrease in the activity rate, increase in long term unemployment and youth unemployment.

The net international investment position is highly negative but external sustainability has been slowly improving supported by a sharp current account adjustment leading to moderate current account surpluses and in a context of better growth conditions. Accumulated losses of export market shares have been reduced to reach a level within the threshold explained by substantial annual gains in 2013/2014 and supported by cost competitiveness adjustment. Private sector debt is very high. Nevertheless, corporate deleveraging accelerated in 2014 and credit growth remains negative. A high level of non-performing loans (NPLs) weighs on the balance sheets of both the nonfinancial and financial sectors. Public sector debt is also very high but is now beginning to decline. The unemployment rate is elevated and a low activity rate and high levels of long-term and youth unemployment are a concern. However, since 2014 unemployment declined, including among younger people and long-term unemployment.

Overall the economic reading highlights issues relating to very high indebtedness across sectors but with progress with deleveraging in a context of slowly improving economic conditions. Therefore the Commission finds it useful, also taking into account the identification of an excessive imbalance in February, to examine further the persistence of macroeconomic risks and to monitor progress in the unwinding of the excessive imbalances. This will be coordinated with the continuing post-programme surveillance.


Romania: In February 2015 the Commission concluded that Romania was experiencing macroeconomic imbalances, which require policy action and monitoring particularly involving risks from the relatively large negative net international investment position (NIIP), a weak medium-term export capacity and while financial sector stability was preserved, external and internal vulnerabilities of the banking sector remained. In the updated scoreboard, the net international investment position is beyond the indicative threshold.

The highly negative NIIP reflects the accumulation of current-account deficits in the pre-crisis period but is on a decreasing path. Net external debt is around half of the NIIP. Net FDI inflows have increased over the past two years. The current account has been narrowing reaching a small deficit in 2014, largely driven by strong export growth, but may widen somewhat again in future years. The trade balance remained positive in 2014 and export market shares have showed annual gains. Cost-competitiveness indicators were stable in 2014 and the real effective exchange appreciated only slightly. Private sector debt remains relatively low, while private credit growth has recently recovered. The banking sector appears well capitalized while the share of non-performing loans has decreased significantly. A balance sheet assessment and stress test in the insurance sector was completed in July 2015 and an AQR and stress test in the banking sector has been launched. Public debt remains low, but recently agreed fiscal measures and ad-hoc wage increases for some categories of public employees point toward a significant fiscal relaxation. Long-term and youth unemployment and poverty indicators have improved modestly in 2014.


Overall, the economic reading highlights issues related to the external position, competitiveness and fiscal sustainability. Therefore, the Commission finds it useful, also taking in to account the identification of imbalances in February, to examine further the persistence of imbalances or their unwinding.


Slovenia: In February 2015, the Commission concluded that Slovenia was experiencing macroeconomic imbalances, which require decisive action and specific monitoring, in particular involving risks stemming from an increasing level of government debt, the interplay of corporate and banking sector restructuring and the underlying non-performing loans work-out, the efficiency of state-owned enterprises, and very weak investment. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the net international investment position (NIIP), losses in export market shares, government debt as well as the increase in long-term and youth unemployment.


The current account pursued its sharp correction to reach a sizeable surplus in 2014, as exports expanded and domestic demand remained subdued. As a consequence, the net international investment position improved but remained beyond, though close to, the threshold. Price and cost competitiveness improved further as unit labour costs declined. This has supported annual gains in export market shares over 2013-2014 although accumulated losses remains above the threshold. Private sector debt decreased in 2014, driven by corporate sector deleveraging, largely due to negative credit growth. The deleveraging of the financial sector also continued, facilitated by additional transfers of non-performing loans to the state-owned Bank Assets Management Company, coupled with further bank recapitalisations by the government. As a result, the government's total debt increased further and remains significantly above the threshold. The unemployment rate decreased in 2014 after peaking in the previous year. While employment resumed growth in 2014 after 5 years of contraction, the long-term unemployment rate remained very high and the youth unemployment rate decreased only marginally. Both remain beyond their thresholds.


Overall, the economic reading highlights issues relating to the long-term fiscal sustainability, private sector deleveraging and labour market adjustment. Therefore, the Commission finds it useful, also taking into account the identification in February of imbalances requiring decisive action and specific monitoring to examine further the risks involved in the persistence of imbalances or their unwinding.


Slovakia: In the previous rounds of the MIP, Slovakia was not identified as experiencing macroeconomic imbalances. In the updated scoreboard, a number of indicators remain above the indicative thresholds, namely the net international investment position (NIIP) and unemployment.


The current account balance has been showing a surplus since 2012 but the NIIP has continued to worsen, along with the ongoing inflow of FDI which largely relates to the automotive industry. Export market shares showed some losses on an annual basis, reflecting modest real effective exchange rate appreciation and some, albeit contained, nominal ULC increases. In cumulated terms there are still market share gains. Private sector credit flows accelerated in recent years, contributing to the upward path of the private sector debt ratio, which nevertheless still remains well below the indicative threshold. The largely foreign-owned banking sector is well-capitalised and its total liabilities are estimated to have increased only moderately. The general government debt ratio decreased marginally in 2014 and remains below the indicative threshold. Although activity rates have gradually improved in recent years, structural unemployment represents the most pressing economic policy issue.


Overall, the economic reading highlight external issues but with limited risks while structural unemployment remains a challenge. Therefore, the Commission will at this stage not carry out further in-depth analysis in the context of the MIP.


Finland: In February 2015, the Commission concluded that Finland was experiencing macroeconomic imbalances, in particular those related to competitiveness. In the updated scoreboard, a number of indicators are above their respective indicative thresholds, namely losses in export market shares, private sector debt as well as the increase in youth unemployment.


The current account balance has stabilized since 2011 at a moderate deficit level, reflecting that imports have adjusted to decreased exports. At the same time the share of investment to GDP has decreased to historically low levels. The net international investment position is in a small surplus position. There have been substantial accumulated losses in export market shares including annual losses all years since 2008. In 2013 and 2014 the loss was less severe than in earlier years, but at the same time most other EU countries already experienced moderate export market share gains. These developments indicate difficulties in the economic restructuring process that followed the decline in of the previously successful manufacturing industries, such as electronics and forestry. Although the indicator for the change in nominal ULC is now below its threshold, the cumulative loss of cost competitiveness remains large. The private sector debt-to-GDP ratio remains elevated, mostly due to persistently high corporate debt, although the net credit flow towards the private sector almost came to a halt in 2014 despite favourable credit conditions. As regards households, house prices declined moderately in 2012-2014, correcting previous increases and thus limiting the risks to financial stability. The unemployment rate is below the threshold but is increasing and is now above the 2009-10 levels. Also youth unemployment has increased.


Overall, the economic reading highlights issues relating to both price- and non-price competitiveness in a context of restructuring. Therefore, the Commission finds it useful, also taking into account the identification of an imbalance in February, to examine further the persistence of imbalances and their unwinding.


Sweden: In February 2015, the Commission concluded that Sweden experienced macroeconomic imbalances, particularly involving household debt, coupled with inefficiencies in the housing market. In the updated scoreboard, a number of indicators are above their respective indicative thresholds, namely the current account surplus, losses of export market shares, house prices and private sector debt.


The current account surplus remains slightly above the threshold reflecting primarily high private savings. The net international investment position has been improving rapidly but still shows a small deficit. Export market shares losses stay well above the threshold, but losses have decelerated since 2013. The losses can be linked to weak global demand. Unit labour cost growth is contained and the real effective exchange rate depreciated in 2014. The high level of private debt continues to deserve attention. Corporate indebtedness started to increase again after having stabilised at high levels. After introducing a loan-to-value cap on mortgages in 2010, household credit growth temporarily slowed down and household debt stabilised. However, since then household debt has started to increase again and house prices have been very dynamic since mid-2013 and growth was above the threshold in 2014 with potential risks for macro-economic stability. Housing supply is constrained and on the demand side, house prices and household indebtedness are pushed up through a debt-biased taxation, exceptionally low mortgage interest rates and a lack of amortisation requirements. Bank risks appear however contained as the quality of their assets as well as profitability remain high although capital buffers are relatively low compared to the size of loan portfolios.


Overall, the economic reading highlights issues related to external competitiveness. high private debt and the developments in the housing sector. Therefore, the Commission finds it useful, also taking into account the identification of an imbalance in February, to examine further the persistence of imbalances or their unwinding.


United Kingdom: In February 2015, the Commission concluded that the United Kingdom was experiencing macroeconomic imbalances, which require policy action and monitoring, in particular involving risks related to the high level of household indebtedness, also linked to structural characteristics of the housing market. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the current account deficit, losses in export market shares, house prices, private sector debt and government debt.


The current account deficit continued to increase in 2014, driven by a widening primary income deficit, and the three-year indicator is now beyond the threshold. The net international investment position is negative and has deteriorated relatively rapidly in the last few years but is still well within the threshold level. The accumulated losses of market shares was reduced in 2014 on the back of an annual gain but remains above the threshold. While unit labour cost growth has been moderate and stable the real effective exchange rate has appreciated, in particular in 2014. Private sector debt-to-GDP is gradually declining, driven by nominal growth, but remains overall high. House prices continue to increase and the growth rate was beyond the threshold in 2014. Nevertheless, a notable feature of the past two years is that rising house prices have not been reflected in rises in household indebtedness. High general government debt remains a concern. Employment continues to grow at healthy rates and youth unemployment and the NEET rate have decreased.

Overall, the economic reading highlights issues relating to the housing market and the external side of the economy. The Commission finds it useful, also taking into account the identification of imbalances in February, to examine further the persistence of imbalances or their unwinding.






(1) This Report is accompanied by a Statistical Annex which contains a wealth of statistics which have contributed to inform this report.
(2) See Article 5 of EU Regulation (EU) No 1176/2011.
(3) The indicators are added in order to better capture the employment and social dimension of imbalances and adjustment processes. The indicators are the activity rate, the long-term unemployment rate, and the youth unemployment rate, all expressed as changes over a three-year period. Such indicators were already included among the auxiliary MIP indicators. For details regarding the criteria for the selection of the indicators see the Commission Staff Working Document "Adding employment indicators to the scoreboard of the Macroeconomic Imbalances Procedure to better capture employment and social developments" that was discussed in Committees of the ECOFIN and EPSCO Councils and the European Parliament.
(4) See 'European Economic Forecast-Autumn 2015', European Economy, Institutional Paper 011, November 2015.
(5) Regulation (EU) No 1176/2011 (OJ L 306, 23.11.2011, p. 25).
(6) The increase in the number of Member States selected for an IDR since 2012 is partly a reflection of the need to integrate countries exiting a financial assistance programme as a result of economic improvement. This concerns Ireland, Portugal and Romania whose inclusion in the MIP surveillance was deemed prudent. In addition, Croatia joined the standard surveillance after acceding to the EU in 2013. The persistence of a certain number of Member States subject to an IDR is linked to the fact that Member States can exit MIP surveillance only on the basis of a new IDR Looking ahead, if economic conditions improve or do not worsen, one may expect the number of countries subject to an IDR to fall over time.
(7) See '2015 European Semester: Assessment of growth challenges, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011' - COM(2015) 85 final -, 26.2.2015, and 'Macroeconomic Imbalances, Main Findings of the In-Depth Reviews 2015' European Economy-Occasional Papers 228. For the full set of country-specific recommendations adopted by the Council, including those that are MIP-relevant, see OJ C272, 18.8.2015.
(8) See 'European Economic Forecast-Autumn 2015', European Economy, Institutional Paper 011, November 2015. Although aggregate figures of the recovery mask significant differences across Member States, real convergence seems now to progress with higher growth rates recorded in Spain, Ireland, Slovenia, the Baltic states, but also Hungary, Poland, Czech Republic, Romania while growth in France, Italy, Austria, Finland, Belgium is likely to remain subpar in 2015.
(9) See International Monetary Fund. 2015. World Economic Outlook: Adjusting to Lower Commodity Prices. Washington (October).
(10) Deleveraging process can be evidenced by looking at the aggregate net lending position of the euro area by sectors. In 2014, it amounted to 3.2% of GDP, of which households, corporations and government represented 2.9%, 1.8% and -2.6%. In 2010, the respective figures amounted to 0.6%, 2.9%, 3.3% and -6.2%, and in 2007, to 0.3%, 1.4%, -0.6% and -0.6%.
(11) See Bricongne J.-C. and Mordonu A. (2015), 'Interlinkages between household and corporate debt in advanced economies', European Commission Discussion Papers N° 17 (October 2015).
(12) The benchmark is derived from reduced-form regressions capturing the main determinants of the saving-investment balance, including fundamental determinants (e.g. demography, resources), policy factors and global financial conditions. The methodology is akin to the External Balance Assessment (EBA) approach developed by the IMF. See Phillips, S. et al. (2013), 'The External Balance Assessment (EBA) Methodology', IMF Working Paper, 13/272.
(13) See D’Auria, F., Linden, S., Monteiro, D., in ‘t Veld, J. and Zeugner S., 'Cross-border Spillovers in the Euro Area', Quarterly Report on the Euro Area, Vol 13 No 4 (2014).
(14) Cf. Recital 17 of Regulation 1176/2011: "When assessing macroeconomic imbalances, account should be taken of their severity and their potential negative economic and financial spill-over effects which aggravate the vulnerability of the Union economy and are a threat to the smooth functioning of the economic and monetary union. Actions to address macroeconomic imbalances and divergences in competitiveness are required in all Member States, particularly in the euro area. However, the nature, importance and urgency of the policy challenges may differ significantly depending on the Member States concerned. Given vulnerabilities and the magnitude of the adjustment required, the need for policy action is particularly pressing in Member States showing persistently large current-account deficits and competitiveness losses. Furthermore, in Member States that accumulate large current-account surpluses, policies should aim to identify and implement measures that help strengthen their domestic demand and growth potential."
(15) See Box I.3 in 'European Economic Forecast-Spring 2015', European Economy, 2015(2).
(16) See 'Macroeconomic Imbalances, Main Findings of the In-Depth Reviews 2015' European Economy-Occasional Papers 228.
(17) Given the reduction in current account deficits, the geographic composition of the surpluses in creditor economies, particularly Germany, has changed. The balance vis-à-vis the rest of the world has increased, while the balance vis-à-vis the euro area has declined. The latter has been driven mainly by a reduction in exports to the rest of the euro area, rather than an increase in imports by Germany.
(18) For these countries, the major share of external liabilities is not linked to domestic capital and activities, but rather to external assets. For instance, much of the Irish external liabilities are dominated by mutual funds that reside in Ireland but whose assets stem from other countries. According to the Balance of Payments classification, the balance sheet of mutual funds is composed by equity liabilities matched by portfolio debt assets, which translates into a very negative equity position along a very positive marketable debt position.
(19) The estimates of the cyclically-adjusted balances are based on the methodology described in Salto, M. and A. Turrini (2010), 'Comparing Alternative Methodologies for Real Exchange Rate Assessment', European Economy-Economic Papers, 427.
(20) For the T+10 methodology, see Havik, K., K. Mc Morrow, F. Orlandi, C. Planas, R. Raciborski, W. Röger, A. Rossi, A. Thum-Thysen, and V. Vandermeulen (2014), 'The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps', European Economic Papers 535.
(21) For a detailed presentation of the calculations and assumptions, see, Loublier, A., Turrini A. and Zeugner, S. (2015), 'Methodologies for computing current account benchmarks', European Economy Economic Paper forthcoming.
(22) Exports in value from the euro area have decelerated between 2013 and 2015, and exports towards non-EU countries have roughly flattened.
(23) For a detailed presentation of the methodology used for the decomposition of export market shares, see 'A closer look at some drivers of trade performance at Member State level', Quarterly Report on the Euro Area, 2012(2):29-39.
(24) The legacy of high corporate debt is likely to continue to weigh on the economy. High private debt is generally associated with low medium-term growth, although devising specific debt thresholds may be analytically challenging (see references in Chen et al.(2015). 'Private Sector Deleveraging and Growth Following Busts', Working Paper 15/35, International Monetary Fund, Washington). Debt is also seen to have been detrimental to post-crisis economic performance (see Bornhorst, F. and Ruiz Arranz, M. (2013). 'Indebtedness and Deleveraging in the Euro Area.' Country Report 13/232, International Monetary Fund, Washington; and European Central Bank (ECB), (2012), 'Corporate Indebtedness in the Euro Area.' Monthly Bulletin (February): 87–103.
(25) Exchange rate movements, in particular the depreciation of the euro in the second half of 2014, are likely to have caused significant valuation effects raising the value of non-euro denominated debts, e.g. in Ireland or in the Netherlands.
(26) For a detailed presentation, see P. Pontuch, 'Private sector deleveraging: where do we stand?', Quarterly Report on the Euro Area, 2014(4):7-19.
(27) See European Central Bank (2015), 'Financial Stability Review', May 2015, and Joint Committee of the European Supervisory Authorities (2015), 'Joint Committee Report on Risks and Vulnerabilities in the EU Financial System', JC 2015 007.
(28) Since last summer, the overall narrowing of TARGET2 balances seems to have come to a halt, mainly driven by developments in Italy, Greece and Spain.
(29) The low interest rate environment is also weighing significantly on the profitability of the life insurance sector with return mismatches emerging between low government bond yields and the guarantees offered to customers.
(30) House price developments have to be read in tandem with an assessment of the house price misalignment.
(31) Sweden and Luxembourg are the only countries where house prices have been virtually unaffected by the crisis and have been increasing steadily since the mid- 1990s. In the United Kingdom, deflated house prices underwent a correction of some 18 percent from the 2007Q3 peak until 2012, but went up by 8 percent in 2014 only, and continued rising through 2015.
(32) An estimate of a house price misalignment gap is obtained as an average of three valuation indicators: (i) the affordability gap (the distance to the long-term average of the price-to-income ratio); (ii) the yield gap (the distance to the long-term average of the price-torent ratio); and (iii) an estimate of deviations of house prices from equilibrium values justified by housing demand and supply fundamentals. For further details, see European Commission: 'Housing market adjustment in the European Union,' box 1.3, in 'European Economic Forecast-Spring 2014,' European Economy 2014(3).
(33) See Draghi, M. (2014), 'Unemployment in the euro area', Speech at the Annual central bank symposium in Jackson Hole, 22 August 2014, and Arpaia, A., Kiss, A. and Turrini, A. (2014) 'Is unemployment structural or cyclical?' Main features of job matching in the EU after the crisis', European Economy, Economic Papers 527, September 2014..
(34) See Duiella, M. and Turrini, A. (2014), 'Poverty developments in the EU after the crisis: a look at main drivers', ECFIN Economic Brief, Issue 31, May 2014.
(35) European Commission (2015), Labour Market and Wage Developments in Europe 2015, Part II, Chapter 1: Labour mobility and labour market adjustment in the EU.
(36) In 2014, the employment rate of people born in another EU country was 67 per cent, while the employment rate of people who were born in the country of residence was 65 per cent. The employment rate of people born outside the EU was 57 per cent (Source: Eurostat Labour Force Statistics, age group: 15 to 64 years).
(37) In 2014, the unemployment rate of people born in another EU country was 13 per cent, while the unemployment rate of people who were born in the country of residence was 10 per cent. The unemployment rate of people born outside the EU was 19 per cent. The over-qualification rate, reflecting highly educated workers taking low- or medium skilled jobs, was also markedly higher for EU-mobile than for natives, and even higher for people born outside the EU. (Source: Eurostat Labour Force Statistics).
(38) This approach which avoids duplication of procedures and reporting obligations has been established in Regulation (EU) No 472/2013 (OJ L 140, 27.5.2013, p. 1). It is also in line with the Commission proposal on a facility for providing financial assistance for Member States outside the euro area (COM(2012)336, 22.6.2012).