Medium Term AIECE meeting Brussels, November 5th-6th, 2015 Niklas - - PowerPoint PPT Presentation

The European Economy in the Medium Term

AIECE meeting Brussels, November 5th-6th, 2015 Niklas Brønager, Jesper Linaa

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This report

• Should have been worked out for the AIECE meeting in the

spring of 2014

• Basically, we have used the same questionnaires as for the

previous reports

• Many AIECE institutes apparently do short-term forecasting
• nly, so the results in this report are likely to overlap with

those of the general report

• Hence, the most interesting part of the report is probably

about reform needs and the discussion about this

• We start with a brief presentation followed by a discussion
• n selected topics

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Progress in the euro area …

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2014 2012 2010 2008 2006 110 108 106 104 102 100 98 2005Q1 = 100

Real GDP

Source: Macrobond

.. but still the output gap is huge and negative

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2014 2012 2010 2008 2006 4 3 2 1

• 1
• 2
• 3
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Per cent of structural GDP

Source: Macrobond

Projected GDP growth in the euro zone, 2015-20

WIFO SN COE KEPE CEPREDE ETLA GKI NIER NIESR IFW DOR 2.5 2.0 1.5 1.0 0.5 0.0 Per cent per year

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Source: AIECE institutes

Risk of secular stagnation appear significant

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91-100% 76-90% 26-75% 11-25% 0-10% 10 8 6 4 2 Frequency

Source: AIECE institutes

… which is also visible in the ECB policy rate

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GKI Prometeia NIER COE NIESR SKEP DOR BIPE 2.5 2.0 1.5 1.0 0.5 0.0 Per cent

Expected average policy rate, 2015-20

Source: AIECE institutes

Weak investments reflect the weak economy

• There is an emerging consensus amongst leading

international institutions that

– In many countries weak investments mainly reflect weak demand – Tight credit conditions, political uncertainty, and weak public investments do play a role but are not the decisive factor

• The majority of AIECE institutes agree with this narrative
• The immediate implication is that investments will increase

along with the cyclical upswing. In most countries no specific initiatives are needed

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Projected per capita GDP growth in, 2015-20

Source: AIECE institutes

Reform needs in the labour market

• France and other countries struggle with high levels of

structural unemployment caused by high minimum wages and inflexible layoff rules

• Sweden has a growing mismatch problem. The high wage

level makes it difficult for low-skilled workers to get jobs. Maybe also relevant in Denmark

• UK and France needs to improve entry to the job market for

young people by e.g. apprenticeships

• Many countries need to improve job incentives for older

people in order to stimulate labour supply

• O

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Reform needs in the pension system

• Many European countries, including Germany, France,

Poland, Slovenia, and Hungary, have not yet fully handled the demographic challenge. Some countries deem their pension system “unsustainable”

• The current statutory retirement age is rather low in many

countries…

• … and more importantly; in many countries, the statutory

retirement age is not linked to life expectancy

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Various reform needs

• Denmark, Sweden and the UK would benefit from larger

automatic stabilizers for the housing market

• Sweden report it needs to increase construction of new

homes due to the inflow of refugees and immigrants. Maybe, this is also an issue in Denmark – and what about Germany?

• Poland needs to rebuilt the taxation system from scratch
• German labour costs are high when including social

contributions

• Hungary, Slovenia and others have heavily regulated goods
• markets. In some cases price control and state ownership.
• Greece have pronounced reform needs in many areas

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Topics for discussion

• Fiscal sustainability
• Pension reforms
• Labour market reforms
• Size of public sector – and link to productivity
• Where is the EU project heading?
• How should we address the risks of secular stagnation?

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