REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2018 (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances) (prepared in accordance with Articles 3 and 4 of Regulations (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances)
Date: 2018-01-29
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU Member State, economic disparity, economic growth, economic recovery, economic statistics, euro area, macroeconomics, multilateral surveillance, national accounts, public debt

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 29.1.2018  COM(2017) 771 final/2  CORRIGENDUM: concerns the English language version  Correction table 2.1 - data for Luxembourg  The text shall read as follows: REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE  Alert Mechanism Report 2018  (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances)  
 
 
The  alert  mechanism  report  (AMR)  is  the  starting  point  of  the  annual  cycle  of  the  macroeconomic 
imbalance  procedure  (MIP),  which  aims  to  identify  and  address  imbalances  that  hinder  the  smooth 
functioning  of  the  economies  of  Member  States  or  the  economy  of  the  EU  and  may  jeopardise  the 
proper functioning of the economic and monetary union.  

The  AMR  uses  a  scoreboard  of  selected  indicators,  plus  a  wider  set  of  auxiliary  indicators  and 
additional relevant information, to screen Member States for potential economic imbalances in need 
of policy action. The AMR identifies Member States for which analysis in an in-depth review (IDR) is 
needed to assess how macroeconomic risks in the Member States are accumulating or winding down, 
and  to  conclude  whether  imbalances  or  excessive  imbalances  exist.  Taking  into  account  discussions 
with  the  European  Parliament  and  within  the  Council  and  the  Eurogroup  on  the  AMR,  the 
Commission will then prepare IDRs for the Member States. Following established practice, an IDR is 
in any event prepared for Member States for which imbalances were identified in the previous round 
of IDRs. IDR findings will feed into the country-specific recommendations (CSRs) under the European 
semester of economic policy coordination. The IDRs are expected to be published in February 2018 as 
part of the country reports, ahead of the European semester package of CSRs. 

1. 

EXECUTIVE SUMMARY 

This  report  initiates  the  seventh  annual  round  of  the  macroeconomic  imbalance 
procedure  (MIP).1  The  procedure  aims  to  identify  imbalances  that  hinder  the  smooth 
functioning  of  Member  State  economies  and  to  spur  appropriate  policy  responses.  The 
implementation  of  the  MIP  is  embedded  in  the  European  semester  of  economic  policy 
coordination so as to ensure consistency with the analyses and recommendations made under 
other economic surveillance tools. The annual growth survey (AGS), which is adopted at the 
same time as this report, takes stock of the economic and social situation in Europe and sets 
out broad policy priorities for the EU as a whole for the coming year. 

The  report  identifies  Member  States  for  which  in-depth  reviews  (IDRs)  should  be 
undertaken to assess whether they are affected by imbalances in need of policy action.2 
The alert mechanism report (AMR) is a screening device for economic imbalances, published 
at the start of each annual cycle of economic policy coordination. In particular, it is based on 
an economic reading of a scoreboard of indicators with indicative thresholds, alongside a set 
of auxiliary indicators. 

The AMR emphasises euro-area considerations. In line with proposals contained in the 22 
June  2015  Report  ʽCompleting  Europeʼs  Economic  and  Monetary  Unionʼ  by  Jean-Claude 
Juncker,  Donald  Tusk,  Jeroen  Dijsselbloem,  Mario  Draghi  and  Martin  Schulz,  and  the  21 
October  2015  Commission  Communication  ʽOn  Steps  Towards  Completing  Economic  and 
Monetary  Unionʼ,  the  AMR  also  includes  an  analysis  of  the  euro-area  wide  implications  of 
countriesʼ  imbalances  and  examines  the  extent  to  which  a  coordinated  approach  to  policy 
responses  is  needed  in  light  of  interdependencies  within  the  euro  area.  The  role  of 
interdependencies and systemic implications of imbalances is recognised in MIP legislation, 
which  defines  imbalances  with  reference  to  "macroeconomic  developments  which  are 

1   This report is accompanied by a statistical annex which contains a wealth of statistics which have contributed to inform 

this report.  
See Article 5 of EU Regulation (EU) No 1176/2011. 

2  

1 

 
 
 
                                                 
adversely  affecting,  or  have  the  potential  adversely  to  affect,  the  proper  functioning  of  the 
economy  of  a  Member  State  or  of  the  economic  and  monetary  union,  or  of  the  Union  as  a 
whole".3 

The assessment in this report is set against the backdrop of an economic recovery that is 
becoming  broader  and  more  robust.  The  European  Commission  services'  autumn  2017 
economic  forecast  estimates  real  GDP  growth  in  the  EU  and  the  euro  area  to  be  2.3%  and 
2.2% in 2017 respectively with positive growth in all EU countries, against the backdrop of a 
surge in world trade and a strengthening of domestic demand in the euro area. For 2018, the 
autumn forecast projects GDP expansion to remain at 2.1% in both the EU and the euro area, 
before  edging  down  to  1.9%  in  2019  as  the  recovery  matures.  Inflation  in  2017  picked  up 
from  historically  low  levels  but,  at  1.6%  by  2019,  it  is  projected  to  remain  below  the  ECB 
target over the forecast period; core inflation remained persistently more muted, having been 
below  1%  in  the  past  three  years.  The  labour  market  continues  to  improve  with 
unemployment  rates  declining  and  employment  rates  increasing,  yet  wage  growth  remains 
subdued  even  in  countries  with  tight  labour  markets,  which  entrenches  the  low  inflation 
environment,  and  there  are  wide  differences  between  and  within  Member  States  in  their 
labour  market  situation.  Credit  growth  has  resumed,  while  sovereign  and  corporate  bond 
spreads have narrowed. 

While  the  recovery  is  facilitating  the  correction  of  macroeconomic  imbalances,  a 
number of challenges may cloud the economic backdrop going forward. Uncertainties for 
the  economic  and  policy  outlook  persist,  mainly  linked  to  the  prospects  for  US  fiscal  and 
monetary policy, the rebalancing in China and emerging economies with high corporate debt, 
geopolitical  tensions,  and  growing  protectionist  sentiments.  Although  broadening  and 
consolidating,  the  recovery  is  still  characterised  by  total  factor  productivity  growth  that 
remains below pre-crisis rates. Reform activity has slowed recently compared with crisis and 
immediate post-crisis years. Should reform efforts not continue on pace, the conditions for a 
durable pick-up in potential growth, as well as for expanding the room to tackle imbalances 
on  a  sustainable  basis,  could  be  undermined.  As  inflation  gradually  approaches  the  ECB 
target,  the  deleveraging  process  will  be  facilitated  by  higher  nominal  growth.  At  the  same 
time, overcoming low inflation would open the case for monetary policy normalisation.  

3   Regulation (EU) No 1176/2011 of the European Parliament and the Council of 16 November 2011 on the 

prevention and correction of macroeconomic imbalances. 

2 

 
 
 
                                                 
The horizontal analysis presented in the AMR leads to a number of conclusions: 

  The  rebalancing  needs  to  continue.  Although  large  and  unsustainable  current account 
deficits  were  corrected  in  almost  every  Member  State  before  2016,  prudent  external 
positions in net debtor countries need to be kept for the reduction of large stocks of net 
international  investment  positions  (NIIPs).  At  the  same  time,  large  current  account 
surpluses persist in some net-creditor countries in the euro area, and forecast downward 
corrections remain limited.  

  Net international investment positions remain deeply negative in some cases, against 
the  backdrop  of  competitiveness  developments  that  appear  less  supportive  of 
rebalancing.  Large  negative  NIIP  positions  are  recorded  in  countries  that  exhibited 
persistent  large  current  account  deficits  in  the  pre-crisis  period.  Their  improved  current 
account positions have in most cases created the conditions for a gradual reduction in the 
stock  of  net  foreign  liabilities,  but  current  accounts  in  balance  or  surplus  need  to  be 
sustained in order to maintain a reduction of liabilities to prudent levels at a satisfactory 
pace.  Competitiveness  gains  helped  that  purpose  in  past  years,  but  developments  in 
relative unit labour costs between net-debtor and net-creditor countries have started being 
less supportive of rebalancing more recently.  

  Private  debt  deleveraging  is  ongoing  but  has  lost  some  pace  recently.  Borrowing  is 
edging up, and reductions in debt-to-GDP ratios have increasingly relied upon resuming 
nominal growth. At the same time, deleveraging is uneven and not always proportionate 
to  needs.  Deleveraging  has  been  faster  in  the  corporate  than  in  the  household  sector  in 
most Member States, underpinning low investment in some countries. Government debt 
dynamics have only recently embarked on a declining path in most high-debt countries. 

  Profitability in the banking sector is improving, as are stock market valuations. Yet 
compressed  interest  rate  margins,  outdated  business  models,  and  large  non-performing 
loans (NPLs) stocks in some countries remain challenges. 

  House  prices  are  accelerating  in  most  Member  States.  Valuations  are  generally  still 
below peak levels after the downward post-crisis adjustment, but in some cases available 
indicators  point  to  overvaluation.  Pockets  of  possible  overheating  are  present  and  price 
dynamics are accelerating in a growing number of countries. Accelerations in household 
credit are also becoming broad based. 

  Labour  markets  are  generally  improving  and  tightening  in  most  countries,  while 
wage  growth  remains  subdued.  The  reduction  in  unemployment  has  coincided  with 
reduced dispersion of unemployment rates across the EU, even if joblessness still high in 
some countries. Activity rates have generally been on the rise over the last decade, but in 
some  countries,  and  for  some  groups,  labour  market  participation  remains  low.  Social 
distress  is  receding  but  remains  high  in  some  countries  with  the  legacy  of  protracted 
joblessness and reduced earnings for vulnerable groups against the backdrop of generally 
subdued wage dynamics. While disposable household income has increased it has not yet 
reached  its  2008  levels  in  real  terms  in  some  Member  States.  In  a  few  countries,  tight 
labour markets are associated with an accelerated pace of unit labour cost growth. 

3 

 
 
Euro-area rebalancing continues to deserve careful consideration. The euro-area current 
account  surplus  has  stopped  growing:  it  peaked  at  3.3%  of  GDP  in  2016  and  is  forecast  to 
edge down to 3% this year and to remain around that level by 2019.4 Nonetheless, the euro-
area  surplus  remains  the  largest  at  worldwide  level  and  is  above  levels  consistent  with 
economic  fundamentals.  The  reduction  of  persistently  large  stocks  of  net  external  liabilities 
requires  maintaining  prudent  external  balances  in  net-debtor  countries.  At  the  same  time, 
progress  with  the  adjustment  of  large  surpluses  in  net-creditor  countries  would  help 
deleveraging at euro-area level to remain compatible with a sustained recovery. 

Overall, although they have begun to receede, risks remain, mainly originating from the 
same  sources  identified  in  the  AMR  2017.  Progress  in  terms  of  external  rebalancing  is 
limited,  with  large  surpluses  remaining  persistent  and  competitiveness  developments 
becoming  less  supportive  of  rebalancing.  The  reduction  of  private  and  government  debt  is 
ongoing, increasingly as a result of resuming nominal growth, but remains uneven. Corporate 
deleveraging  is  often  associated  with  subdued  investment,  and  uncertainty  remains  on  the 
extent  to  which  deleveraging  could  rely  on  stronger  potential  growth  looking  forward.  The 
banking sector situation has improved in several dimensions but challenges also remain. Signs 
of  overheating  in  labour  costs  and  housing  prices  are  becoming  more  visible  in  a  growing 
number of countries.  

More detailed and encompassing analyses for Member States flagged by the AMR will 
be performed in the IDRs. As in recent annual cycles, IDRs will be embedded in the country 
reports,  which  provide  the  Commission  services'  analysis  of  the  economic  and  social 
challenges  in  the  EU  Member  States.  This  analysis  then  informs  the  European  Semester 
country-specific recommendations (CSRs). To prepare the IDRs, the Commission will base its 
analysis on a rich set of data and relevant information. As established by the legislation, the 
IDRs will be crucial to provide the basis for the Commission to conclude whether imbalances 
or  excessive  imbalances  exist,  and  subsequently  to  prepare  the  policy  recommendations  for 
each  Member  State.5  Countries  for  which  imbalances  or  excessive  imbalances  have  been 
identified are, and will continue to be, subject to specific monitoring to ensure the continuous 
surveillance of the policies undertaken under the MIP. 

IDRs  are  warranted  for  the  Member  States  identified  with  imbalances  or  excessive 
imbalances in the previous round of the MIP. In line with established prudential practice, 
an  IDR  is  needed  to  assess  whether  existing  imbalances  are  unwinding,  persisting  or 
aggravating,  while  paying  due  attention  to  policies  implemented  by  the  relevant  countries. 
Thus,  the  AMR  calls  for  the  preparation  of  IDRs  for  the  12  Member  States  identified  with 
imbalances in light of the findings of the 2016 IDRs.6 The countries concerned are Bulgaria, 
Croatia, Cyprus, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, 
Spain and Sweden.  

On the basis of the economic reading of the scoreboard, the Commission does not deem 
it  necessary  to  prepare  IDRs  for  Member  States  not  currently  identified  with 
imbalances.  The  economic  reading  of  the  scoreboard  concludes  that  there  are  no  major 

4   National accounts-based figures. 
5   Regulation (EU) No 1176/2011 (OJ L 306, 23.11.2011, p. 25). 
6  

See  ʽ2016  European  Semester:  Assessment  of  progress  on  structural  reforms,  prevention  and  correction  of 
macroeconomic  imbalances,  and  results  of  in-depth  reviews  under  Regulation  (EU)  No  1176/2011ʼ  -  COM(2016)  95 
final/2 -, 7.4.2016.  

4 

 
 
                                                 
overall additional risks compared to  last  year  for Finland, which exited MIP surveillance  in 
2017. A similar conclusion is found at this stage for the countries that exited MIP surveillance 
in 2016 (Belgium, Hungary, Romania and the United Kingdom) and for countries not recently 
examined in IDRs. However, recent house prices dynamics in a number of countries (Austria, 
Belgium,  Denmark,  Finland,  Hungary,  Luxembourg  and  United  Kingdom)  warrant  close 
analysis in the respective country reports even if no IDR seems necessary at this stage as risks 
seem  limited  in  scope.  The  same  holds  for  incipient  dynamics  in  labour  costs  in  some 
Member States (Estonia, Hungary, Latvia, Lithuania and Romania). In the case of Greece, the 
surveillance of imbalances and the monitoring of corrective measures continue to take place 
in  the  context  of  the  stability  support  programme.  Overall,  the  AMR  therefore  calls  for  the 
preparation of IDRs for 12 Member States compared to 13 in the previous cycle. 

2. 

IMBALANCES, RISKS AND ADJUSTMENT: MAIN DEVELOPMENTS ACROSS COUNTRIES 

The  AMR  builds  on  an  economic  reading  of  the  MIP  scoreboard  of  indicators,  which 
provides  a  filtering  device  for  detecting  prima-facie  evidence  of  possible  risks  and 
vulnerabilities deserving further investigation through an IDR. The scoreboard includes a 
range  of  14  indicators  and  indicative  thresholds  regarding  areas,  such  as  external  positions, 
competitiveness, private debt, housing markets, the banking sector, and employment. It relies 
on actual data of good statistical quality to ensure data stability and cross-country consistency. 
Hence,  the  scoreboard  used  for  this  report  reflects  data  up  to  2016.  More  recent  data,  in 
addition to a set of auxiliary indicators, are nevertheless taken into account in the reading of 
the  indicators.  Scoreboard  values  are  not  read  mechanistically,  but  subject  to  an  economic 
reading  that  enables  country-specific  issues  and  contextual  considerations  to  be  taken  into 
account.7  

The  scoreboard  indicators  highlight  the  persistence  of  imbalances  and  vulnerabilities 
related  to  high  debt  levels.  Values  in  excess  of  the  threshold  in  the  AMR  scoreboard 
continue  to  be  frequent  when  it  comes  to  government  debt,  net  international  investment 
positions, and private debt (Graph 1).8 The number of Member States with outcomes beyond 
the thresholds for those three indicators in 2016 is 16, 15 and 12 respectively. This is close to 
the outcomes of previous annual rounds, and confirms the long-lasting nature of these stock 
imbalances.  Consistent  with  the  ongoing  job-rich  recovery,  the  number  of  countries  with 
outcomes beyond the unemployment rate threshold between 2014 and 2016 has fallen from 12 
to  9,  and  more  numerous  reductions  concern  the  youth  and  long-term  unemployment 
indicators  in  light  of  their  stronger  sensitivity  to  the  labour  market  situation.  Conversely, 
house prices are accelerating and the scoreboard displays a growing number of Member States 
crossing the threshold, up to 10 from 6 in 2015 and 5 in 2014. The scoreboard indicates that 
currently 4 of the 5 Member States exceeding the thresholds on the current account indicator 
are  as  a  result  of  surpluses.  The  number  of  Member  States  with  unit  labour  cost  pressures 
above  the  threshold  has  so  far  remained  relatively  stable  at  3  or  4  in  the  past  three  years. 

7   A  mechanistic  reading  of  the  scoreboard  is  ruled  out  by  the  MIP  regulation  (Regulation  (EU)  1176/2011).  On  the 
rationale  underlying  the  construction  of  the  AMR  scoreboard  and  its  reading  see  ʽThe  Macroeconomic  Imbalance 
Procedure. Rationale, Process, Application: A Compendiumʼ (European Commission, 2016). 

8   The  detailed  scoreboard  indicators,  together  with  the  respective  indicative  thresholds,  are  displayed  in  Table  1.1  in 

annex. 

5 

 
 
 
                                                 
Three  Member  States  surpass  the  thresholds  for  the  real  effective  exchange  rate:  in  1  case 
because of impaired competitiveness, in 2 cases because the real exchange rate falls below the 
lower threshold. The number of Member States recording export markets shares in excess of 
the threshold has fallen markedly with resuming export demand for EU countries. 

Graph 1: Number of countries recording scoreboard variables beyond threshold  

Source: Eurostat. 
Note:  the  number  of  countries  recording  scoreboard  variables  beyond  threshold  is based  on  the  vintage  of  the 
scoreboard published with the respective annual AMR. Possible ex-post data revisions may imply a difference in 
the  number  of  countries  beyond  threshold  computed  using  the  latest  figures  for  the  scoreboard  variables 
compared with that reported in the graph above. 

6 

 
 
 
 
 
Graph 2: Current account balances, 2016 

Source: Commission services calculations. 
Note:  cyclically-adjusted  balances  are  calculated  using  the  output  gap  estimates  underlying  the  European 
Commission autumn 2017 forecast; the cyclically-adjusted balance for Malta in 2016 is not visible in the graph 
and is equal to 13.3% of GDP in 2016. For the computation of current account norms see footnote 9. The current 
account  stabilising  the  net  international  investment  position  is defined  as  follows:  the  current  account  balance 
needed to bring the NIIP to -35% in 20 years; for countries whose NIIP in 2016 is already at or above -35% of 
GDP, it is the balance needed to preserve the NIIP at its 2016 level.9  

Graph 3: Evolution of current account balances 

Source: Eurostat. 

9   The  calculations  for  NIIP-stabilising  current  accounts  rest  on  the  following  assumptions:  nominal  GDP 
projections  stem  from  the  European  Commission  autumn  2017  forecast  (up  to  2019)  and  from  the 
Commission methodology for 10-year ahead projections; valuation effects are conventionally assumed to be 
zero  in  the  projection  period;  capital  account  balances  are  assumed  to  remain  constant  as  a  percentage  of 
GDP at the median value between 2016 and the projections to 2019. 

7 

-20-15-10-50510152025303540-6-4-2024681012FILUSEUKBEATFRDENLSKITCZPLDKMTSIHRIEPTCYESROHUELLTEELVBG20152016Change 2007-2016 (pps of GDP) (rhs)% of GDP 
 
 
 
 
                                                 
Current account deficits are very limited in number while large surpluses persist. Most 
of  the  large  current  account  deficits  had  already  narrowed  significantly  before  2016  and 
turned  into  surpluses  or  balanced  positions  on  the  back  of  regained  competitiveness  and 
subdued  domestic  demand  (Graphs  2  and  3).  Recent  trade  balance  developments  have 
benefited  from  a  reduction  of  commodities  prices,  the  upswing  in  trade  in  the  EU  and  the 
acceleration of world trade since mid-2016, while the income balance of net-debtor countries 
has  benefited  from  falling  interest  rates  implying  lower  remunerations  on  net  financial 
liabilities. 

  Only  the  United  Kingdom  now  has  a  current  account  deficit  beyond  the  scoreboard 
threshold.  The  other  Member  States  with  current  account  deficits  in  2016  (Belgium, 
Greece,  France,  Cyprus,  Latvia,  Lithuania,  Poland,  Romania,  Slovakia  and  Finland) 
stayed  well  below  the  scoreboard  threshold.  Cyclical  factors  have  been  declining  in 
importance  for  these  outcomes,  as  output  gaps  are  closing  (Graph  2).  Some  further 
marginal improvements were recorded even in 2016 still, while countries such as Croatia 
and Ireland recorded falls in their surpluses down from exceptionally high levels recorded 
in 2015 (Graph 3). 

  In Cyprus and Greece, the 2016 current account balances are still insufficient to support a 
reduction of the large NIIPs to prudent levels at a satisfactory pace. Conversely, Portugal 
and  Spain  had  current  account  outturns  somewhat  in  excess  of  what  is  needed  to 
converge  towards  an  NIIP  of  -35%  of  GDP  over  the  next  two  decades,  with  those 
margins being larger for Croatia and Ireland.  

  At the same time,  large current  account  surpluses persist. Despite recent marginal  falls, 
the surpluses in Denmark, Germany and the Netherlands continue to exceed the threshold 
as  they  have  done  for  several  years.  Malta  crossed  the  threshold  in  2016,  which  is 
reflecting also the offshore centre effect. The surplus would have been slightly higher in 
Germany  and  lower  in  Denmark  if  it  were  not  for  cyclical  effects.  Germany,  Denmark 
and the Netherlands are currently recording surpluses well above what can be explained 
by  economic  fundamentals  (including,  for  instance,  ageing  and  relative  per-capita 
income).10  

  More  generally,  apart  from  Luxembourg,  all  of  the  recent  surpluses  of  the  various 
Member  States  both  inside  and  outside  the  euro  area  appear  to  be  above  fundamentals, 
sometimes  by  large  margins.  The  Commission  autumn  2017  forecast  suggests  only 
limited changes to these patterns this year and next. 

10   A broadly similar assessment is presented in IMF, External Sector Report, 2017. See also footnote 13. 

8 

 
 
 
                                                 
Graph 4: Net international investment positions and their dynamics 

Source: Eurostat (BPM6, ESA10), Commission services calculations. 
Note: Data for Bulgaria are available only as of 2010 and for Cyprus as of 2008.  

Net  international  investment  positions  (NIIPs)  have  improved  in  almost  all  Member 
States recently but remain deeply negative in a number of  them. Improvements in 2016 
were  at  times  strong  and  recorded  in  net-debtor  and  net-creditor  countries  alike,  even  if 
somewhat sharper in the latter than in the former. This reflected the rising current account and 
capital  balances  and  higher  GDP  growth.  Valuation  effects  varied  widely  across  countries, 
with no clear link with starting NIIP positions, but sometimes contributing to the reduction of 
largely  negative  NIIP  balances.  Developments  in  the  first  half  of  2017  do  not  reveal  major 
changes to these patterns. 

  Despite recent improvements, in 2016, more than half of the EU Member States recorded 
NIIPs beyond the MIP scoreboard threshold. Some values continue exceeding -100% of 
GDP (Ireland, Greece, Cyprus and Portugal); in Spain and Croatia they are more than -
70% of GDP; whereas nine other countries have still to converge to the threshold of -35% 
of GDP, including Bulgaria, Hungary, Latvia, Poland, Romania and Slovakia.  

  2016  were  marked  by  clear  improvements  in  the  most  negative  NIIPs,  which  often 
contrasted  with  deteriorations  in  earlier  years.  Cyprus  and  Ireland  stand  out  for  the 
marked  gains  in  2016  but  also  in  Portugal  and  Spain  the  patterns  changed  visibly  as 
improvements in in 2016 followed years of more or less continued deterioration. Greece 
continues to be an exception as its position kept worsening, however at a lower pace than 
before. The changes in patterns were more mixed in countries with less negative NIIPs, 
and, in general, the corrections were more moderate. While they have even lost speed in 
cases such as Hungary, they always remained in the direction of improving NIIPs.  

  The net-creditor countries kept further increasing their large positive NIIPs in 2016 on the 
back  of  large  surpluses  and  valuations  gains  that  frequently  came  out  stronger  than 
before. In particular, the Netherlands ended 2016 with a positive NIIP of almost 70% of 
GDP, while Denmark and Germany edged up to 55% of GDP, in all cases reaching their 

9 

-15-10-50510152025-200-150-100-50050100NLDKDEBEMTLUSEATUKFIITFRCZSIEELTBGROLVPLSKHUHRESPTCYELIEPercentage points of GDP Change in NIIP: 2005-2013 (annual average) (rhs)Change in NIIP: 2013-2015 (annual average) (rhs)Change in NIIP: 2016 (rhs)NIIP in 2016 (lhs)% of GDP-31.8 
 
 
 
maximum value in a decade. The recent current account outturns are visibly in excess of 
the  levels  needed  to  preserve  the  NIIP-to-GDP  ratios  at  their  2016  levels.  Malta  and 
Luxembourg were the only net-creditor countries with falls in their NIIPs in 2016, which 
in  any  case  remained  in  clear  positive  territory.  Also,  most  of  the  countries  with  a 
relatively balanced NIIP improved their positions in 2016 and in some cases clearly more 
than  before.  The  United  Kingdom  ended  2016  with  a  balanced  NIIP  mainly  thanks  to 
valuation effects linked to the depreciation of sterling after years of negative readings.  

  Risks  and  vulnerabilities  linked  to  net  negative  positions  may  depend  also  on  their 
composition. In this respect, the often large net-debtor countries, notably Cyprus, Greece, 
Portugal and Spain, have levels of net external debt that account for most of their NIIPs, 
which might make them vulnerable to changes in financing conditions, especially if and 
when  roll-over  needs  are  high.  Conversely,  in  other  debtors,  foreign  direct  investment, 
which might be a more stable source of funding account for a large share of the negative 
NIIP as it is the case in the Estonia, Latvia and Lithuania, Bulgaria, Poland, Romania and 
Slovakia. 

Graph 5: Growth in unit labour cost and decomposition of factors, 2016 

Source: AMECO and Eurostat. Commission services calculations 
Note:  The  decomposition  is  based  on  the  standard  breakdown  of  unit  labour  cost  growth  into  nominal  hourly 
compensation  and  labour  productivity,  the  latter  being  further  broken  down  into  the  contribution  of  hours 
worked, total factor productivity and capital accumulation using a standard growth accounting framework. 

Developments  in  cost  competitiveness  are  becoming  less  supportive  of  rebalancing. 
Competitiveness gains in net-debtor countries are often moderating or fading out, while net-
creditor  countries  have  recorded  little  changes  in  their  competitiveness  positions.  Against  a 
backdrop of relatively sluggish labour productivity growth and subdued wage dynamics in a 
majority  of  countries,  unit  labour  cost  (ULC)  developments  in  2016  appear  more  detached 
from  stock or  flow  external  positions  compared  with  previous  years  (Graph  5).  Overall, the 
reduced  dispersion  in  cost  competitiveness  developments  is  little  supportive  of  a  more 
symmetric rebalancing within the euro area (see Graph 6 and Box 2).   

10 

 
 
 
 
 
  In  2016,  some  of  the  net-debtors  countries  saw  unit  labour  cost  dynamics  flattening  or 
turning positive after years of reduction (e.g., Greece, Ireland, Spain, Portugal, Slovenia), 
reflecting  decelerating productivity  growth  and  wage  growth  becoming  less  negative  or 
positive. Countries like Estonia, Latvia and Lithuania continued recording fast growth of 
unit labour costs driven by strong wage growth in a context of tightening labour markets 
and against moderate productivity advancements. At the same time, other countries have 
been recently recording an acceleration in unit labour costs, including into 2017, notably 
Romania but also Bulgaria, the Czech Republic and Hungary (Graph 6). In some of these 
countries, wage acceleration comes after significant adjustments on the aftermath of the 
2008-2009  crisis,  which  temporarily  halted  the  long-term  wage  convergence.  Weak 
labour productivity has often gone hand in  hand with moderate total factor productivity 
growth.11 

  The  growth  in  unit  labour  costs  in  a  number  of  net-creditor  countries  (Denmark, 
Germany,  Luxembourg,  the  Netherlands  and  Sweden)  remained  overall  moderate  in 
2016,  having  cooled  somewhat  in  Germany  against  the  backdrop  of  subdued  wage 
dynamics, despite the tightening labour market.  

  Low inflation has contributed to maintaining price competitiveness, as measured by the 
real  effective  exchange  rate  (REER),  relatively  stable  over  recent  years  (Graph  7).  The 
euro  started  appreciating  in  2016  after  the  depreciation  of  2015,  implying  nominal 
effective appreciations in euro-area countries on a broad basis, feeding also through the 
most recent REER dynamics. Despite this recent appreciation, REER positions still signal 
an improvement in price competitiveness compared with the pre-crisis period in most net-
debtor  countries.  Deterioration  in  competitiveness  compared  with  the  pre-crisis  period 
has  been  taking  place  for  some  years  only  in  Estonia,  Latvia  and  Lithuania,  and  more 
recently in Bulgaria and the Czech Republic, in light of sustained inflation rates. Among 
all EU countries, only the United Kingdom, Poland and Germany are recording improved 
price competitiveness positions compared with those of the year 2000. 

11   In a few countries, like Poland and Romania strong increases in the amount of capital per worker (so-called 
capital deepening) lifted labour productivity and dampened unit labour costs, while the opposite happened in 
Latvia, Greece, Portugal and Slovenia. 

11 

 
 
 
                                                 
Graph 6: Unit labour cost growth 

Source: AMECO; 2017 data come from the Commission services autumn 2017 forecast 

Graph 7: Real effective exchange rates, 42 trading partners, HICP deflator 

Source: AMECO  
Note: Data for Slovakia are off-scale, with the indexes reading 153, 173, 170 and 171 in 2007, 2013, 2015 and 
2016 respectively.  

Most  EU  countries  have  recorded  recent  gains  in  export  market  shares.  Those  gains 
reflect somewhat stronger intra-EU trade growth than extra-EU trade, and a fall in the prices 
of commodities leading to an increased weight of non-commodities exports in total exports, in 
recent years. The largest gains in export market share were recorded by Ireland, Luxembourg 
and Romania, while the losses were the highest for Greece, Finland and Sweden. Large EU 
economies generally recorded no changes in market shares. No systematic difference appears 
between  net-creditor  and  net-debtor  countries  concerning  market  share  dynamics  in  recent 
years, except for 2016, where net-debtor countries fared somewhat better.  

12 

-4-202468IEELESPTCYLVLTSKSIEA 19ITNLEEDEFRATLUBEFIMTHRRODKCZUKPLSEHUBGEuro areaNon-euro area2010-20132014-201520162017f-10.5Averageannual % change7580859095100105110115120125130135DECYFRFIATSIELITNLPTIEBEMTESEA 19LULVLTEEUKSEPLDKHRROHUBGCZEuro areaNon euro areaReal effective exchange rate (REER), based on HICP: 2016 (lhs, index year 2000=100)Real effective exchange rate (REER), based on HICP: 2015 (lhs, index year 2000=100)Real effective exchange rate (REER), based on HICP: 2013 (lhs, index year 2000=100)Real effective exchange rate (REER), based on HICP: 2007 (lhs, index year 2000=100)Index, year 2000=100 
 
 
 
 
 
Graph 8: Change in export market shares, cumulative change over 2011-2016 

Source: Eurostat, Commission services calculations. 
Note: The decomposition rests on the shift-share methodology. Shaded bars represent the contribution to market 
share dynamics stemming from changes in the exposure to a given market; solid bars measure the contribution to 
market share dynamics coming from market share changes within a given market. Calculations use BPM6 data 
except for Finland where exports to EU are derived from national accounts; data partly unavailable for Spain. 

Box 1: The euro area dimension of macroeconomic imbalances 

Euro-area-wide implications of macroeconomic imbalances deserve careful consideration. In line 
with proposals contained in the 22 June 2015 Report ʽCompleting Europeʼs Economic and Monetary 
Unionʼ by Jean-Claude Juncker, Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz, 
and the 21 October 2015 Commission Communication ʽOn steps towards completing Economic and 
Monetary Unionʼ, starting from 2016, the AMR contains a systematic analysis of the euro-area wide 
implications  of  countriesʼ  imbalances,  and  whether  a  coordinated  approach  to  policy  responses  is 
required in light of interdependencies. 

The large euro-area current account surplus has stabilised. The euro-area current account surplus 
edged  up  marginally  to  a  peak  of  3.3%  of  GDP  in  2016  after  3.2%  of  GDP  in  2015,  and  the 
Commission autumn 2017 forecast foresees it staying at around 3% until 2019, mainly linked to the 
euro-area cycle recovering relative to that of trading partners and the petering out of gains in terms of 
trade.12 At unchanged policies, the level of the current account surplus of the euro area is expected to 
remain the largest worldwide. This level is assessed to be above what can be explained by economic 
fundamentals (e.g., including ageing, relative per-capita income), as empirical estimates of the euro-
area current account norm indicate a small surplus of slightly above 1% of GDP in 2016.13 Looking 

12   National accounts-based figure for the period 2017-2019; the national accounts-based figures and the figures in balance 

of payments statistics for 2015 and 2016 coincide. 

13   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  that  followed  by  IMF  External  Balance  Assessment  (Phillips,  S.  et  al.,  2013, 

13 

 
 
 
 
 
 
 
                                                 
 
forward,  the  large  current  euro-area  account  surplus  could  be  among  the  factors  contributing  to  the 
maintenance of upward pressure on the external value of the euro. 

The persistence of the euro area surplus reflects the correction of current accounts previously in 
deficit coupled with the persistence of large surpluses. The combined large surpluses of Germany 
and  the  Netherlands  account  for  almost  90%  of  the  current  level  of  the  aggregate  euro-area  surplus 
(Graph B.1.1). The sharp improvement in the euro-area current account position in the years after the 
crisis  coincided  with  an  abrupt  adjustment  of  large  external  deficits  following  a  reversal  in  private 
cross-border financial flows (Graph B.1.2). The subsequent growth in the euro-area surplus coincided 
with sustained improvements in current account balances in net-debtor countries and surpluses in net-
creditor countries growing further. Since 2011, the dynamics in the current account positions of Italy 
and Germany account for about 2/3 of the increase in the euro-area surplus. The reduction in the euro-
area surplus foreseen for 2017 largely comes from a reduction in the German surplus. 

The  dynamics  of  the  euro-area  surplus  is  linked  to  domestic  demand  lagging  behind  that  of 
economic activity and sustained export demand. Net exports corresponds to the difference between 
aggregate income and spending, which has been widening since 2009 until 2016, the first year where 
real  aggregate  demand  dynamics  outpaced  that  of  GDP  since  the  crisis  (see  Graph  B.1.3).  The 
evolution  of  the  surplus  reflects  subdued  demand  dynamics  in  net-debtor  countries  and  external 
positions  of  net-creditor  countries  that  increased  further  from  already  largely  positive  values. 
Persistently  weak  demand  was  reflected  in  an  output  gap  figure  for  the  euro  area  that  has  stayed  in 
negative  territory  since  2009,  and  which  is  forecast  to  turn  positive  in  2018  according  to  the 
Commission autumn 2017 forecast. This protracted economic slack underpins inflation figures which 
remains below the target of monetary authorities. The evolution of the euro-area surplus is also linked 
to the dynamics of euro-area exports, building on supportive global demand for European goods and 
services and on an improved competitive position. While benefits from the 2015 depreciation of the 
euro  are  gradually  producing  effects  of  the  trade  balance,  those  from  the  recent  appreciation  of  the 
euro are hardly visible. 

Graph B.1.1: Current account balances of the 
euro area and of selected Member States 

Graph 
B.1.2: 
borrowing/lending per sector 

Euro 

area 

net 

Source: AMECO 

Source: Eurostat 

ʽThe External Balance Assessment (EBA) Methodologyʼ, IMF Working Paper, 13/272). The main differences consist of 
a larger sample used in the estimation, a slightly different empirical specification (different interactions for the variable 
capturing  ageing  effects  and  an  additional  variable  capturing  the  share  of  manufacturing  in  value  added),  and  some 
differences in the definition of norms (predictions based on a smaller set of fundamentals, notably excluding the NIIP 
and global risk aversion variables, and policy variables set at world average). IMF estimates of the current account norm 
for the euro area point to a small surplus in the order of 2.7% of GDP (staff assessment). 

14 

-3-2-101234060708091011121314151617fDENLFRITESOtherEA-19% of GDP-8-6-4-2024680607080910111213141516% of GDPHouseholdsGeneral governmentFinancial corporationsNon-Financial corporationsTotal Economy 
 
 
 
                                                                                                                                                         
The growing external position of the euro area is linked to a widespread deleveraging process. At 
the  euro-area  aggregate  level,  debt  remains  elevated  for  households,  corporations  and  governments, 
with  remarkable  differences  across  countries.  The  deleveraging  process  started  after  the  outbreak  of 
the  crisis  and  led  to  increased  net  savings  for  the  euro  area  as  a  whole  (Graph  B.1.2).  Active 
deleveraging  by  the  private  sector  started  early  on,  when  the  crisis  broke  out  around  2009,  while 
public finances contributed to cushion their impact on incomes. Net lending figures for the household 
sector  are  currently  twice  as  large  as  compared  with  the  pre-crisis  period.  Corporations,  which 
normally record net borrowing needs, have been posting a positive net lending position since 2013 and 
presently account for the biggest share of the overall net lending position of the euro area, reflecting 
subdued  investment  despite  ample  room  for  internal  financing.  While  this  aggregated  figure  masks 
relevant differences across countries, it reflects positive net lending positions in almost all euro-area 
countries, with the highest figures in terms of GDP being in Greece, the Netherlands and Spain; only 
in  Luxembourg,  France  and  Estonia  corporations  were  net  borrowers  in  2016.  Government 
deleveraging  started  in  2011,  with  net  lending  positions  becoming  less  negative  following  the 
implementation  of  policies  to  tighten  budgets,  accounting  for  a  relevant  share  of  the  increase  of  the 
overall net lending position of the euro area. 

Graph  B.1.3:  Euro  area  output,  domestic 
demand, net exports and core inflation 

Graph B.1.4: Euro area unemployment wage 
growth and rebalancing of unit labour costs14 

Source: AMECO 

Source: AMECO 

Rebalancing in the euro area needs to continue. Countries that have corrected large deficits are still 
characterised  by  large  negative  net  international  investment  positions  coupled  with  large  stocks  of 
private or government debt that represent vulnerabilities. Winding down large stocks of debt requires 
maintaining current account balances in balance or in surplus, which implies also a continued process 
of internal deleveraging. The relative competitiveness gains of net-debtor countries that started in 2012 
are gradually vanishing, while productivity growth has stalled (Graph B.1.4). 

While  stronger  demand  and  steady  growth  would  continue  help  the  deleveraging  and  the 
rebalancing, greater productivity and competitiveness gains would support a durable correction 
of  imbalances.  In  light  of  the  interconnection  among  euro-area  economies,  an  appropriate 

14   Surplus countries are defined as follows: Belgium, Germany, Luxemburg, the Netherlands, Austria, Finland;  
deficit countries are the remaining EA19 countries. All surplus countries recorded a current account position 
balanced or in surplus over the 1999-2012 period (the only exceptions being Germany and Austria before 
2002 and Finland after 2010, while all deficit countries recorded a deficit between 2000 and 2012).  

15 

-4-3-2-10123490009200940096009800100001020010400060708091011121314151617fConstant 2010 EUR mnNet ExportsOutput gap, rhsCore inflation (%), rhsOutput (GDP)Agg. Demand-2261014-20246060708091011121314151617fULC ''Surplus" countriesULC ''Deficit" countriesCompensation per employee EAUnemployment rate EA (rhs)% change 
 
 
 
                                                 
combination of macroeconomic policies across Member States is warranted, as it would support  the 
correction  of  imbalances  and  the  recovery.  Supportive  demand  conditions  in  euro-area  net-creditor 
countries and in countries outside the euro area would be crucial to this end for net-debtor countries. In 
this respect, the recent recovery in nominal growth has contributed to an acceleration of the pace of 
reduction  in  the  stock  of  net  foreign  liabilities  as  a  share  of  GDP.  Structural  improvement  in 
productivity and competitiveness, in particular in net-debtor countries, would need to be maintained to 
support sustained adjustment and help ease the debt burden.  

Private  sector  debt  ratios  have  generally  receded  from  their  post-crisis  peaks,  but 
over-indebtedness continues to affect several countries.  Twelve Member States exceeded 
the scoreboard threshold for private debt  in  2016, the same set of countries as  in last  year's 
AMR, with the exception of Malta, which is now below the threshold. Private debt ratios are 
highest in Cyprus, Luxembourg, Ireland and the Netherlands, although figures are influenced 
by  the  large  presence  of  multinational  or  offshore  sectors.  Denmark,  Sweden,  Belgium, 
Portugal  and  the  United  Kingdom  have  the  next  highest  scoreboard  indicator  value,  with 
stocks of private debt in excess of 160% of GDP. 

The  relative  contribution  of  households  and  firms  to  high  private  debt  levels  varies 
across Member States. In the case of Luxembourg, Ireland and, to a lesser extent, Belgium, 
it  is  mainly  the  high  debt  ratios  of  non-financial  corporations  (NFCs)  that  stand  out  from  a 
cross-country  comparison.  Conversely,  large  stocks  of  private  debt  are  driven  by  the 
household sector in Denmark and the United Kingdom. Cyprus, the Netherlands and Portugal 
experience  comparatively  high  debt  levels  in  both  the  corporate  and  household  sectors. 
Overall, debt stock differences across countries are to a large extent explained by differences 
in fundamental factors justifying the accumulation of debt, including prospects for growth and 
investment, constraints to private savings, and financial development. At the same time, risks 
posed by high debt should be assessed against the backdrop of a country's growth potential, 
the resilience of its financial sector and the currency denomination of those liabilities, while 
also  taking  into  account  the  value,  liquidity,  volatility  and  distribution  of  the  underlying 
assets. 

The pace of private debt reduction has been uneven across countries and is not always 
commensurate with deleveraging needs. The level of debt in the non-financial private sector 
increased significantly in the run-up to the financial crisis and has only marginally decreased 
since then in most cases. In the five countries with the highest NFC debt ratios (Luxembourg, 
Cyprus, Ireland, Belgium and the Netherlands), deleveraging has stalled or reversed over the 
past two years, while in France it has yet to start (Graph 9). In contrast, in Sweden, Portugal, 
Bulgaria and Spain, which also show high debt ratios, NFC deleveraging continued at a quick 
pace.  In  some  countries  not  burdened  by  high  debt  levels,  such  as  Latvia,  Hungary  and 
Slovenia,  NFC  deleveraging  has  been  rapid  and  has  accelerated  over  the  past  two  years. 
Household leverage ratios declined over the past two years in the three Member States where 
households are most indebted (Denmark, Cyprus and the Netherlands), as well as other high 
debt  countries  such  as  Portugal,  Spain  and  Greece  (Graph  10).  Household  deleveraging  has 
instead stalled in the UK and relatively high debt ratios in Sweden and Finland kept growing 
further. 

16 

 
 
 
 
Graph 9: Pace of deleveraging of non-financial corporations 

Source: Eurostat, Commission services calculations. 
Note: Numbers below the country codes indicate the peak year. The increase to peak was calculated based on an 
initial  year  other  than  2000  for  the  case  of  LU  (2001),  PL  (2002),  MT  (2003)  and  LV  (2003).  Based  on 
consolidated debt data. 

Graph 10: Pace of household deleveraging 

Source: Eurostat, Commission services calculations. 
Note: Numbers below the country codes indicate the peak year. The increase to peak was calculated based on an 
initial  year  other  than  2000  for  the  case  of  LU  (2002),  PL  (2003),  MT(2004)  and  LV  (2004).  Based  on 
consolidated debt data. 

17 

 
 
 
 
 
Credit flows are picking up more strongly in the household sector than in the corporate 
sector, implying different deleveraging modes and investment dynamics. Overall, private 
sector  credit  flows  remain  comparatively  modest,  and  no  Member  State  exceeded  the 
scoreboard  threshold  in  2016.  Over  recent  years,  in  light  of  resuming  growth,  household 
deleveraging  has  become  increasingly  driven  by  reductions  in  the  debt-to-GDP  ratio  via 
stronger  GDP  growth  ("passive  deleveraging"),  while  "active"  household  deleveraging 
through negative net credit flows was only observed in some of the countries most affected by 
the economic and financial crisis i.e., in Cyprus, Ireland, Portugal, Spain and Greece (Graph 
11a).  Households  have  actually  been  leveraging  up  in  twelve  Member  States  over  the  past 
year, including in countries with high debt levels such as the United Kingdom, Sweden and 
Finland. The pick-up in credit  flows  has  generally been  weaker for firms, implying that  the 
corporate  sector  is  currently  deleveraging  in  more  than  two  thirds  of  Member  States,  with 
dynamics  broadly  split  into  active  and  passive  modes  (Graph  11b).  Active  deleveraging  by 
firms tends in turn to be associated with subdued investment (Graph 12), which underscores 
the importance of the debt overhang for the poor investment record of NFCs in the post-crisis 
period. 

Graph 11a: Decomposition of the change in 
household debt-to-GDP (2017 Q1) 

Graph 11b: Decomposition of the change in NFC 
debt-to-GDP (2017 Q1) 

Sources: Eurostat, Commission services calculations. 
Notes: the graphs present a breakdown of the evolution of the debt-to-GDP ratios into four components: credit 
flows,  real  GDP  growth,  inflation  and  other  changes.  Active  deleveraging  involves  net  repayment  of  debt 
(negative  net  credit  flows),  usually  leading  to  a  nominal  contraction  of  the  sectorʼs  balance  sheet  and  having, 
ceteris paribus, adverse effects on economic activity and asset markets. Passive deleveraging, on the other hand, 
consists  in  positive  net  credit  flows  being  outweighed  by  higher  nominal  GDP  growth,  leading  to  a  gradual 
decrease  in  debt/GDP.  Active  leveraging  takes  place  when  positive  net  credit  flows  outweigh  nominal  GDP 
growth. Data on NFCs for CY refers to 2016 Q3. 

18 

-8-6-4-20246CYIEPTESELNLDKHRHUMTROLVDESIITBEFILTBGEEPLATUKCZSEFRLUSKActivedeleveragingPassive deleveragingActive leveragingy-o-y as % of GDPOther changesInflationReal growthNet credit flowsD/GDP, change-35-30-25-20-15-10-505101520IEFIHUSIPTDKBEELROLVLUHRESBGNLEEMTCYDECZATITPLLTSEUKSKFRActive deleveragingPassive deleveragingActive leveragingy-o-y as % of GDPOther changesInflationReal growthNet credit flowD/GDP, change 
 
 
 
 
 
Graph 12: Changes in the NFC investment and net lending/borrowing ratios in the years following a debt 
peak 

Source: Eurostat, Commission services' calculations. 
Note:  The  country  sample  is  restricted  to  those  countries  for  which  data  is  available  and  whose  NFC  debt-to-
GDP ratio peaked before 2016. 

The EU banking sector continues to face challenges linked to low levels of profitability 
and  large  stocks  of  non-performing  loans  (NPLs)  in  some  countries.  The  growth  in 
financial sector liabilities is accelerating in most Member  States, but generally remains well 
below the scoreboard threshold.15 Most Member States witnessed some improvements in bank 
profitability,  capital  ratios,  stocks  of  NPLs  and  credit  flows  over  the  past  year.  Bank 
valuations,  in  particular,  recovered  significantly  from  mid-2016  to  mid-2017,  related  to 
expectations of higher interest rates and steeper yield curves. Profitability, however, remains 
under pressure in light of the low-interest rate environment and outdated business practices. In 
some Member States, a combination of low profitability, capital ratios on the low side of the 
cross-country  distribution  and  high  levels  of  NPLs  can  be  found.  This  is  the  case,  in 
particular, in Greece, Cyprus, Italy and Portugal (Graphs 13 and 14). 

15   Hungary  constitutes  an  exception,  although  the  rapid  growth  in  financial  sector  liabilities  observed  in  2016  is 

attributable to a particular transaction with limited macroeconomic impact. 

19 

BEBGCZDKDEEEELESHRITCYLVLTHUNLATPTROSIFISEUK-10-8-6-4-202468-20-15-10-50510Change in the NFC investment-to-GDP ratio (pps)Change in the NFC net lending/borrowing-to-GDP ratio (pps) 
 
 
 
 
                                                 
Graph 13: Bank profitability and capital ratios 

Graph 14: Non-performing loans 

Sources: ECB, Commission services calculations. 
Notes: Data on gross non-performing debt instruments for 2008 is unavailable for CZ, HR, SE and SI. In Graph 
13, the 2015 Q1 data point refers to 2014 Q4 in the case of BG and to 2016 Q1 in the case of CZ. 

The  stock  of  NPLs  continues to  decline  across  the  EU,  but  remains  elevated  in several 
Member States. The NPLs ratio is declining in all Member States with relatively high shares 
of  NPLs,  with  the  exception  of  Greece.  This  decline  in  the NPL  ratio  has  started,  however, 
only very recently in Portugal and Italy (Graph 14). Notwithstanding a declining trend, NPLs 
remain  elevated  in  a  number  of  countries.  In  particular,  Greece  and  Cyprus  continue  to 
experience NPLs in excess of 30% of total loans, while Italy and Portugal display NPL ratios 
close to 14%. Bulgaria, Ireland, Croatia, Slovenia have NPL stocks in the vicinity of 10% of 
total loans. 

A  broad-based  increase  in  real  house  prices  is  ongoing  in  the  EU,  representing  a 
leading  to  widening 
recovery  from  previous  downturns  but  also  potentially 
overvaluations  in  some  cases.  Real  house  prices  increased  in  25  Member  States  in  2016, 
with  indicator  values  exceeding  the  scoreboard  threshold  in  Bulgaria,  the  Czech  Republic, 
Ireland, Latvia, Hungary, Austria, Portugal, Romania, Slovakia and Sweden. This represents 
four  more  countries  than  last  year  and  a  different  composition,  with  only  Ireland,  Hungary 
and  Sweden  having  exceeded  the  threshold  in  both  years.16  Greece,  Italy  and  Finland 
represent the only instances of declines in real house prices, which, in the case of the former 
two countries, have continued into 2017 and are contributing to the current negative valuation 
gap  (Graph  15).  In  several  other  Member  States,  the  increase  in  real  house  prices  added 
further  pressure  to  already  overvalued  housing  markets.  Tensions  are  particularly  visible  in 
Sweden and, to a lesser extent, in the United Kingdom, Luxembourg and Austria, where the 

16  

In  November  2016,  the  European  Systemic  Risk  Board  (ESRB)  issued  country-specific  warnings  on  medium-term 
vulnerabilities  in  the  residential  real  estate  sector  to  eight  EU  Member  States  (Austria,  Belgium,  Denmark,  Finland, 
Luxembourg, the Netherlands, Sweden and the United Kingdom). 

20 

 
 
 
 
                                                 
 
strong increase in real house prices in 2016 came on top of an estimated overvaluation gap. In 
the case of Austria and the United Kingdom, quarterly data shows, however, that house price 
dynamics  decelerated  in  2017.  In  Sweden  and  the  United  Kingdom,  but  also  in  Denmark, 
overvalued house prices coexist with large household debt levels. In some cases, strong price 
dynamics are in evidence in countries that show only small (under)valuation gaps. This is the 
case in Hungary, Bulgaria, Latvia, the Czech Republic and Slovakia, where real house price 
growth  has  continued  into  2017  and  where  overvaluation  risks  may  be  building  up.  In  the 
Netherlands,  relatively  sustained  house  price  dynamics  take  place  in  a  context  of  high 
household debt. In some Member States, sustained dynamics in house prices are coupled with 
those of mortgage lending, suggesting credit-induced risks of a heating up. This is notably the 
case  in  Slovakia  and  Romania,  where  mortgage  growth  exceeded  10%  in  2016,  albeit  in  a 
context of low household debt levels. In all, buoyant house price growth in a number of EU 
countries  deserve  continued  monitoring  in  light  of  the  possible  accumulation  of  pockets  of 
macro-financial  risks  and  for  its  implications  in  terms  of  resource  allocation  and  housing 
affordability. 

Graph 15: House prices changes and valuation gaps in 2016 

Source: Eurostat, ECB, BIS, OECD and Commission services calculations. 
Note: the overvaluation gap was estimated as an average of three metrics: the deviations in the price-to-income 
and the price-to-rent ratios from their long-run averages, and the results from a fundamentals model of valuation 
gaps. 

Government debt ratios have now peaked in nearly all Member States, but debt levels 
remain elevated in most countries. Scoreboard values exceeded the threshold in 16 Member 
States in 2016, down from 17 countries recorded in the AMR 2017. For nine of these Member 
States government debt in excess of 60% of GDP combines with private sector indebtedness 
beyond  the  threshold,  suggesting  economy-wide  deleveraging  needs.  Government  debt-to-
GDP  ratios  have  generally  embarked  into  downward  trajectories  among  the  Member  States 
with the highest levels of government debt, with France and Italy being exceptions. However, 
the deleveraging pace is often modest: among the ten Member States with the highest levels 
of government debt, only Greece, Cyprus and Austria are expected to achieve a reduction of 
at  least  10  percentage  points  in  the  debt  ratio  between  year-end  2016  and  2019.  Among 
Member  States  with  lower  debt  levels,  debt  ratios  are  projected  to  grow  in  Romania  and 

21 

 
 
 
 
Luxembourg. Overall, government sector deleveraging is taking place in light of the gradual 
improvement in budgetary positions over the past years and recently resuming growth. This 
allows  for  incipient  reductions  in  the  government  debt-to-GDP  ratio  despite  mild  budgetary 
loosening in a number of countries. 

Box 2: Employment and social developments 

Labour  markets  in  the  EU  have  continued  to  improve  during  2016  and  the  first  half  of  2017,  with 
unemployment  rates  declining  further  and  with  disparities  across  the  EU  decreasing  from  elevated 
levels. The job-rich recovery contributed to an improving social situation on the back of a decline in 
the  share  of  people  at  risk  of  poverty  or  social  exclusion,  due  to  a  reduction  in  low  work  intensity 
households and severe material deprivation, while the (monetary) at-risk-of-poverty rate has stabilised. 
Social distress remains a concern in many Member States, with possible negative effects on potential 
GDP  growth  and  implications  for  the  correction  of  macroeconomic  imbalances  that  deserve 
consideration.  The  newly  proclaimed  European  Pillar  of  Social  Rights  can  work  as  a  compass  to 
address these challenges and promote upward social convergence in the EU. 

In 2016, the unemployment rate decreased further, but was still high or even very high in several EU 
countries. From 2015 to 2016, it increased in only two countries, Austria and Estonia, though starting 
from  low  levels.  Improvements  have  been  the  strongest  in  countries  among  those  with  the  highest 
level  of  unemployment  (reductions  of  2  percentage  points  or  more  in  Croatia,  Cyprus,  and  Spain). 
Still,  nine  Member  States  (Greece,  Spain,  France,  Croatia,  Italy,  Cyprus,  Latvia,  Portugal  and 
Slovakia)  exceeded  the  scoreboard  indicator  threshold  of  an  average  of  10%  over  the  past  3  years; 
down from 12 in the last two AMRs. In addition, in 2016 unemployment rates were still higher than in 
2008  in  about  two  thirds  of  Member  States.  At  8.6%  and  10%  in  the  EU  and  the  euro  area 
respectively, unemployment rates were about around 2 percentage points below the respective peaks 
reached in 2013, but still 1.6 and 2.4 percentage points higher than 2008 figures. Unemployment rates 
continued steadily decreasing in the first half of 2017, down to 7.7% and 9.1% by mid 2017 in the EU 
and the euro area respectively.  

Employment  and  employment  rates  went  up  in  almost  all  Member  States,  continuing  the  positive 
developments of the last years. The employment rate (20-64 years old) reached 71.1% in 2016 for the 
EU as a whole, surpassing the pre-crisis peak of 70.3% recorded in 2008. The employment rate kept 
increasing in the second quarter of 2017 up to a record 72.2%. In absolute terms, in 2016 the number 
of persons employed declined only in Romania and Latvia.  

Activity  rates  increased  nearly  everywhere  in  the  EU.  Only  two  countries  registered  a  declining 
activity  rate  over  the  last  three  years:  the  decrease  in  Cyprus  came  just  at  level  of  the  scoreboard 
threshold of -0.2, while that in Spain (-0.1) was even below it. On aggregate, in 2016 for the EU and 
the euro-area activity rates were at 72.9% and 72.9% respectively, i.e., 2.6 and 2.1 percentage points 
above their 2007 levels. The increasing trend is mostly due to increasing labour market participation 
by older workers and women.  

Long-term  unemployment  improved  with  some  delay  after  the  start  of  the  recovery,  but  by  2016, 
improvements could already be seen in almost all Member States. Only two countries recorded rates 
that are at least 0.5 percentage points higher than three years ago – the threshold in the scoreboard: in 
Austria, it increased to 1.9%, and in Finland by 2.3%. The highest rates of long-term unemployment 
were observed in Greece (17%) and Spain (9.5%).  

The  youth  unemployment  rate  fell  in  all  EU  countries  in  the  three  years  to  2016,  except  in 
Luxembourg (where the increase of 2.2 percentage points slightly exceeds the scoreboard threshold of 
2 percentage points) and, to a lesser extent, in Austria and Finland. Falls of 10 percentage points or 
more over the same period were recorded in countries among those with the highest rates (including 

22 

 
 
 
 
Greece, Hungary, Spain, and Croatia) as well as in Bulgaria and Slovakia. The youth unemployment 
rate  is  still  above  30%  in  Croatia,  Greece,  Italy  and  Spain,  while  the  share  of  young  people  not  in 
employment, education or training is still above 15% in Bulgaria, Croatia, Cyprus, Greece, Italy and 
Romania.   

The social situation is still a source of concern in various EU countries. The share of people at risk of 
poverty or social exclusion (AROPE) has decreased in around half of the EU countries, and often by 
low margins, between 2015 and 2016.17 In 2016, almost one quarter of the EU population was at risk 
of poverty or social exclusion. Rates varied considerably from around 40% in Bulgaria and Romania, 
followed by Greece at over 35%, to around 13% in the Czech Republic and 17% in Denmark, Finland 
and the Netherlands. Luxembourg and Romania recorded some of the strongest increases in AROPE 
rates  between  2015  and  2016,  whereas  Hungary,  Latvia  and  Malta  showed  the  most  marked 
reductions.  At  the  same  time,  disposable  household  income  has  increased  it  has  not  yet  reached  its 
2008 levels in real terms in many Member States. 

The overall AROPE developments reflect different evolutions of its different components. The share 
of people at risk of poverty (AROP) while declining in most Member States in 2016 had increased in 
most of the EU countries in recent years: the largest increases in AROP over a three-year period were 
recorded in Estonia, Latvia, the Netherlands and Romania, while a significant decrease was recorded 
in Greece, albeit from an above-average reading. In contrast, severe material deprivation has declined 
over the past three years and also in 2016 alone in almost all EU Member States: it declined over 10 
percentage  points  over  a  three-year  period  in  Bulgaria,  Hungary  and  Latvia.  Finally,  whereas  the 
recovery has brought a decline in the share of people (under 60) living in households with very low 
work intensity in most EU countries, most notably in Hungary, Portugal, Latvia and Estonia, there are 
still countries where share increased in 2016, notably Lithuania, Finland, Greece and Romania. 

Overall, risks and vulnerabilities stemming from legacy issues and/or recent trends are 
present in a number of Member States. The degree of severity and the urgency in bringing 
forth  adequate  policy  responses  vary  significantly  across  Member  States,  depending  on  the 
nature of the vulnerabilities or trends, as well as their confinement to one or several sectors of 
the economy: 

  A  number  of  Member  States  are  affected  by  multiple  and  interconnected  stock 
vulnerabilities. This is the case for countries that were hit most severely by boom-bust 
credit  cycles  –  frequently  associated  with  liquidity  and  solvency  issues  in  their 
banking sectors – and the sharpest reversals of current account positions. In the case of 
Cyprus,  Greece18  and  Portugal,  elevated  private  indebtedness  combines  with  high 
levels  of  public  debt,  large  negative  net  international  investment  positions  and 
remaining issues within the banking system. These countries still confront the issue of 
addressing significant  deleveraging needs in the context  of limited fiscal space, high 
(though receding)  levels  of  unemployment  and  modest  nominal  growth.  In  Bulgaria, 

17   The indicator At Risk of Poverty or Social Exclusion (AROPE) corresponds to the share of persons who are vulnerable 
according to at least one of three social indicators: (1) At risk-of-poverty (AROP) are persons with disposable income 
(adjusted for household composition) below 60% of the national median; (2) Severe material deprivation (SMD) covers 
indicators related to a lack of resources, namely the share of people experiencing at least 4 out of 9 deprivations items; 
(3) People living in households with very low work intensity are those aged 0-59 living in households in which adults 
(aged 18-59) work less than 20% of their total work potential during the past year.  
In  the  case  of  Greece,  the  surveillance  of  imbalances  and  the  monitoring  of  corrective  measures  takes  place  in  the 
context of the programme of financial assistance rather than under the macroeconomic imbalances procedure.  

18  

23 

 
 
 
 
                                                 
Croatia, Ireland, Slovenia and Spain, vulnerabilities are also multiple, interconnected 
and,  with  the  possible  exception  of  Bulgaria,  carry  an  important  stock  imbalance 
dimension. However, faster progress in addressing them has been achieved than in the 
countries previously mentioned. 

 

In a few Member States, vulnerabilities are driven mainly by  large stocks of general 
government debt and concerns relating to potential output growth and competitiveness. 
This  is  particularly  the  case  for  Italy,  where  vulnerabilities  are  also  linked  to  the 
banking sector, in particular the large stock of NPLs. Belgium and France also face a 
high general government debt and potential growth issues, but are not confronted with 
similar potential risks stemming from vulnerable banks. 

  Some  Member  States  are  characterised  by  large  and  persistent  current  account 
surpluses  that  while  reflecting  their  strong  competitiveness  reflect  also,  to  a  varying 
degree,  subdued  private  consumption  and  investment.  This  is  the  case  notably  for 
Denmark, Germany, the Netherlands and also Sweden. In the case of Germany, this is 
combined  with  deleveraging  trends  in  all  sectors  of  the  economy,  even  though  debt 
levels  are  not  comparatively  high.  The  large  and  persistent  surpluses  may  imply 
forgone  growth  and  domestic  investment  opportunities.  In  addition,  the  shortfalls  in 
aggregate demand bear consequences for the rest of the euro area in a context of still 
slack in activity and below-target inflation. 

 

In some Member States, developments in price or cost variables show potential signs 
of  overheating,  particularly  as  regards  the  housing  market  or  the  labour  market.  In 
Sweden, as well as in Austria, Denmark, Luxembourg, the Netherlands and the United 
Kingdom,  price  pressures  relate  mainly  to  the  housing  sector  in  combination  with 
significant  levels  of  household  debt.  In  Estonia,  Hungary,  Latvia,  Lithuania  and 
Romania,  unit  labour  costs  continue  to  grow  at  a  relatively  strong  pace  while  price 
competitiveness  is  edging  down.  In  these  countries,  especially  Romania  and  also 
Hungary,  accelerating  unit  labour  costs  are  recorded  against  the  background  of  pro-
cyclical fiscal policies that could exacerbate possible overheating pressures. 

Overall, IDRs are warranted for 12 Member States: Bulgaria, Croatia, Cyprus, France, 
Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden. All of 
these  countries  were  subject  to  an  IDR  in  the  previous  cycle,  during  which  IDRs  were 
prepared  for  13  countries  overall.  While  the  set  of  Member  States  undergoing  an  IDR  is 
slightly reduced compared with last year, new possible risks are building up in a number of 
countries for which no IDR is warranted at this stage and thereby developments will continue 
to  be  monitored,  as  indicated  in  Section 3.  Relative  to  the  AMR  2017,  further  progress  has 
been made in addressing external imbalances among net-debtor countries, and labour markets 
and  growth  conditions  have  continued  to  generally  improve.  Progress  in  tackling  and 
preventing the emergence of imbalances related to internal dynamics and sectorial debt stocks 
has been more mixed. Given that internal and external stock imbalances only adjust slowly, 
they  remain  a  source  of  risks  and  vulnerabilities  in  many  Member  States,  weighing  also  on 
investment  prospects  and  the  economic  recovery.  Without  the  strengthening  of  long-term 
growth  drivers  such  as  investment,  productivity  and  employment  levels,  improving  cyclical 
conditions may prove insufficient to bring current stock imbalances to prudent levels. At the 
same  time,  the  upswing in  cyclical  conditions  is contributing  to  building  up  localised  price, 
cost and housing market pressures, which warrant close monitoring in some countries. 

24 

 
 
3. 

IMBALANCES, RISKS AND ADJUSTMENT: COUNTRY-SPECIFIC COMMENTARIES 

Belgium: In the previous round of the MIP, no macroeconomic imbalances were identified in 
Belgium.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative 
threshold,  namely  private  debt  and 
government debt.  

External  sustainability  is  underpinned 
by  a  very  favourable  net  international 
investment  position  and  a  current 
account  position  close  to  balance.  On 
the  back  of  gains  in  2016,  cumulated 
losses  in  export  market  shares  have 
been  substantially  reduced.  Nominal 
unit  labour  cost  developments  have 
been subdued but are expected to pick 
up going forward. Private debt remains 
relatively  high,  in  particular  for  non-
though 
corporates, 
financial 
widespread intra-group lending inflates 
debt 
to 
household 
originate 
debt 
the  housing 
from 
predominantly 
market.  Real  house  prices  have  been 
relatively flat in recent years, meaning 
that  no  correction  has  taken  place  for 
the  fast  increase  prior  to  2008.  Government  debt  is  expected  to  slowly  decline  from  high 
levels and continues to represent a major challenge for the long-term sustainability of public 
finances;  government  consumption  is  stagnant  as  a  result  of  the  ongoing  consolidation  of 
public finances. Job creation remains strong and long-term unemployment as well as the high 
and persistent youth unemployment have been decreasing. 

figures.  Risks 

related 

Overall,  the  economic  reading  highlights  issues  relating  to  public  indebtedness,  though  the 
risks linked to them remain contained. Therefore, the Commission will at this stage not carry 
out further in-depth analysis in the context of the MIP. 

Bulgaria:  In  February  2017,  the  Commission  concluded  that  Bulgaria  was  experiencing 
excessive macroeconomic imbalances, in particular involving pockets of vulnerabilities in the 
financial sector coupled with a high corporate indebtedness in a context of incomplete labour 
market  adjustment.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the 
indicative threshold, namely net international investment position (NIIP) and real house price 
growth. 

25 

 
 
 
 
the 

sizeable 

The negative NIIP remains beyond the 
threshold but has continued to improve 
as the current account has moved into 
a 
surplus.  Reflecting 
catching-up  dynamics,  most  of  the 
NIIP  relates  to  net  foreign  direct 
investment  liabilities,  which  mitigates 
external  risks.  Improvements  in  the 
external  position  are  supported  by  the 
gains in export market shares recorded 
over 
last  few  years.  Private 
indebtedness  remains  a  concern,  in 
particular  for  non-financial  corporates 
where  the  level  of  non-performing 
loans  remains  high  despite  the  on-
going  deleveraging  process.  Real 
house  prices  increased  strongly  in 
2016  and  warrant  close  monitoring. 
Early  steps  are  underway  to  help 
the 
the  vulnerabilities 
address 
financial sector. Yet, and despite the favourable macroeconomic environment, the functioning 
of the sector is still hampered by lingering concerns over weak governance, asset quality and 
supervision.  The  recovery  of  the  labour  market  continues,  with  unemployment  projected  to 
fall over the forecast horizon. Still, persistent structural issues, such as the high share of long-
term  unemployed  as  well  as  skills  and  qualification  mismatches,  lead  to  underutilisation  of 
human  capital  and  weigh  on  employment.  Meanwhile,  wage  and  labour  costs  are  set  to 
accelerate looking  forward, notably due  to  supply  shortages in  some sectors and to plans to 
further increase the minimum wage over 2018-2020. 

in 

Overall, the economic reading points to remaining vulnerabilities in the economy, including 
in the financial sector. 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. 

the  MIP, 

Czech  Republic:  In  the  previous  round 
of 
no  macroeconomic 
imbalances  were  identified  in  the  Czech 
Republic. In the updated scoreboard, real 
house  price  growth 
is  beyond the 
indicative threshold. 

The current account balance has been on 
an  improving  trend  and  now  shows  a 
small  surplus.  The  net 
international 
investment  position  has  continued  to 
strengthen,  partly  due  to  the  defence  of 
the exchange rate floor vis-à-vis the euro, 
a policy which, however,  ended  in April 
2017.  Export  market  shares  showed 

26 

Graph A3: Households' debt and House Price IndexSource: Eurostat and ECB5060708090100110120051015202530350607080910111213141516House price index, 2015=100household debt, % of GDPCzech RepublicNon-bank loans to householdsOther bank loans to householdsLoans for house purchaseReal house price (RHS)Graph A2: Private Debt and Non-Performing LoansSource: Eurostat and ECB051015202502040608010012014007080910111213141516% of GDPBulgariaHouseholdsNon-financial corporationsGross Total Doubtful and Non-Performing Loans (rhs)% of total loans 
 
 
gains.  Nominal  unit  labour  costs  increased,  largely  driven  by  strong  wage  growth  that  is 
projected to accelerate further in the context of a tightening labour market. Real house price 
growth  accelerated  further  and  now  is  now  beyond  the  threshold,  which  warrants  attention. 
The  feedback  spiral  between  house  prices  and  mortgage  volumes  accelerated.  The  private 
sector  debt  level  slightly  increased  in  2016,  but  remains  within  the  threshold.  The  largely 
foreign-owned banking sector remains stable, despite the growth of financial sector liabilities 
accelerating significantly in 2016. Unemployment has continued falling and is very low. 

Overall,  the  economic  reading  highlights  issues  relating  to  possible  internal  risks  although 
still  contained.  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 remain beyond the indicative 
threshold, namely the current account balance and the private sector debt.  

and 
current 

The current account balance continues to 
show  large  surpluses,  reflecting  strong 
household 
corporate 
savings 
account 
deleveraging.  The 
surpluses have led to a large positive net 
international  investment  position,  which 
in  turn  generates  positive  net  income  on 
foreign investments. Cumulated losses in 
export  market  shares  have  been  reduced 
while  cost  competitiveness 
indicators 
stable.  Household  debt, 
have  been 
although  decreasing,  remains  among  the 
highest in the EU. The high level reflects 
a specific mortgage bank funding model, 
low 
a  favourable 
incentives  for  paying  down  mortgage 
debt, as well as an advanced pension and 
welfare  system.  However,  supported  by 
and 
continued 
improving labour market conditions, house prices continue to recover, particularly in the main 
urban  areas,  which  warrants  attention.  Nonetheless,  the  banking  sector  remains  sound.  The 
labour market is gradually improving, and unemployment is low and reducing. 

treatment  and 

funding 

costs 

low 

tax 

Overall,  the  economic  reading  highlights  issues  related  to  the  current  account,  the  private 
debt  and  the  housing  sector  but  risks  appear  contained.  Therefore,  the  Commission  will  at 
this stage not carry out further in-depth analysis in the context of the MIP. 

Germany:  In  February  2017,  the  Commission  concluded  that  Germany  was  experiencing 
macroeconomic  imbalances,  in  particular  related  to  in  its  large  current  account  surplus 
reflecting  excess  savings  and  subdued  investment.  In  the  updated  scoreboard,  a  number  of 
indicators  are  beyond  the  indicative  threshold,  namely  the  current  account  balance  and 
government debt.  

27 

Graph A4: Households' debt and House Price IndexSource: Eurostat and ECB50607080901001101201300204060801001201401600607080910111213141516House price index, 2015=100household debt, % of GDPDenmarkNon-bank loans to householdsOther bank loans to householdsLoans for house purchaseReal house price (RHS) 
 
 
 
is 

to 

slowing  world 

The current account surplus was broadly 
stable  in  2016.  With  steady  domestic 
demand  growth,  the  current  account 
surplus 
continue 
expected 
narrowing, but to remain at a high level 
and  sustain  further  increases  in  the  net 
international  investment  position.  The 
positive  impact  from  terms-of-trade  is 
dissipating.  Export  growth  weakened 
amid 
trade,  which 
sustained  export  market  shares.  Despite 
low  private  sector  debt,  private  sector 
deleveraging trends continue with excess 
savings  and  subdued  investment,  which 
is  then  reflected  in  the  high  current 
account surplus. Corporate investment is 
restrained  despite  improving  liquidity. 
Real  house  prices  growth  has  been 
accelerating. However, credit growth has 
been  subdued  despite  low  interest  rates 
and  accelerating  house  prices.  Wage  growth  is  moderate,  but  so  is  per  capita  household 
consumption  keeping  the  household  saving  rate  at  an  elevated  level.  Government  debt 
continued to decrease towards the threshold with budget surpluses forecast over the forecast 
horizon. The public investment backlog remains. Overall unemployment, as well as youth and 
long-term unemployment, have further decreased and remain very low.  

Overall, the economic reading highlights issues relating to  the very large and only gradually 
decreasing  external  surplus  and  strong  reliance  on  external  demand  underlining  the  need  for 
continued rebalancing. 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.  

identified 

in  Estonia.  In 

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

investment 

is  beyond  but 
The  negative  NIIP 
getting close to the threshold, but more 
than  half  of  the  external  liabilities 
consist of FDI. The current account has 
shown  small  surpluses  since  2014, 
which are expected to be sustained over 
the  forecast  horizon.  Despite  some 
gains  in  2016,  in  cumulated  terms, 

28 

Graph A5: Net lending/borrowing by sectorSource: Commission services. NPISH stands for non-profit institutions serving households-6-4-202468101207080910111213141516% of GDPGermanyHouseholds and NPISHGeneral governmentCorporationsTotal economy 
 
 
export market shares have been stable. The strong growth  in nominal unit labour costs, and 
the  appreciating  real  effective  exchange  rate,  mainly  reflects  wage  growth  in  a  tightening 
labour market. Going forward, with investment flows and export markets rebounding this year 
and next year, productivity is set to increase and unit labour cost growth to slow down. House 
price  growth  moderated  in  2016  after  having  grown  beyond  the  threshold  in  earlier  years. 
Private sector debt is stable and the government debt remained the lowest in the EU. Long-
term  and  youth  unemployment  indicators  have  further  improved,  as  activity  rates  reached 
historically high levels.  

Overall, the economic reading highlights issues related to cost competitiveness in a tightening 
labour market but risks are contained. Therefore, the Commission will at this stage not carry 
out further in-depth analysis in the context of the MIP. 

Ireland:  In  February  2017,  the  Commission  concluded  that  Ireland  was  experiencing 
macroeconomic imbalances, in particular involving vulnerabilities from large stocks of public 
and  private  debt  and  net  external  liabilities,  despite  improvements  in  flow  variables.  In  the 
updated  scoreboard,  a  number  of  indicators  remain  beyond  the  indicative  threshold,  namely 
investment 
the 
real  effective 
position 
exchange  rate  (REER),    private  debt, 
government  debt  as  well  as  real  house 
prices.  

international 

(NIIP), 

net 

the 

to 

improved 

enterprises. 

impact  of 

The current account shows a substantial 
surplus  while  the  NIIP  has  worsened 
strongly  mainly  driven  by  factors 
domestic 
from 
disconnected 
the 
economy.  Overall, 
the  underlying 
current  account  and  external  position 
remain difficult to assess due to the size 
the  activities  of 
and 
multinational 
Strong 
productivity  growth  in  past  years  has 
contributed 
cost 
competitiveness.  On  the  back  of  the 
strong  recovery,  the  ratios  of  private 
and  government  debt 
to  GDP  are 
falling  but  remain  high.  Households 
have continued to deleverage actively while the situation of domestic non-financial companies 
is  more difficult to interpret  given the weight of  multinationals on total corporate debt. The 
government deficit is moving close to balance over the forecast horizon. The non-performing 
loans ratio has been declining over the last years, but remains elevated, with implications for 
the entire economy. Banks are well capitalised and their profitability, albeit still subdued, is 
improving gradually. Real house prices are increasing at a fast pace, mainly driven by supply 
constraints, from still likely undervalued levels, but warrant attention. Ireland is nearing full-
employment, unemployment falling and full-time jobs growing at the fastest pace since 1999. 
Long-term and youth unemployment have also declined substantially.  

29 

Graph A7: Households' debt and House Price IndexSource: Eurostat, Commission services and ECB50709011013015017005010015020025004050607080910111213141516House price index, 2015=100household debt, % of  Households GDIIrelandOther household debtBank loans for house purchaseReal house price (RHS) 
 
 
Overall,  the  economic  reading  highlights  issues  relating  to  the  assessment  of  external 
sustainability,  the  financial  sector  vulnerabilities,  private  and  public  debt.  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. 

Spain:  In  February  2017,  the  Commission  concluded  that  Spain  was  experiencing 
macroeconomic  imbalances,  in  particular  relating  to  the  high  levels  of  private,  public  and 
external  indebtedness  in  a  context  of  high  unemployment.  In  the  updated  scoreboard,  a 
number  of  indicators  are  above  the  indicative  threshold,  namely  the  net  international 
investment  position  (NIIP),  as  well  as  private  and  government  debt  ratios,  and  the 
unemployment rate. 

to  remain 

is  expected 

External  rebalancing  has  continued. 
The  NIIP  has  improved  but  remains 
very  high,  and  it  will  take  time  before 
it  reaches  prudent  levels.  The  current 
account 
in 
moderate  surplus  despite  the  strength 
to 
final  demand,  partly  due 
of 
structural 
in  export 
improvements 
performance.  Unit  labour  cost  growth 
has been subdued but low productivity 
growth  makes  competitiveness  gains 
hinge 
advantages. 
Deleveraging needs remain, but private 
sector  debt  has  continued  to  decline 
for 
throughout 
corporations.  The  pace  of  debt 
reduction has slowed as new credit has 
started  flowing  again,  supporting  a 
strong  rebound  in  investment.  The 
government debt ratio is high and only 
slowly  decreasing,  driven  mainly  by  strong  growth.  Unemployment  has  been  declining 
rapidly,  but  it  remains  very  high,  especially  among  youth  and  long-term  unemployed.  Job 
creation is characterised by a high proportion of temporary contracts.  

especially 

2016, 

upon 

cost 

Overall,  the  economic  reading  highlights  issues  relating  to  external  sustainability,  private 
and  public debt,  and  labour  market  adjustment,  in  the context  of  weak productivity  growth. 
Therefore,  the  Commission  finds  it  useful,  also  taking  into  account  the  identification  of 
imbalances in February and their cross-border relevance, to examine further the persistence 
of imbalances or their unwinding. 

France:  In  February  2017,  the  Commission  concluded  that  France  was  experiencing 
excessive  macroeconomic  imbalances,  in  particular  involving  high  public  debt  and  weak 
competitiveness, in a context of low productivity growth. In the updated scoreboard, a number 
of indicators are beyond the indicative threshold, namely government debt, private sector debt 
and the unemployment rate. 

30 

Graph A8: NIIP and CA balanceSource: Commission services-10-8-6-4-202-120-100-80-60-40-2002007080910111213141516SpainNet international investment positionNet External Debt (minus sign)Current account balance (rhs)% of GDP 
 
 
 
The  current  account  continues  to  show  a  moderate  deficit  which  is  projected  to  be  stable. 
Export  market  shares  have  stabilised  over  the  recent  past.  Competitiveness  indicators  have 
improved  as  nominal  unit  labour  costs  have  decelerated  markedly,  due  to  moderate  wage 
dynamics  and  measures  to  reduce  the  cost  of  labour.  However,  labour  productivity  growth 
remains low which prevents a faster recovery of cost-competitiveness. Private sector debt is 
beyond  the  threshold  with  corporate  debt 
increasing  and  house  prices  remaining  at 
quite  high  levels  compared  to  disposable 
income.  Government  debt  is  stabilising  at 
high levels and remains a  major source of 
vulnerability  reducing  the  room  for  fiscal 
manoeuvre  available  to  respond  to  future 
shocks. Unemployment is falling from the 
peak  reached  in  2015,  while  long-term 
unemployment stabilised. 

Overall,  the  economic  reading  highlights 
issues relating to high public indebtedness 
and weak competitiveness, in the context of 
low  productivity  growth.  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  2017,  the  Commission  concluded  that  Croatia  was  experiencing 
excessive macroeconomic imbalances, in particular involving risks from high levels of public, 
corporate and external debt, all largely denominated in foreign currency, in a context of low 
potential growth. In the updated scoreboard, a number of indicators are beyond the indicative 
threshold, namely the net international investment position (NIIP), the government debt and 
the unemployment rate.  

The  NIIP  is  decreasing  but  remains  at 
high  levels,  with  persistent  currency-
related risks. The current account shows 
a sizeable surplus and has  been  positive 
since  2013.  While  initially  driven  by 
contracting  domestic  demand,  it  is  now 
increasingly  based  on  strong  growth  of 
improved  cost 
exports,  boosted  by 
competitiveness. Gains in export market 
shares  accelerated 
in  2016.  Private 
sector debt decreased further amid weak 
credit  flows  but  its  level  is  still  high. 
Continued 
strong  economic  growth 
should support the deleveraging process, 
relieving  pressure  on  credit  growth 

31 

 
 
 
looking  forward.  Although  decreasing,  a  large  share  of  loans  to  non-financial  corporations 
remain non-performing. The government debt ratio declined further in 2016 and is projected 
to continue declining, also on account of contained deficits. The unemployment rate is falling, 
but its reduction is to a large extent driven by a rapidly shrinking labour force. Risks to the 
economic  outlook  are  related  to  developments  in  the  on-going  restructuring  of  the  large 
conglomerate Agrokor. 

Overall,  the  economic  reading  highlights  issues  as  regards  the  high  debt  and  currency 
exposures in all sectors and also the labour market performance. 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  2017,  the  Commission  concluded  that  Italy  was  experiencing  excessive 
macroeconomic imbalances, in particular involving risks from high public debt and protracted 
weak  productivity  dynamics  in  a  context  of  high  non-performing  loans  (NPLs)  and 
unemployment. In the updated scoreboard, a number of indicators are beyond the indicative 
threshold, namely government debt and the unemployment rate.  

as 

by 

subdued 

non-cost 

However, 

indicative 

evidenced 

The  current  account  surplus  further 
increased  in  2016,  helped  by  exports, 
where  moderate  gains  in  export  market 
shares  has  brought  the  indicator  within 
threshold,  but  also 
the 
reflecting  continued  weak  domestic 
demand, 
the 
historically  low  fixed  investment  to 
cost 
GDP 
ratio. 
competitiveness  continues 
to  suffer 
from 
labour  productivity 
growth, despite contained wage growth, 
while 
as 
innovation and the firm size also weigh 
on  export  performance.  A  sluggish 
economic  recovery,  low  inflation  and 
broadly  expansionary fiscal  policy over 
the  recent  years  are  delaying 
the 
reduction  of  the  very  high  government  debt  ratio.  Potential  growth  prospects  are  muted, 
especially in the light of adverse demographics and low productivity growth, also due to the 
legacy  of  long-lasting  capital  misallocation,  associated  with  high  NPL  levels,  and  the  low 
level  of  investment.  Despite  recent  public  interventions  to  resolve  the  weakest  banks, 
continuing low profitability and the high stock of NPLs make the banking system vulnerable 
to  shocks  and  hamper  banks’  capability  to  raise  further  capital  and  support  the  economic 
recovery.  Labour  market  conditions  are  gradually  improving,  but  the  unemployment  rate 
remains high, far above pre-crisis levels, in particular for the young people and the long-term 
unemployed. The overall participation rate is rising but remains below the euro-area average.  

factors 

such 

Overall, the economic reading highlights issues relating to high public indebtedness and high 
unemployment in a context of weak productivity growth and a still vulnerable banking system. 
Therefore  the  Commission  finds  it  useful,  also  taking  into  account  the  identification  of 

32 

Graph A11: Potential Growth and Public DebtSource: Commission services020406080100120140-2-10123020304050607080910111213141516Rate of change y-o-y (%)ItalyCapital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential GrowthGeneral Government Debt (rhs)% of GDP 
 
 
excessive imbalances in February, to examine further the persistence of macroeconomic risks 
and to monitor progress in the unwinding of the excessive imbalances.  

Cyprus:  In  February  2017,  the  Commission  concluded  that  Cyprus  was  experiencing 
excessive macroeconomic imbalances, in particular involving large stocks of private, public, 
and  external  debt  and  the  high  share  of  NPLs  in  the  banking  system.  In  the  updated 
scoreboard,  a  number  of  indicators  remain  beyond  the  indicative  threshold,  namely  the  net 
international  investment  position  (NIIP),  the  real  effective  exchange  rate  (REER),  private 
sector  debt,  government  debt  as  well  as  the  unemployment  rate  and  the  change  in  labour 
activity rate.  

for 

the 

the 

negative 

compensating 

improved,  with 

The  current  account  deficit  widened 
substantially  in  2016  and  the  negative 
remains  substantial.  Cumulated 
NIIP 
losses in export market shares have been 
in  2016.  Cost 
reduced  by  gains 
competitiveness 
a 
significant  depreciation  of  the  REER, 
reflecting 
inflation 
experienced  until  2016,  and  contained 
low 
wages 
productivity  growth.  Looking  forward, 
further gains may prove to be a challenge 
as  these  factors  fade  away.  The  level  of 
the 
private 
highest  in  the  EU,  both  for  households 
and  corporates,  while  the  deleveraging 
process  is  slow.  In  particular,  household 
savings  are  negative.  The  deflationary 
environment  until  the  end  of  2016,  has 
reduced 
passive 
scope 
deleveraging, a trend that is to be reversed as inflation is forecast to pick up. Real house prices 
have been stable and may have passed their through. The very high level of non-performing 
loans hampers the restauration of a healthy flow of credit to the economy, which is required 
for supporting potential growth in the medium term. The very high government debt-to-GDP 
ratio  is  expected  to  have  peaked  in  2016.  Unemployment  is  declining  but  remains  high, 
notably regarding long-term and youth unemployment.  

indebtedness 

is  amongst 

the 

for 

Overall, the economic reading highlights issues relating to external sustainability, public and 
private debt, vulnerabilities in the financial sector 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. 

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

33 

 
 
 
a 

to 

looking 

cost 
points 

The  current  account  turned  to  a  surplus 
in  2016  but  is  expected  to  return  to  a 
forward.  The  high 
deficit 
negative  NIIP,  mainly 
reflecting 
government  debt  and  FDI,  continues  to 
improve gradually. Export market shares 
have  stabilised  over  the  recent  past. 
competitiveness 
However, 
continued 
indicators 
weakening.  The  REER  has  been 
appreciating.  Unit 
labour  costs  have 
grown  strongly,  primarily  driven  by 
looking 
steady  wage  growth,  which 
forward  is  expected  to  continue  in  the 
context of a shrinking labour force and a 
tight 
labour 
productivity  is  forecasted  to  pick  up 
somewhat. Real house price growth grew 
strongly 
in  2016,  which  warrants 
attention. Private debt deleveraging continues and credit growth remains subdued. Public debt 
remains low and stable. Unemployment continues to adjust downwards.  

labour  market,  even 

if 

Overall,  the  economic  reading  highlights  issues  relating  to  domestic  demand  pressures  and 
cost competitiveness, but risks appear contained. Overall, 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  (ULC), 
and  the  real  effective  exchange  rate 
(REER). 

The  current  account  has  been  shrinking 
in  2015-2016  bringing  the  indicator 
towards  balance.  The  NIIP,  mainly 
reflecting  government  debt  and  FDI,  is 
on an improving trend. There have been 
gains  in  export  market  shares  in  2016. 
However, there have been losses in cost 
competitiveness.  The  REER  has  been 
appreciating  in  recent  years  and  unit 
labour  cost  growth  has  been  strong, 
which 
to  decelerate 
somewhat  in  the  coming  years  with  an 
expected increase in productivity. Public 
and  private  debt  levels  continue  to  be 
relatively  low  and  stable.  Real  house 
prices  have  been  increasing  but  from  a 

expected 

is 

34 

 
 
 
low level. Unemployment is decreasing and is now within the threshold.  

Overall,  the  economic  reading  highlights  issues  relating  to  cost  competitiveness,  but  risks 
remain contained. 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 in Luxembourg. In the updated scoreboard, a number of indicators are beyond the 
indicative  threshold,  namely  private  sector  debt  as  well  as  the  increase  in  the  youth 
unemployment rate. 

in 

the 

recent 

stability 

The  external  position  continues  to  show 
broadly  stable  current  account  surpluses 
and a positive NIIP where changes are to 
a  large  extent  reflecting  the  country's 
position  as  an  international  financial 
centre  rather  than  the  activity  of  the 
domestic  economy.  Cumulated  gains  in 
export  market  have  been  large,  favoured 
cost 
by 
competitiveness  as  underpinned  by  the 
subdued  evolution  in  unit  labour  cost. 
For  many  consecutive  years,  real  house 
prices  have  continued  to  grow  at  a 
relatively  high  rate  and  warrant  close 
attention.  House  price  growth 
is 
labour 
underpinned  by 
market  combined  with  the  sizeable  net 
migration flows and favourable financing 
remains 
conditions  while 
Housing 
relatively 
affordability  keeps  on  deteriorating  in  view  of  constantly  increasing  house  prices.  While 
corporate  indebtedness  is  mostly  related  to  cross-border  intracompany  loans,  the  level  of 
households'  debt,  which  is  mostly  mortgage  debt,  has  steadily  increased  reflecting  the 
increasing house prices. Risks for the country financial stability are however mitigated by the 
solidity  of  the  banking  sector.  Public  debt  remains  very  low.  In  a  context  of  strong  growth 
conditions the labour market is tightening and unemployment declining. 

the  dynamic 

constraint. 

supply 

Overall,  the  economic  reading  points  mainly  to  some  contained  risks  related  to  constantly 
increasing housing prices and households debt. Therefore, the Commission will at this stage 
not carry out further in-depth analysis in the context of the MIP. 

Hungary: In the previous round of the MIP,  no macroeconomic imbalances were identified 
for  Hungary.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative 
threshold,  namely  the  net  international  investment  position  (NIIP),  government  debt,  real 
house prices and the annual change in total financial sector liabilities. 

35 

Graph A15: Households' debt and House Price IndexSource: Eurostat and ECB50607080901001100102030405060700607080910111213141516House price index, 2015=100household debt, % of GDPLuxembourgNon-bank loans to householdsOther bank loans to householdsLoans for house purchaseReal house price (RHS) 
 
 
 
in 

The current account remains in a surplus 
position  that  has  implied  a  sustained 
improvement 
the  negative  NIIP. 
There have been gains in export market 
shares,  supported  by  a  growing  car 
industry. However, cost competitiveness 
has deteriorated as reflected in dynamic 
growth in unit labour costs. Private debt 
continues  to  decrease.  In  the  corporate 
sector  the  pace  of  deleveraging  has 
slowed  down  as  economic  growth 
strengthens  and  corporate  lending  has 
started  to  recover.  There  are  signs  of 
emerging  capacity constraints and  price 
pressures 
the  economy,  which 
warrant  attention.  Real  house  prices,  in 
particular,  have  continued  to  increase 
rapidly,  albeit  from  undervalued  levels. 
However, 
the  still  high  share  of 
non-performing mortgage loans could benefit from a recovery in the housing market through 
their improved marketability. Government debt is only slowly declining. The banking sector 
has  improved  its  profitability  and  its  shock-absorbing  capacity.  The  increase  in  financial 
sector  liabilities  is  linked  to  a  large  one-off  transaction  by  a  special  purpose  entity  with  no 
effect  on  domestic  credit.  Unemployment  decreased  further  in  2016  and  the  labour  market 
keeps tightening.  

in 

Overall,  the  economic  reading  highlights  issues  relating  to  the  housing  market  and  labour 
market,  although  risks  appear  contained.  The  Commission  will  at  this  stage  not  carry  out 
further in-depth analysis in the context of the MIP. 

Malta: In the previous round of the MIP, 
imbalances  were 
no  macroeconomic 
identified 
the  updated 
scoreboard,  the  current  account  balance 
is beyond the indicative threshold. 

in  Malta.  In 

further 

current 

account 
in  2016  and 

Despite  rapid  domestic  demand  growth 
surplus 
the  high 
increased 
the 
indicator  is  now  beyond  the  threshold. 
The net international investment position 
is strongly positive. Cost competitiveness 
developments have been favourable. Unit 
labour  cost  growth  has  been  contained 
due to both moderate wage developments 
and  relatively  strong  labour  productivity 
growth.  REER  developments  have  been 
stable.  The  private  sector  debt  ratio  was 
further  passive 
stable 

in  2016  but 

36 

 
 
 
deleveraging  is  underpinned  by  strong  growth.  However,  corporate  sector  leverage  remains 
high. The growth rate of credit to households has been roughly stable. The government debt-
to-GDP  ratio  has  been  on  a  firm  downward  trend  and  is  now  within  the  threshold.  The 
buoyant  economic  environment  and  some  bottlenecks  in  channelling  domestic  savings  to 
investments  have  contributed  to  a  revival  of  the  housing  market.  House  prices  have  been 
growing  steadily,  which  warrants  attention.  Asset  quality  in  the  domestic  banking  sector  is 
improving  and  the  available  capital  buffers  appear  sufficient  to  absorb  immediate  risks  that 
could  emerge  from  the  housing  market.  Strong  employment  growth  continued  to  be 
accompanied by falling unemployment.  

Overall,  the  economic  reading  points  to  a  strong  dynamism  in  the  current  account  balance 
and  the  housing  market  in  a  context  of  strong  growth  but  the  risks  appear  contained. 
Therefore,  the  Commission  will  at  this  stage  not  carry  out  further  in-depth  analysis  in  the 
context of the MIP. 

The  Netherlands:  In  February  2017,  the  Commission  concluded  that  the  Netherlands  was 
experiencing macroeconomic imbalances, in particular involving the high level of household 
debt and the large and persistent current account surplus. In the updated scoreboard a number 
of indicators are  beyond the indicative threshold, namely the current  account, private sector 
debt and government debt.  

the 

indicative 

The current account surplus remains well 
threshold.  The 
above 
surplus  reflects  excess  savings  of  non-
financial  corporations,  in  particular  by 
multinational enterprises, in a context of 
low  investment  and  contained  corporate 
profit distribution. The aggregate impact 
from  other  sectors  remains  contained. 
investment  has 
Improving  household 
largely offset the current account impact 
by  recent  changes  in  the  fiscal  balance. 
The  NIIP 
further 
competitiveness 
increasing. 
indicators  have  been  favourable,  which 
also  reflects  subdued  wage  growth. 
Private  debt  is  high.  This  concerns  in 
particular  the  high  level  of  household 
debt,  compared  to  household  disposable 
income. 
indebtedness 
continues to be fuelled by a favourable tax treatment of (debt-financed) home-ownership and 
low  mortgage  interest  rates.  Household  deleveraging  has  been  ongoing  for  several  years, 
although  mostly  passively  with  the  recent  housing  market  activity  and  rising  house  prices 
driving  up  nominal  debt  levels.  The  government  debt  ratio  is  falling  towards  the  threshold. 
The government debt ratio is on a declining trend and will move below the 60% threshold.  

is  positive  and 

Household 

Cost 

Overall,  the  economic  reading  highlights  issues  relating  to  the  persistent  net  savings  and 
investment  imbalances  and  the  high  private  debt  level.  Therefore,  the  Commission  finds  it 

37 

 
 
 
useful,  also  taking  into  account  the  identification  of  an  imbalance  in  March,  to  examine 
further the persistence of imbalances or their unwinding. 

Austria: In the previous round of the MIP, no macroeconomic imbalances were identified in 
Austria.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative 
threshold,  namely  real  house  prices,  government  debt  as  well  as  the  change  in  long-term 
unemployment. 

the 

investment 

real  effective  exchange 

The current account surplus stabilised at a 
moderate  level  in  2016,  while  the  net 
international 
position 
remained close to balance. Export market 
shares have also stabilised over the recent 
past,  supported  by  cost  competitiveness, 
as 
rate 
remained  broadly  unchanged  and  unit 
labour  costs  decelerated  due  to  limited 
wage  growth.  Real  house  prices,  which 
have  been  on  the  rise  since  2009,  grew 
significantly  in  2016  but  have  since 
moderated.  Although  the  price  increase 
does  not  appear  credit-driven,  the  issue 
warrants  close  monitoring.  Private  sector 
debt, which stands within but close to the 
threshold,  was  little  changed  in  terms  of 
GDP.  Government  debt  is  projected  to 
have  entered  a  declining  trend,  also  thanks  to  the  divestment  of  impaired  assets  from 
nationalised financial institutions. The banking sector situation has improved notably in 2016, 
as  banks  further  reduced  their  non-performing  loans  and  their  capital  ratios  are  slowly 
catching up with EU peers. The unemployment rate is likely to have peaked in 2016, and is 
expected  to  slowly  decline  thanks  to  strong  employment  growth.  Long-term  and  youth 
unemployment have slightly increased but remain at relatively low levels. 

Overall,  the  economic  reading  highlights  issues  relating  to  the  housing  and  the  banking 
sector, but risks appear contained. Therefore, the Commission will at this stage not carry out 
further in-depth analysis in the context of the MIP. 

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

the 

net 

current 

The 
deficit  has 
account 
continued  to  narrow  towards  balance. 
The  NIIP,  which 
remains  highly 
negative,  improved  minimally  in  2016. 
External  vulnerabilities  are  contained, 
given  that  foreign  direct  investments 

38 

 
 
 
account  for  a  major  part  of  foreign  liabilities,  while  net  foreign  debt  has  continued  to 
gradually  decline.  In  2016,  the  gains  in  export  market  shares  accelerated  while  cost 
competitiveness  indicators  strengthened.  Both  private  sector  and  government  debt  increased 
in  2016,  while  still remaining  at  a relatively  low  level.  Poland's  banking  sector  is  relatively 
well  capitalized,  liquid  and  profitable,  although  the  sizable  stock  of  foreign-currency 
denominated  loans  increases  its  vulnerability.  Labour  market  performance  continued  to  be 
strong and improved with a further decline in the unemployment rate and associated progress 
in poverty indicators. 

Overall,  the  economic  reading  highlights  issues  in  the  external  investment  position,  but 
overall risks remain limited. Therefore, the Commission will at this stage not carry out an in-
depth analysis in the context of the MIP.  

Portugal:  In  February  2017,  the  Commission  concluded  that  Portugal  was  experiencing 
excessive  macroeconomic  imbalances,  in  particular  involving  the  large  stock  of  external 
liabilities,  public  and  private  debt,  banking  sector  vulnerabilities  and  the  labour  market 
adjustment  process  in  the  context  of  low  productivity  growth.  In  the  updated  scoreboard,  a 
number  of  indicators  are  beyond  the  indicative  threshold,  namely  the  net  international 
investment  position  (NIIP),  government  debt,  private  debt,  unemployment,  and  real  house 
prices.  

The current account has retained a small 
surplus  over  the  past  years  contributing 
to  a  gradual  reduction  in  the  negative 
NIIP.  The  pace  of  adjustment  however 
remains  insufficient  to  induce  a  more 
sustainable  external  position.  Having 
improved 
in  previous  years,  price 
competitiveness deteriorated moderately 
in  2016  but 
export  performance 
remained strong. Both public and private 
debts remain very high, imposing a high 
interest  burden  while 
the  share  of 
investment  in  the  economy  is  very  low. 
While the private sector is  deleveraging 
at  a  relatively  fast  pace  the  government 
debt ratio has been rather stable over the 
past  years  but  is  expected  to  drop 
gradually  going  forward.  The  high, 
albeit 
non-
performing  loans,  low  profitability  and 
low  capital  ratios  highlight  vulnerabilities  of  the  banking  sector.  The  labour  market  is 
undergoing  a  substantial  improvement  but  there  are  still  challenges  related  to  skills  and 
segmentation.  In  addition,  weak  productivity  dynamics  are  limiting  the  country's  growth 
potential. 

decreasing, 

level 

of 

Overall, the economic reading highlights issues relating to imbalances in stock variables and 
their pace of adjustment, in particular external debt, public and private debt, banking sector 
vulnerability  and  weak  productivity  growth  along  with  some  labour  market  rigidities. 
Therefore  the  Commission  finds  it  useful,  also  taking  into  account  the  identification  of  an 

39 

 
 
 
excessive imbalance in February, to examine further the persistence of macroeconomic risks 
and to monitor progress in the unwinding of excessive imbalances. 

Romania: In the previous round of the MIP, no macroeconomic imbalances were identified 
in  Romania.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative 
threshold, namely the net international investment position (NIIP) and real house prices. 

The  current  account  deficit  deteriorated 
in  2016  on  the  back  of  strong  private 
consumption,  but  strong  GDP  growth 
allowed  for  an  improvement  of  the 
negative NIIP, in particular by reducing 
net external debt. Reflecting catching-up 
dynamics,  most  of  the  NIIP  relates  to 
net  foreign  direct  investment  liabilities, 
which  mitigates  external  risks.  Export 
market  share  growth  remains  strong, 
with  substantial  gains  in  2016  despite  a 
deterioration  in  cost  competitiveness. 
Wage growth is set to remain substantial 
in  the  medium  term  and  this  could  put 
additional 
cost 
pressure 
competitiveness.  Private  sector  debt  is 
moderate and decreasing. The correction 
of  real  house  prices  reversed  in  2015 
and  prices  further  accelerated  in  2016. 
remains  well 
sector 
The  banking 
capitalized and liquid. Non-performing loans appear to be on a firm downward trend and do 
not  seem  to  pose  a  risk  to  financial  stability,  despite  still  relatively  high  levels.  Public  debt 
declined  slightly  in  2016  and  remains  relatively  low.  However,  the  fiscal  deficit  is  set  to 
remain  high  in  the  medium  term,  with  a  negative  impact  on  the  public  debt  dynamics.  The 
unemployment  rate  declined  in  2016  reflecting  a  tightening  of  the  labour  market,  while  the 
activity rate decreased somewhat despite the strong economic growth.  

on 

Overall,  the  economic  reading  highlights  issues  related  to  the  external  position  and  to  the 
sustainability  of  the  fiscal  policy,  but  macroeconomic  risks  appear  contained.  The 
Commission  will,  at  this  stage,  not  carry  out  further  in-depth  analysis  in  the  context  of  the 
MIP. 

Slovenia:  In  February  2017,  the  Commission  concluded  that  Slovenia  was  experiencing 
macroeconomic imbalances, in particular involving fiscal risks and vulnerabilities stemming 
from the banking sector and corporate indebtedness. In the updated scoreboard, a number of 
indicators  are  beyond  the  indicative  threshold,  namely  the  net  international  investment 
position (NIIIP) and government debt. 

The large current account surplus increased further in 2016, as investment remained weak. As 
a  consequence,  the  negative  NIIP  has  improved  substantially  and  is  now  very  close  to  the 
threshold.  Export  market  shares  increased  in  2016,  supported  by  minimal  unit  labour  costs 

40 

 
 
 
 
growth and the very modest real effective exchange rate appreciation. Private debt decreased 
further,  notably  in  the  corporate  sector,  while  deleveraging  pressures  are  coming  to  an  end. 
However, investment remains low. The banking sector has stabilised and bank profitability is 
recovering  while 
the  share  of  non-
performing loans continues its downward 
trend  with  further  reductions  expected. 
Public  debt  remains  high,  but  decreased 
in  2016.  Projected  ageing  costs  continue 
to  pose  risks  to  fiscal  medium  and  long-
term  sustainability.  The  labour  market 
improved  further  owing to  the  continued 
growth  of  GDP  and  exports.  However, 
labour productivity remains low.  

and 

banking 

Overall, the economic reading highlights 
issues  relating  to  the  long-term  fiscal 
sector 
sustainability 
performance. Therefore, the Commission 
finds  it  useful,  also  taking  into  account 
the  identification  of  an  imbalance  in 
February  2017,  to  examine  further  the 
persistence  of 
their 
unwinding.  

imbalances  or 

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

The  current  account  balance  turned 
slightly  negative  in  2016,  after  having 
improved  for  several  years.  The  NIIP 
remains strongly negative and in excess 
of  the  indicative  threshold.  However, 
the  associated  risks  remain  limited  as 
much of the foreign liabilities relates to 
foreign  direct  investment,  especially  in 
industry, 
the  expanding  automotive 
while  net  external  debt  levels  remain 
comparatively low. Nominal unit labour 
costs continued to grow at modest rates, 
and 
boosting 
facilitating  a  marked  increase  in  export 
market  shares.  Growth 
in  property 
prices,  although  it  was  preceded  by 
years of price moderation, accelerated in 
2016, fuelled by strong growth in credit 
for 
also 
purchases 
contributed to the upward-trending private sector debt ratio. The public debt ratio continued to 

competitiveness 

house 

that 

41 

Source: EurostatGraph A24: Labour market and social indicators67686970717273024681012141607080910111213141516%%SlovakiaActivity rate (rhs)Unemployment rateAt risk of poverty rate (%  of total population)Graph A23: Private Debt and Non-Performing LoansSource: Eurostat and ECB051015202502040608010012014007080910111213141516% of GDPSloveniaHouseholdsNon-financial corporationsGross Total Doubtful and Non-Performing Loans (rhs)% of total loans 
 
 
decrease in 2016, from an already moderate level. The largely foreign-owned banking sector 
remained  resilient  and  well-capitalised.  Further  declines  in  unemployment  have  been 
accompanied  by  increases  in  the  participation  rate,  as  employment  prospects  for  previously 
inactive  persons  have  risen.  However,  the  unemployment  situation  regarding  youth  people 
and disadvantaged groups, while improving, remains a challenge. 

Overall,  the  economic  reading  points  to  issues  related  to  developments  in  the  housing 
markets,  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  2017,  the  Commission  concluded  that  Finland  was  no  longer 
experiencing macroeconomic imbalances. In the updated scoreboard, a number of indicators 
are  beyond  the  indicative  threshold,  namely  export  market  shares,  private  sector  debt  and 
government debt, as well as the increase in long-term unemployment. 

in 

improvement 

costs  declined 

The  current  account  deficit  worsened 
somewhat  in  2016  due  to  increased 
domestic  demand,  but  is  expected  to 
improve  in  the  coming  years.  After  a 
few years in which the net international 
investment  position  had  deteriorated 
somewhat  on  the  back  of  valuation 
effects, it improved in 2016. Cumulated 
Export market shares losses have slowed 
down  in  2016,  supported  by  the  recent 
cost 
gradual 
competitiveness indicators: nominal unit 
labour 
as 
productivity growth increased. Non-cost 
competitiveness  however  remains  a  key 
issue.  The  private  sector  debt-to-GDP 
ratio  came  down  slightly  in  2016,  but 
remains  high.  Credit  growth  to  the 
private sector has recently slowed down, 
although  favourable  credit  conditions, 
low  interest  rates  and  improved  economic  outlook  could  accelerate  private  credit  growth 
going forward, which may limit deleveraging. The financial sector remains well capitalised, 
limiting  risks  to  financial  stability,  while  mortgage  and  housing  market  indicators  point  to 
reduced  risks  to  household  sector  debt.  The  government's  fiscal  policy  and  the  improved 
economic  outlook  should  help  reduce  the  public  debt  ratio,  which  stabilised  in  2016. 
Employment  gradually  expanded  and  the  unemployment  rate  decreased  in  2016  following 
increasing economic activity. Youth unemployment has recently begun to decrease, and long-
term unemployment has stabilised in 2016. 

slightly 

Overall,  the  economic  reading  highlights  challenges  related  to  competitiveness  and  private 
sector debt but points to improving trends and limited risks. Overall, the Commission will at 
this stage not carry out further in-depth analysis in the context of the MIP.  

42 

Graph A25: Debt across sectors in the economySource: Eurostat05010015020025030007080910111213141516% of GDPFinlandFinancial corporationsGeneral Government (EDP)HouseholdsNon-financial corporationsPrivate sector 
 
 
 
Sweden:  In  February  2017,  the  Commission  concluded  that  Sweden  was  experiencing 
macroeconomic  imbalances,  in  particular  involving  persistent  house  price  growth  from 
already  overvalued  levels,  coupled  with  a  continued  rise  in  household  debt.  In  the  updated 
scoreboard,  a  number  of  indicators  stand  above  the  indicative  threshold,  namely  export 
market shares, private sector debt and house price growth.  

the 

the  medium-term 

somewhat  below 

The  current  account  surplus  remains  high 
but 
threshold, 
primarily  reflecting  high  private  savings. 
The  net  international  investment  position 
has  continued  to  improve  and  is  now 
significantly  positive.  Cumulated  export 
market  share  losses  remain  beyond  the 
threshold,  but 
trend 
shows  a  gradual 
improvement  amid 
slowing  world  trade.  These  losses  were 
driven  by  weak  external  demand  rather 
than  by  competitiveness  issues,  as  unit 
labour  cost  growth  remained  contained. 
Private  sector  debt  is  broadly  stable  at  a 
high  level,  and  risks  mainly  relate  to 
household debt. Household debt is growing 
implying 
continuously, 
for 
in  view  of 
stability 
macroeconomic 
growing  house  prices.  House  prices  and 
household  indebtedness  have  notably  been  pushed  up  through  favourable  tax  treatment  of 
(debt-financed)  home-ownership,  low  mortgage  interest  rates  and  specific  features  of  the 
Swedish  mortgage  market.  On  the  supply  side,  constraints  on  new  construction  remain  a 
problem, although residential investment continues to grow rapidly. In spite of the exposure to 
household debt, bank risks currently appear contained as asset quality and profitability remain 
high.  Unemployment  is  on  a  slowly  declining  trend,  aided  by  the  improvement  of  growth 
conditions. 

risks 

Overall, the economic reading highlights continued concerns relating to high private debt and 
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  the  previous  round  of 
the  MIP,  no  macroeconomic  imbalances 
were  identified  in  the  United  Kingdom.  In 
the  updated  scoreboard,  a  number  of 
indicators 
indicative 
threshold,  namely 
the  current  account 
deficit,  private  sector  debt  and  government 
debt. 

are  beyond 

the 

The  2016  sterling  depreciation  significantly 
improved 
the  United  Kingdom’s  net 
international  investment  position,  leaving  it 

43 

Graph A26: Households' debt and House Price IndexSource: Eurostat and ECB506070809010011012001020304050607080900607080910111213141516House price index, 2015=100household debt, % of GDPSwedenNon-bank loans to householdsOther bank loans to householdsLoans for house purchaseReal house price (RHS)Graph A27: Households' debt and House Price IndexSource: Eurostat506070809010011012050607080901001100607080910111213141516House price index, 2015=100household debt, % of GDPUnited KingdomHousehold debtReal house price (rhs) 
 
 
close  to  balance.  However,  while  price-competitiveness,  as  measured  by  the  real  effective 
exchange  rate,  has  increased  markedly  due  to  sterling’s  depreciation,  to  date  the  net  trade 
response  to  weaker  sterling  has  been  disappointing.  The  substantial  current  account  deficit 
persisted  in  2016,  exposing  the  United  Kingdom  to  sizeable  external  financing  needs.  After 
several years of gradual deleveraging, the private sector debt-to-GDP ratio has ticked up, and 
remains high. In particular, household debt continues to warrant close monitoring. Real house 
prices  continued  to  rise  from  already  high  levels,  though  house  price  growth  is  expected  to 
moderate going forward. Public debt was close to stable in 2016 but the high public debt-to-
GDP  ratio  remains  a  concern.  Strong  employment  growth  continued  to  be  accompanied  by 
falling unemployment, although labour productivity remains weak. 

Overall,  the  economic  reading  highlights  some  issues  relating  to  private  debt,  the  housing 
market  and  the  external  side  of  the  economy.  These  issues  appear  to  pose  limited  risks  to 
stability in the short term. Overall, the Commission will at this stage not carry out further in-
depth analysis in the context of the MIP. 

44 

 
 
 
 
 
45 

Current account balance - % of GDP (3 year average)Net international investment position (% of GDP)Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)Export market share - % of world exports(5 year % change)Nominal unit labour cost index (2010=100)(3 year % change)House price index (2015=100), deflated (1 year % change) Private sector credit flow, consolidated (% of GDP)Private sector debt, consolidated (% of GDP)General government gross debt (% of GDP)Unemployment rate (3 year average)Total financial sector liabilities, non-consolidated(1 year % change)Activity rate - % of total population aged 15-64(3 year change in pp)Long-term unemployment rate - % of active population aged 15-74(3 year change in pp)Youth unemployment rate - % of active population aged 15-24(3 year change in pp)Thresholds-4/6%-35%±5% (EA)±11% (Non-EA)-6%9% (EA) 12% (Non-EA)6%14%133%60%10%16.5%-0.2 pp0.5 pp2 ppBE-0.3 51.2 -0.4 -2.3 -0.6 1.0p13.3 190.1 105.7 8.3 1.2 0.1 0.1 -3.6 BG1.8 -47.0 -4.7 8.2 9.5p7.1p4.0 104.9 29.0 9.4 11.1 0.3 -2.9 -11.2 CZ0.5 -24.6 -3.7 2.9 2.9 6.7p4.4 68.7 36.8 5.1 14.5 2.1 -1.3 -8.4 DK8.4 54.8 -1.5 -4.2 3.4 4.2 -10.4 210.7 37.7 6.3 3.3 1.9b-0.4b-1.0 DE8.1 54.4 -2.6 2.8 5.2 5.4 3.8 99.3 68.1 4.6 5.2 0.3 -0.6 -0.7 EE1.4 -37.1 4.5 -0.7 13.4 3.8 5.9 115.4 9.4 6.8 7.2 2.4 -1.7 -5.3 IE5.5 -176.2 -6.6 59.8 -20.5 6.6p-19.0 278.1 72.8 9.5 2.5 0.7 -3.6 -9.6 EL-1.0 -139.4 -3.9 -19.0 -3.3p-2.0e-1.7p124.7p180.8 25.0 -16.6 0.7 -1.5 -11.0 ES1.4 -83.9 -4.3 2.2 0.4p4.7 -1.0p146.7p99.0 22.1 0.9 -0.1 -3.5 -11.1 FR-0.7 -15.7 -3.1 -2.4 1.4p1.0 6.2p146.9p96.5 10.3 4.3 0.7 0.2 -0.3 HR2.9 -70.1 0.1 8.1 -5.9d2.1 -0.1e106.1e82.9 15.6 2.5 1.9 -4.4 -18.1 IT2.1 -9.8 -3.4 -2.8 1.9 -0.8p0.6 113.6 132.0 12.1 3.2 1.5 -0.2 -2.2 CY-3.6 -127.8 -6.5 -3.0 -6.2p1.6 10.2p344.6p107.1 14.7 0.7 -0.2 -0.3 -9.8 LV-0.3 -58.9 4.9 9.3 16.5 7.4 0.3 88.3 40.6 10.1 5.8 2.3 -1.7 -5.9 LT-0.3 -43.2 5.4 5.4 14.7 4.5 4.3 56.2 40.1 9.2 16.3 3.1 -2.1 -7.4 LU5.0 34.7 -1.5 26.2 2.5 5.9 1.5 343.6 20.8 6.3 7.5 0.1 0.4 2.2 HU3.6 -65.0 -5.0 -0.4 3.3 13.6 -3.6 77.0 73.9 6.5 19.5 5.4 -2.5 -13.7 MT6.7 47.6 -2.5 8.7 -0.1 4.8p11.1 128.4 57.6 5.3 1.7 4.1 -1.0 -2.0 NL8.8 69.1 -2.3 0.1 -1.1p4.4 1.5p221.5p61.8 6.8 5.3p0.3 0.0 -2.4 AT2.2 5.6 1.0 -4.0 5.8 7.2 3.2 124.0 83.6 5.8 -2.4 0.7 0.6 1.5 PL-1.0 -60.7 -5.0 18.1 2.1p2.5 4.7 81.6 54.1 7.6 8.9 1.8 -2.2 -9.6 PT0.3 -104.7 -1.9 5.8 0.9p6.1 -2.2p171.4p130.1 12.6 -0.2 0.7 -3.1 -9.9 RO-1.3 -49.9 -2.5 23.6 6.0p6.5 0.6p55.8p37.6 6.5 7.6 0.7 -0.2 -3.1 SI5.1 -36.9 -0.5 4.0 0.7 3.6 -0.8 80.5 78.5 8.9 3.2 1.1 -0.9 -6.4 SK-0.7 -62.4 -1.6 7.3 3.5 7.0 9.2 94.7 51.8 11.5 8.5 2.0 -4.2 -11.5 FI-1.2 -2.3 0.5 -14.1 2.1 -0.3 2.2 149.3 63.1 9.0 4.5 0.7 0.6 0.2 SE4.6 11.2 -9.2 -7.9 2.0 7.6 7.6 188.5 42.2 7.4 9.0 1.0 -0.1 -4.7 UK-5.5 -1.1 0.2 -0.1 3.1 5.5 8.2 168.1 88.3 5.4 11.6 0.9 -1.4 -7.7 Table 1.1: MIP Scoreboard 2016Flags:b:Break in series. e:Estimated. p:Provisional. 1)Fortheemploymentindicators,seepage2oftheAMR2016.2)Housepriceindexe=sourceNCBforEL.3)ForNULCHR,d:employmentdatausenationalconceptinsteadofdomesticconcept.4)Privatesectordebt,privatesectorcreditflow:thedeclineforIErelativeto2015predominantlyreflectsrestructuring and re-domiciling activities of large multinational companies.(cid:9)(cid:9)(cid:9)(cid:9)      Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective Exchange Rate), and International Monetary Fund data, WEO (for world exports series)Internal imbalancesEmployment indicatorsYear2016External imbalances and competitiveness 
  
46 

Year2016Real GDP (1 year % change) Gross fixed capital formation (% of GDP)Gross domestic expenditure on R&D (% of GDP)Current plus capital account (Net lending-borrowing)(% of GDP)Net external debt(% of GDP) Foreign direct investment in the reporting economy - flows Foreign direct investment in the reporting economy - stocksNet trade balance of energy products(% of GDP)Real effective exchange rate - Euro Area trading partners(3 year % change)Export performance against advanced economies(5 year % change)Terms of trade(5 year % change)Export market share in volume(1 year % change)Labour productivity(1 year % change)Nominal unit labour cost index (2010=100)(10 year % change)Unit labour cost performance relative to EA(10 year % change)House price index (2015=100) - nominal (3 year % change)Residential construction (% of GDP)Private sector debt,non-consolidated (% of GDP)Financial sector leverage, non-consolidated(% debt-to-equity)BE1.5 23.4 2.5p0.2 -26.6 8.0 214.5 -2.2 2.1 -5.0 2.0 5.2 0.2 17.6 1.5 3.8p5.9 225.5 192.6 BG3.9 18.6 0.8p7.5 -9.5 2.2 88.3 -2.4 -4.6 5.1 3.0 5.8 3.4p77.5p52.1 11.6p2.7 117.0 475.6 CZ2.6 25.0 1.7p2.2 -13.5 3.3 75.0 -2.1 -3.6 -0.0 3.6 2.2 1.3 17.0 -0.9 14.2p3.7 77.5 530.0 DK1.7 20.1 2.9e7.3 -7.3 2.1 52.5 0.0 -0.2 -6.9 2.6 0.2 0.0 20.9 4.4 16.2 4.4 221.3 158.9 DE1.9 20.0 2.9e8.4 -14.6 1.5 41.7 -1.5 0.4 -0.1 6.6 0.3 0.6 19.0 3.2 14.5 5.9 105.9 367.2 EE2.1 22.3 na3.0 -11.7 3.2 99.8 -1.0 0.4 -3.5 3.0 1.8 1.8 64.4 38.6 27.3 4.8 126.6 359.1 IE5.1 31.8 1.2e2.3 -368.6 25.8 503.3 -1.1 -0.9 55.3 0.4 2.3 2.3 -23.6 -28.8 39.6p2.1 300.2 72.3 EL-0.2p11.7p1.0p-0.5 137.5 1.6 16.0 -1.7p-3.2 -21.2 6.1p-4.1p-0.7p1.9p-11.5 -14.2e0.6p124.7p1354.2 ES3.3p20.0pna2.2 88.8 2.6 59.7 -1.5p-2.2 -0.7 0.0p2.5p0.7p5.9p-8.4 8.7 4.6p165.8p452.0 FR1.2p22.0pna-0.9 37.5 1.7 44.8 -1.4p0.1 -5.1 6.0p-0.5p0.5p15.9p-0.1 -2.0 6.0p188.7p347.5 HR3.0e19.9e0.9p3.5 40.9 3.7 57.7 -2.7e-1.0 5.1 1.7e3.3e2.7d4.3d-5.1 -3.6 na130.6e375.9 IT0.9 17.1 na2.6 55.1 1.0 25.9 -1.6 -0.7 -5.5 7.5 0.1 -0.3 16.4 0.6 -7.6p4.4 116.5 751.4 CY3.0p17.5pna-4.7 152.0 13.0 1061.6 -3.4p-3.3 -5.7 0.0p1.6p-0.1p3.0p-7.9 -2.9p4.6p345.6p76.3 LV2.1 18.2 0.4p2.4 28.8 0.9 58.1 -2.3 -0.1 6.2 -0.1 1.8 2.4 56.6 27.2 11.1 2.0 96.9 643.0 LT2.3 18.9 0.7p0.4 24.7 2.3 41.3 -2.6 -0.7 2.4 5.6 1.2 0.4 28.0 5.3 16.3 3.0 63.3 547.5 LU3.1 17.2 na4.4 -1875.5 23.2 8938.5 -2.5 -0.2 22.7 -1.0 0.4 0.0 28.4 7.8 16.6 3.2 410.1 54.0 HU2.2 19.2 1.2 6.2 9.5 55.6 260.8 -3.2 -5.1 -3.2 2.6 1.1 -0.4 23.2 9.1 33.6 2.4 92.5 75.8 MT5.5 23.8 0.6p7.4 -222.0 22.3 1736.5 -9.0 2.1 5.6 1.4 1.2 1.8 22.1 6.9 14.6p3.9 194.8 35.4 NL2.2p19.9pna8.8 43.7 19.6 598.9 -0.7p-0.4 -2.7 1.8p2.0p1.1p14.7p1.7 9.9 4.0p231.3p119.8pAT1.5 23.1 3.1p2.0 19.5 -7.8 66.6 -1.9 2.4 -6.7 2.1 -0.4 0.2 24.1 4.8 17.8 4.2 142.2 191.0 PL2.9 18.1 na0.8 32.1 3.6 50.2 -1.4 -5.5 14.8 4.9 6.5 2.3p21.1p2.3 4.4 3.0 86.4 321.0 PT1.5p15.3p1.3p1.7 94.5 4.5 76.1 -1.6p0.5 2.8 7.8p1.8p-0.1p2.6p-11.2 15.1 2.5p185.0p394.9 RO4.6p22.7pna0.4 22.5 3.3 44.8 -0.9p-2.6 20.1 4.8p6.0p5.5p44.0p20.3 6.7 2.5p57.2p406.7 SI3.1 17.6 na4.5 29.0 3.2 37.1 -2.1 -1.6 1.1 3.0 4.1 1.2 20.6 1.7 -2.8 2.1 88.1 399.3 SK3.3 21.2 0.8 0.5 28.4 4.0 65.6 -2.6 -2.0 4.3 -2.2 3.9 0.9 16.1 -1.7 14.0 2.4 92.6 571.6eFI1.9 21.5 2.8 -1.3 51.8 -1.8 49.9 -1.4 0.5 -16.5 5.4 -1.0 1.4 26.4 8.1 0.3 6.1 176.4 293.1 SE3.3 24.0 3.3p4.4 45.6 2.9 80.3 -0.8 -7.7 -10.5 1.8 1.0 1.6 25.0 8.4 34.4 5.1 231.6 185.3 UK1.8 16.4 na-6.0 na11.2 74.5 -0.5 5.1 -2.9 7.3 -1.2 0.4 20.4 2.9 22.4 3.6 168.2 686.6 Table 2.1: Auxiliary indicators, 2016Flags:e:Estimated. p:Provisional. 1)Housepriceindexe=sourceNCBforEL.2)Officialtransmissiondeadlinefor2016dataonGrossdomesticexpenditureonR&Dis31October2017whiledatawereextractedon24October2017.3)NominalunitlabourcostandlabourproductivityforHRd:employmentdatausenationalconcept instead of domestic concept. 4) Private sector debt, private sector credit flow: the decline for IE relative to 2015 predominantly reflects restructuring and re-domiciling activities of large multinational companies.(cid:9)(cid:9)(cid:9)(cid:9)      Source: Eurostat, Directorate General for Economic and Financial Affairs (for Real Effective Exchange Rate) and International Monetary Fund data, WEO (for world exports series) 
 
 
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%3 year change in pp%3 year change in pp%3 year change in pp%3 year change in pp%3 year change in ppBE1.3 67.6 4.0 20.1 9.9 -2.8 20.7 -0.1 15.5 0.4 5.5 0.4 14.6 0.6 BG0.5p68.7 4.5 17.2 18.2 -3.4 40.4b-7.6b22.9b1.9b31.9b-11.1b11.9b-1.1bCZ1.3 75.0 1.7 10.5 7.0 -2.1 13.3 -1.3 9.7 1.1 4.8 -1.8 6.7 -0.2 DK1.7 80.0b1.4b12.0 5.8b-0.2b16.7 -1.6 11.9 0.0 2.6 -1.0 10.6 -1.3 DE1.3 77.9 1.7 7.1 6.7 0.4 19.7 -0.6 16.5 0.4 3.7 -1.7 9.6 -0.3 EE0.3 77.5 2.1 13.4 9.1 -2.2 24.4 0.9 21.7 3.1 4.7 -2.9 5.8 -2.6 IE2.8 70.5 4.2 17.2 13.0 -3.1 nananana7.5e-2.4enanaEL0.5p68.2 17.0 47.3 15.8 -4.6 35.6 -0.1 21.2 -1.9 22.4 2.1 17.2 -1.0 ES2.5p74.2 9.5 44.4 14.6 -4.0 27.9 0.6 22.3 1.9 5.8 -0.4 14.9 -0.8 FR0.6p71.4 4.6 24.6 11.9 0.7 18.2 0.1 13.6 -0.1 4.4 -0.5 8.4 0.3 HR0.3d65.6 6.6 31.8 16.9 -2.7 27.9 -2.0 19.5 0.0 12.5 -2.2 13.0 -1.8 IT1.3 64.9 6.7 37.8 19.9 -2.3 nananana11.9p-0.4pnanaCY3.1p73.4 5.8 29.1 16.0 -2.7 27.7 -0.1 16.1 0.8 13.6 -2.5 10.6 2.7 LV-0.3 76.3 4.0 17.3 11.2 -1.8 28.5 -6.6 21.8 2.4 12.8 -11.2 7.2 -2.8 LT2.0 75.5 3.0 14.5 9.4 -1.7 30.1 -0.7 21.9 1.3 13.5 -2.5 10.2 -0.8 LU3.0 70.0 2.2 19.1 5.4 0.4 19.7bp0.7bp16.5bp0.6bp1.6bp-0.2bp6.6bp0.0bpHU2.6 70.1 2.4 12.9 11.0 -4.5 26.3 -8.5 14.5 -0.5 16.2 -11.6 8.2 -5.4 MT3.7 69.1 1.9 11.0 8.5 -1.4 20.1 -3.9 16.5 0.8 4.4 -5.1 7.3 -1.7 NL1.1p79.7 2.5 10.8 4.6 -1.0 16.7b0.8b12.7b2.3b2.6b0.1b9.7b0.4bAT1.2 76.2 1.9 11.2 7.7 0.4 18.0 -0.8 14.1 -0.3 3.0 -1.2 8.1 0.3 PL0.6p68.8 2.2 17.7 10.5 -1.7 21.9 -3.9 17.3 0.0 6.7 -5.2 6.4 -0.8 PT1.6p73.7 6.2 28.2 10.6 -3.5 25.1 -2.4 19.0 0.3 8.4 -2.5 9.1 -3.1 RO-0.9p65.6 3.0 20.6 17.4 0.4 38.8p-3.1p25.3p2.3p23.8 -6.0 8.2 0.6 SI1.9 71.6 4.3 15.2 8.0 -1.2 18.4 -2.0 13.9 -0.6 5.4 -1.3 7.4 -0.6 SK2.4 71.9 5.8 22.2 12.3 -1.4 18.1 -1.7 12.7 -0.1 8.2 -2.0 6.5 -1.1 FI0.5 75.9 2.3 20.1 9.9 0.6 16.6 0.6 11.6 -0.2 2.2 -0.3 11.4 2.4 SE1.7 82.1 1.3 18.9 6.5 -1.0 18.3 1.9 16.2 1.4 0.8 -0.6 8.5 1.4 UK1.4 77.3 1.3 13.0 10.9 -2.3 22.2 -2.6 15.9 0.0 5.2 -3.1 11.3 -1.9 Table 2.1 (continued): Auxiliary indicators, 2016Activity rate - % of total population aged 15-64(%)Long-term unemployment rate - % of active population aged 15-74(%) Youth unemployment rate - % of active population aged 15-24(%)Young people neither in employment nor in education and training - % of total population aged 15-24People at risk of poverty or social exclusion -% of total populationPeople at risk of poverty after social transfers -% of total populationSeverely materially deprived people -% of total populationPeople living in households with very low work intensity -% of total population aged 0-59Flags:b:Break in series. e:Estimated. p:Provisional. 1)Youngpeopleneitherinemploymentnorineducationandtraining:forESchangeintheclassificationofnon-formaleducationactivities;forFR,dataareimpactedfromthechangesinthequestionnaireintroducedin2013andinclusionofFrenchoverseasdepartments(DROM). 2) Official transmission deadline for 2016 data on People at risk of poverty and social exclusion is 30 November 2017 while data were extracted on 24 October 2017. 3) Employment rate for HR d: employment data use national concept instead of domestic concept.(cid:9)(cid:9)(cid:9)(cid:9)      Source: European Commission, EurostatYear2016Employment rate(1 year % change)