REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2019 (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances)
Date: 2018-11-21
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, 21.11.2018  COM(2018) 758 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE        Alert Mechanism Report 2019        (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances) {SWD(2018) 466 final}  
 
 
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 concerned. Following established practice, 
an  IDR  is  at  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 2019, ahead of the European Semester package of CSRs. 

1. 

EXECUTIVE SUMMARY 

This  report  initiates  the  eighth  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 
also  includes  an  analysis  of  the  euro-area  wide  implications  of  Member  Statesʼ  imbalances  and 
examines  the  extent  to  which  a  coordinated  approach  to  policy  responses  is  needed  in  light  of 
interdependencies within the euro area.3 In this particular respect, the analysis contained in this report 
complements  the  assessment  provided  in  the  European  Commission  Staff  Working  Document 
"Analysis of the Euro Area economy", accompanying the Commission Recommendation for a Council 
Recommendation on the economic policy of the Euro Area. 

1 This report is accompanied by a statistical annex, which contains a wealth of statistics that have contributed to 
inform this report.  
2 See Article 5 of Regulation (EU) No 1176/2011. 
3 More attention to the euro-area dimension of imbalances was proposed 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. The role of interdependencies and systemic implications of imbalances is recognised 
in Regulation (EU) No 1176/2011, which defines imbalances with reference to "macroeconomic developments 
which are 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." 

1 

 
 
 
 
                                                      
The AMR assessment is set against the backdrop of economic growth that remains broad-based 
despite some deceleration. The European Commission autumn 2018 economic forecast estimates real 
GDP  growth  to  be  2.1%  in  2018  and  1.9%  in  2019  for  both  the  EU  and  the  euro  area,  slightly 
decelerating as compared with the 2.4% growth recorded in 2017. Positive growth is expected in all 
Member States. Employment conditions are expected to improve further and to gradually translate into 
more  sustained  wage  growth,  which  would  support  consumption  and  underpin,  over  time,  core 
inflation  dynamics  approaching  the  inflation  target  of  monetary  authorities;  investment  growth  is 
expected to remain robust despite a slight deceleration. Conversely, there are indications of a softening 
contribution of net exports to growth, amid increased uncertainty on the trade policy environment and 
the unfolding of the recent euro appreciation. All in all, growth prospects remain anchored on  sound 
fundamentals, including overall strong labour markets, supportive credit conditions, improved balance 
sheets  and  profits  of  banks  and  non-financial  corporations,  but  are  set  to  decelerate  as  the  cycle  in 
main world areas matures.4  

The  correction  of  macroeconomic  imbalances  in  the  EU  is  progressing  on  the  back  of 
strengthening  nominal  GDP  growth,  but  the  medium-term  horizon  is  clouded  by  heightened 
uncertainty.  The  economic  expansion  and  inflation  rates  gradually  approaching  target  help  the 
reduction of debt-to-GDP ratios. However, private and government debt stocks remain at historically 
high  levels,  and  pockets  of  balance-sheet  vulnerabilities  in  the  financial  sector  persist.  As  inflation 
gradually  approaches  the  ECB  target,  the  case  for  monetary  policy  normalisation  would  strengthen, 
with  implications  for  borrowing  costs,  asset  prices  and  balance  sheets.  Against  that  background,  a 
number of triggers could lead to a reversal in risk attitudes, with confidence effects affecting Member 
States with worsened prospects for public finances or the financial sector, or subject to negative output 
shocks  (including  linked  to  the  implications  of  the  United  Kingdom  withdrawal  from  the  EU).  A 
number  of  downward  risks  emanate  from  the  extra-EU  environment,  notably  relating  to  the 
materialisation  of  protectionist  trade  policy  measures,  implications  of  geo-political  tensions  notably 
for energy prices, the coming to an end of the US fiscal expansion in a context of monetary tightening, 
and  the  implications  for  capital  flows  and  exchange  rates  arising  from  the  asynchronous  monetary 
policy normalisation across different areas of the world economy.5 The interplay among those sources 
of risks is tilting the balance of risks downward, and making the outlook increasingly uncertain, in a 
context  where  the  possibility  of  cushioning  shocks  via  private  and  public  savings  is  limited  in  a 
relevant number of Member States. 

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

  The  rebalancing  of  current  account  positions  needs  to  continue.  Large  current  account 
deficits have been corrected in most Member States, but in a few cases more prudent external 
positions are required to maintain an appropriate pace of reduction for the stocks of net foreign 
liabilities. The reduction of some of the largest current account surpluses have become visible 
only recently and remain modest. In a number of Member States, current account figures are 
increasingly  affected  by  cross-border  transactions  linked  to  the  activities  of  multinational 
corporations  and  of  internationally-oriented  service  sectors  that  affect  both  the  trade  and 
income balances. 

  External  stock  positions remain  unbalanced,  and adjustment is taking  place  gradually. 
The  large  negative  net  international  investment  positions  (NIIP)  recorded  in  Member  States 

4 See, e.g., ECB, Economic Bulletin, 5/2018. 
5 See also International Monetary Fund, World Economic Outlook, October 2018. 

2 

 
 
 
                                                      
with a past of large current account deficits are under correction on the back of external flow 
positions close to balance or in surplus and resumed nominal GDP growth, which need to be 
sustained to achieve a reduction of liabilities to more prudent levels. NIIPs in countries with 
large surpluses continue growing.  

  Cost competitiveness conditions are becoming less favourable for a number of Member 
States, and overall less supportive of more symmetric rebalancing. Since 2016, unit labour 
costs  are  growing  at  a  faster  rate  in  a  majority  of  Member  States,  with  strong  accelerations 
recorded especially in a number of EU countries in central and eastern Europe partly due to 
supply bottlenecks. Post-crisis cost competitiveness gains were faster in euro-area net-debtor 
countries than in net-creditor countries. However, more recently, the advantage of net-debtor 
countries in terms of cost competitiveness dynamics has slowed in comparative terms due to 
tightening labour markets and a reduced pace of productivity improvements, while tight labour 
markets in net-creditor countries have not translated so far into significant wage accelerations. 
Those  recent  cost  competitiveness  evolutions  are  not  fully  reflected  in  a  corresponding 
deterioration  in  price  competitiveness,  possibly  owing  to  a  compensating  effect  by  lower 
price-cost  margins.  That  effect  could  be  among  the  reasons  why  there  is  no  prima-facie 
evidence  suggesting  the  cost  competitiveness  losses  have  already  dented  on  export  market 
share growth, but effects could become visible if such trends persist. 

  Private  sector  deleveraging  is  ongoing,  increasingly  on  the  back  of  resumed  nominal 
growth.  Private  debt-to-GDP  ratios  are  falling  in  a  higher  number  of  Member  States  as 
compared  with  one  year  ago.  This  is  due  to  higher  nominal  GDP  growth,  as  active 
deleveraging,  i.e.  deleveraging  on  the  back  of  contracting  debt  levels  in  nominal  terms,  is 
taking  place  in  few  countries  only,  and  at  subdued  pace.  Active  deleveraging  is  mostly 
confined  to  the  corporate  sector  as  borrowing  by  households  has  regained  more  dynamism. 
The pace of deleveraging remains faster in the corporate sector than in the household sector, 
also  because  debt  stocks  are  higher  in  the  former  and  thereby  the  impact  of  nominal  GDP 
growth on the debt ratio is stronger.  

 

In  countries  with  high  levels  of  public  debt,  deleveraging  by  governments  has  started 
only  recently  and  proceeds  at  low  pace.  Despite  resumed  nominal  growth  and  reduced 
interest payments having contributed to bring government debt-to-GDP ratios on a downward 
path in most Member States, pro-cyclical fiscal loosening is taking place in a growing number 
of countries, with implications on the room for cushioning shocks in bad times.  

  Conditions  in  the  EU  banking  sector  are  improving  but  low  levels  of  profitability  and 
large stocks of non-performing loans (NPLs) persist in some Member States. Profitability 
has  improved  especially  in  the  countries  where  the  banking  sector  is  characterised  by  weak 
profitability.  NPLs  ratios  have  further  declined,  notably  in  the  Member  States  where  their 
stock  is  the  highest.  Capitalisation  ratios  have  further  improved  in  a  majority  of  countries. 
Banks  equity  valuations  grew  until  early  2018,  and  a  downward  correction  took  place 
afterwards.  

  House price growth has accelerated and turned positive in a growing number of Member 
States,  and  more  countries  are  exhibiting  possible  signs  of  overvaluations.  At  the  same 
time,  house  price  growth  has  recently  moderated  in  the  countries  where  the  evidence  of 
overvaluation  is  the  highest.  Conversely,  strong  accelerations  are  observed  especially  in 
countries that, at present, show no or moderate evidence of overvaluation.  

3 

 
 
 
  Labour  markets  continue  improving  and  wage  growth  is  gradually  resuming. 
Unemployment rates are further declining, including for youth and long-term unemployed, but 
joblessness  remains high  in  some  Member  States  and  labour  market  participation  low  albeit 
often  increasing.  Social  distress  is  receding  despite  the  legacy  of  protracted  joblessness  and 
reduced  earnings  in  a  number  of  countries.6  Wage  growth  at  euro-area  level  remains  below 
what would be expected at the current levels of unemployment on the basis of historical data. 
Wages in EU countries are however, gradually resuming at differentiated speeds that broadly 
reflect the extent of labour market tightness and labour supply bottlenecks in some countries.  

is  above 

levels  consistent  with  economic  fundamentals.  In 

Euro-area rebalancing continues to deserve careful consideration. The euro-area current account 
surplus stabilised in 2016 and remained broadly constant afterwards. Its level is the largest worldwide, 
intra-euro-area 
and 
interconnectedness and spillovers, an appropriate combination of policies across euro-area countries is 
needed  to  make  sure  that  the  resuming  growth  is  sustainable,  and  compatible  with  macroeconomic 
stability.  In  net-debtor  countries,  running  down  large  stocks  of  foreign  and  domestic  debt  requires 
maintaining  prudent  current  account  balances  and  ensuring  an  appropriate  pace  of  debt  reduction 
without undermining the objective of raising the growth potential and with a view to prevent the risk 
of pro-cyclical tightening in bad times. In net-creditor countries, addressing persistent large surpluses 
by means of policies stimulating investment and overcoming wage inertia would contribute to support 
the growth potential and make growth prospects less dependent upon foreign demand. Box 2 discusses 
more at length the euro area dimension of imbalances. 

light  of 

Overall,  risks  relating  to  existing  imbalances  continue  receding  on  the  back  of  the  economic 
expansion,  but  vulnerabilities  linked  to  stock  imbalances  persist,  and  signs  of  possible 
unsustainable trends are visible. Potential sources of risk are broadly the same as those identified in 
the  AMR  2018.  Large  surpluses  persist,  while  competitiveness  developments  have  become  less 
supportive of rebalancing. Private sector deleveraging has benefited from the economic expansion but 
remains  uneven,  with  large  stocks  of  debt  not  correcting  at  sufficient  pace.  More  fundamentally, 
reduced active deleveraging from the private and notably the public sector brings the question whether 
deleveraging  could  increasingly  rely  on  potential  GDP  growth  going  forward.  Such  a  challenge 
underscores  the  need  of  continuing  the  reform  process  started  in  a  number  of  EU  countries  in  past 
years and keeping high in the agenda policies and reforms aimed at raising the growth potential.7 In 
light of the increasingly uncertain medium-term outlook, deleveraging efforts by the private and public 
sector in the current times of continued economic expansion are key also with a view to create room to 
cushion  negative  output  shocks  once  economic  conditions  become  less  supportive  and  risks 
materialise.  At  the  same  time,  in  a  number  of  countries  signs  of  possible  overheating  are  present, 
mainly linked to fast-growing unit labour costs implying reduced cost competitiveness, and dynamic 
house  price  growth  from  already  relatively  elevated  levels.  In  light  of  the  correction  of  most  flow 
imbalances  and  the  gradual  reduction  of  the  gravity  of  stock  imbalances,  and  possible  signs  of 
overheating present in a number of countries, the orientation of MIP surveillance is gradually paying 
more attention to the monitoring of possibly unsustainable trends and the prevention of configurations 
of risks that could crystallise over the medium term. 

For  a  number  of  Member  States  identified  in  the  AMR,  more  detailed  and  encompassing 
analyses will be contained 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 

6 See Box 3 for an overview of main recent employment and social developments in the EU. 
7 See also European Commission, Annual Growth Survey 2019. 

4 

 
 
 
                                                      
challenges in the EU Member States. To prepare the IDRs, the Commission will base its analysis on a 
rich set of data and relevant information and assessment frameworks developed by the Commission in 
cooperation  with  Council  committees  and  working  groups.  The  analysis  contained  in  the  IDRs  will 
provide the basis for the identification of imbalances or excessive imbalances in Member States, and 
for  possible  updates  in  the  country-specific  recommendations  (CSRs)  issued  to  Member  States.8 
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  will  be  prepared  for  the  Member  States  already  identified  with  imbalances  or  excessive 
imbalances.  In  line  with  established  prudential  practice,  IDRs  will  be  issued  to  assess  whether 
existing imbalances are unwinding, persisting or aggravating, while taking stock of corrective policies 
implemented. The preparation of IDRs is therefore foreseen for the 11 Member States identified with 
imbalances in light of the findings of the 2018 vintage of IDRs.9 They are Bulgaria, Croatia, Cyprus, 
France, Germany, Ireland, Italy, the Netherlands, Portugal, Spain, and Sweden. 

IDRs will be prepared also for Greece, which is for the first time subject to MIP surveillance, 
and for Romania. In light of AMR analysis, an IDR will be issued for Greece, which was previously 
excluded from MIP surveillance because it was subject to a macroeconomic adjustment programme in 
the  context  of  financial  assistance  until  August  2018.10  The  AMR  assessment  does  not  point  to 
significant additional risks as compared to the ones identified in last available IDRs for a number of 
Member  States  that  exited  MIP  surveillance  in  recent  years,  namely  Slovenia  (which  was  identified 
with no imbalances in 2018), Finland (exit in 2017), Belgium and Hungary (exit in 2016). Conditions 
have also not changed significantly in Austria since the assessment contained in the 2016 IDR that led 
to the identification of no imbalances. The case of Estonia was also analysed in an IDR in 2016, which 
concluded against the identification of imbalances. Despite strong unit labour cost growth since then, 
there were no significant implications for external balance, and the case for a new IDR for Estonia is 
not compelling, though close monitoring in the upcoming country report is needed. It seems warranted 
instead  to  issue  an  IDR  to  analyse  the  situation  of  Romania  in  order  to  assess  the  evolution  and 
possible re-emergence of risky developments identified already in previous IDRs (in 2015 and 2016), 
notably  in  relation  to  competitiveness  and  external  balance.  Close  analysis  in  the  country  reports 
seems  warranted  for  risks  linked  to  housing  market  developments  in  a  number  of  Member  States 
(Austria,  Belgium,  Czechia,  Denmark,  Hungary,  Luxembourg,  and  the  United  Kingdom)  and  in 
relation  to  competitiveness  developments  (Czechia,  Estonia,  Hungary,  Latvia  and  Lithuania).11 
Overall, the AMR therefore calls for the preparation of IDRs for 13 Member States compared to 12 in 
the previous cycle. 

8 Article 6 of Regulation (EU) No 1176/2011. 
9  See  ʽ2018  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(2018) 120 final, 7.3.2018.  
10  Member  States  undergoing  macroeconomic  adjustment  programmes  linked  to  financial  assistance  are 
exempted  from  surveillance  under  the  MIP  (Article  11  of  Regulation  (EU)  No  472/2013  of  the  European 
Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of 
Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial 
stability). 
11 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. 

5 

 
 
 
 
                                                      
Box 1: Revisions introduced to the auxiliary indicators of the MIP scoreboard 

The  MIP  scoreboard  is  complemented  by  a  set  of  auxiliary  indicators.  As  set  in  the  MIP 
Regulation  (Regulation  (EU)  No  1176/2011),  the  economic  reading  of  the  scoreboard  shall  use  not 
only  the  headline  scoreboard  indicators,  but  also  on  additional  relevant  indicators  and  information. 
Since the inception of MIP surveillance, a set of auxiliary indicators have complemented the economic 
reading  of  the  headline  indicators.  Unlike  headline  indicators,  there  are  no  thresholds  for  auxiliary 
indicators (see Table 2.1). 

The MIP regulation requires the Commission to regularly review and revise the MIP scoreboard 
where  necessary.  The  scoreboard  has  undergone a  number  of revisions  since  the  MIP  inception.  In 
2012, a headline indicator for the financial sector was added (total financial sector liabilities). In 2013, 
the definition of a number of headline scoreboard variables was revised (real effective exchange rate, 
private sector debt and credit flow) and some auxiliary indicators were added (including a set of social 
and employment indicators). In 2015, headline employment indicators were added. Overall, changes 
have been targeted and parsimonious.  

This  AMR  introduces  some  revisions  to  the  auxiliary  indicators  in  order  to  benefit  from 
improvements  in  available  statistics  and  ensuring  the  pertinence  of  the indicators.  Those  latest 
revisions  in  the  set  of  auxiliary  indicators  aim  at  benefiting  from  improved  statistics  on  balance  of 
payments and banking sector data (notably non-performing loans), and help the scoreboard to reflect 
indicators  that  are  already  widely  used  in  AMR  and  IDR  analysis.  As  in  previous  revisions  to  the 
scoreboard, the European Parliament and the Council (including its committees of experts) were duly 
consulted and the ESRB was informed. Those revisions can be summarised as follows:12 

  Net  external  debt  (NED)  is  replaced  by  NIIP  excluding  non-defaultable  instruments  (NENDI)  in 
order  to  obtain  a  broader  representation  of  external  stocks  (both  assets  and  liabilities)  carrying 
default  risks.  The  new  indicator  profits  from  the  revised  methodology  for  balance  of  payments 
statistics (from BPM5 to BPM6), which allows a finer breakdown of foreign assets and liabilities. 
Compared with NED, NENDI: (i) excludes net intra-company foreign direct investment (FDI) debt, 
which in some cases accounts for a large share of cross-border debt without representing solvency 
concerns; (ii) includes mutual fund shares, which are sometimes a very large item and are mostly 
backed  by  bonds;  and  (iii)  includes  net  financial  derivatives.  Seen  from  a  different  perspective, 
NENDI  is  a  subset  of  the  NIIP  that  excludes  equity-related  components,  namely  FDI  equity  and 
equity shares, and intra-company cross-border FDI debt.  

  The non-consolidated financial  sector  leverage indicator from  national  accounts  is replaced  with 
consolidated banking leverage, domestic and foreign entities from ECB consolidated banking data, 
which has more clear economic interpretation, is comparable across countries, and is consistently 
based on book values, even if it covers the banking sector only.  

  Two  indicators  that  are  regularly  used  in  MIP  analysis  are  added:  first  household  debt 
(consolidated) to complement the headline indicator on private sector debt; and, second, gross non-
performing  loans,  which  provides  complementary  information  to  assess  private  sector  debt.  The 
addition  of  the  latter  has  become  possible  thanks  to  the  availability  of  cross-country-comparable 
data in the ECB's consolidated banking statistics as of 2015.  

  To  keep  the  scoreboard  relevant  and  parsimonious,  the  total  number  of  indicators  is  kept 
unchanged at 28. Two auxiliary indicators previously included are dropped: (i) the ten-year change 
in  nominal  unit  labour  costs  (as  it  overlaps  with  data  on  three-year  change  on  unit  labour  costs 
among the headline indicators and on ten-year change in unit labour costs relative to euro area also 
in the auxiliary indicators); (ii) non-consolidated private sector debt (which has been superseded by 
the headline indicator on consolidated private sector debt). 

12  For  more  details  on  the  statistical  definitions  of  the  new  indicators,  see  European  Commission,  "Envisaged 
revision 
note; 
Technical 
of 
https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-
governance-monitoring-prevention-correction/macroeconomic-imbalance-procedure/scoreboard_en. 

scoreboard", 

the  MIP 

indicators 

auxiliary 

selected 

of 

6 

 
 
 
                                                      
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.  The 
scoreboard  includes  a  range  of  14  indicators  with  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 2017. In accordance 
with  the  MIP  regulation  (Regulation  (EU)  No.  1176/2011),  scoreboard  values  are  not  read 
mechanically in the assessments included in the AMR, but are instead subject to an economic reading 
that enables a deeper understanding of the overall economic context and taking into account country-
specific  considerations.13  A  set  of  auxiliary  indicators  complements  the  reading  of  the  scoreboard. 
More recent data and additional information, insights from assessment frameworks, as well as findings 
in existing IDRs and relevant analyses, and the Commission services  autumn 2018 forecast, are also 
taken into consideration in the AMR assessment. 

Scoreboard variables pertaining to year 2017 point to the persistence of stock imbalances, which 
are however gradually receding. Values in excess of the threshold in the AMR scoreboard continue 
to be frequent in the case of government debt, net international investment positions, and private debt 
(Graph  1).14  The  number  of  Member  States  with  outcomes  beyond  the  thresholds  for  those  three 
indicators is marginally below the frequency recorded in previous scoreboard vintages, and confirms 
the long-lasting nature of these stock imbalances and an adjustment that is taking place only gradually. 
The  majority  of  cases  of  current  account  balances  beyond  threshold  is  mostly  linked  to  persistently 
large surpluses; the increase in the frequency of values beyond threshold in 2017 is due to a higher 
number of large deficits. The ongoing employment recovery is reflected in a further reduction of the 
number of EU countries with outcomes beyond the unemployment rate threshold, and more numerous 
reductions concern the youth and long-term unemployment indicators in light of their usual stronger 
sensitivity to the labour market situation. Despite the widespread and robust recovery in house prices 
across Europe, the scoreboard displays fewer Member States crossing the threshold for housing prices 
growth, as some countries with readings marginally over the threshold have meanwhile fallen below it. 
The  number  of  countries with  unit  labour  cost  growth  above  threshold has  remained  broadly  stable, 
while a reduced number of countries surpass the thresholds for the real effective exchange rate, and 
only in cases where the real exchange rate falls below the lower threshold. The number of Member 
States recording export markets share losses in excess of the threshold has further declined.  

13  On  the  rationale  underlying  the  construction  of  the  AMR  scoreboard  and  its  reading  see  European 
Commission  (2016)  ʽThe  Macroeconomic  Imbalance  Procedure.  Rationale,  Process,  Application:  A 
Compendiumʼ, European Economy, Institutional Paper 039. 
14 The detailed scoreboard indicators, together with the respective indicative thresholds, are displayed in Table 
1.1 in annex; auxiliary indicators are displayed in Table 2.1. As explained in the note to Graph 1, the reading of 
the evolution of the scoreboard data is based on the data available at the time of each AMR. The cut-off date for 
data for the AMR 2019 was 24 October 2018. 

7 

 
 
 
 
                                                      
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 values beyond threshold computed using the latest figures for the scoreboard variables compared 
with the number reported in the graph above. 

Most EU countries continue recording current accounts in balance or in surplus and the large 
current account surpluses in some countries persist, declining marginally at best. Overall, recent 
changes  in  current  account  balances  have  been  relatively  limited  (Graph  3).  Most  of  the  large  and 
unsustainable current account deficits had adjusted already by the first years of the decade and turned 
into surpluses or balanced positions, which have been preserved and often marginally augmented over 
more recent years. The large surpluses in net-creditor countries have overall remained little changed or 
even  increased.  Current  account  balances  are  only  to  a limited  extent  driven by  cyclical  factors: the 
difference between actual and cyclically-adjusted current accounts is generally minor, and declining, 
against a backdrop of narrowing output gaps (Graph 2).15 For most of the EU countries, recent current 
account outcomes exceed what could be expected on the basis of fundamentals (e.g., ageing and per-
capita  income).16  However,  in  some  cases,  recent  outturns  may  still  be  insufficient  to  run  down  the 
stock  of  net  foreign  liabilities  at  an  appropriate  pace.  Broadly  balanced  current account  positions  in 
2017  owed  less  than  before  to  cyclical  conditions,  as  negative  output  gaps  in  Member  States  are 
narrowing  or  turning  positive.  Driven  by  rising  oil  prices,  developments  in  the  energy  balance 
detracted from the overall balance almost everywhere but often only slightly (see Table 2.1 in annex 
for data on the energy balance). 

15  Cyclically-adjusted  current  account  balances  take  into  account  the  impact  of  the  cycle  by  adjusting  for  the 
domestic  output  gap  and  that  in  trading  partners,  see  M.  Salto  and  A.  Turrini  (2010),  "Comparing  alternative 
methodologies for real exchange rate assessment", European Economy, Discussion Paper 427/2010. 
16 Current accounts in line with fundamentals (current account norms) are derived from reduced-form regressions 
capturing the  main determinants of the  saving-investment  balance,  including  fundamental determinants, policy 
factors  and  global  financial  conditions.  The  methodology  is  akin  to  S.  Phillips  et  al.  (2013),  "The  External 
Balance  Assessment  (EBA)  Methodology",  IMF  Working  Paper,  13/272.  See  L.  Coutinho  et  al.  (2018), 
"Methodologies for the assessment of current account benchmarks", European Economy, Discussion Paper 86, 
2018,  for  the  description  of  the  methodology  for  the  computation  of  the  fundamentals-based  current  account 
used in this AMR. 

8 

616118350131612121110515511461131712008451533310012169112161321460121572310024681012141618202014201520162017 
 
 
 
 
 
                                                      
  Cyprus is the Member State that records the largest current account deficit, beyond the 
MIP  threshold  (based  on  the  average  of  the  3  years  to  2017).  Readings  of  annual  data  have 
worsened in recent years only for Cyprus. The outcomes are below what fundamentals would 
suggest and what is required to improve the NIIP at appropriate pace and the deterioration 
in the current account in 2017 cannot be accounted for by the impact of the cycle. Outside the 
euro  area,  the  current  account  of  the  United  Kingdom  is  also  below  the  MIP  scoreboard 
threshold. 

 

In 2017, only five other Member States recorded current account deficits: Finland, France, 
Greece,  Romania,  and  Slovakia,  with  only  the  latter  two  recording  values  worse  than  1%  of 
GDP.  Romania  recorded  a  deterioration  in  its  current  account  deficit  that  appears  below 
fundamentals for 2017. Greece stands out for the large contribution of the negative output 
gap  for  the  low  headline  current  account  deficit;  controlling  for  cycle,  the  current  account 
appears below the level required to reduce the NIIP at rapid pace and below the current account 
norm.  

  Countries with a largely negative NIIPs like Portugal and Spain had current account outturns 
above  what  could  be  expected  on  the  basis  of  fundamentals  but  not  sufficient  to  ensure  an 
improvement of the NIIP at appropriate pace in the case of Portugal. Croatia posted a surplus 
that is conducive to a reduction of the NIIP at satisfactory pace. Ireland showed a large current 
account surplus in 2017 after a deficit in 2016, following recent substantial downward backward 
revisions. In the case of Ireland, current account figures are markedly affected by cross-border 
transactions linked to the activities of multinational corporations. 

  Four  EU  countries  currently  exceed  the  MIP  scoreboard  threshold  on  account  of 
surpluses.  Values  above  threshold  have  been  observed  in  Denmark,  Germany  and  the 
Netherlands for several years and in Malta more recently. In 2017, the German surplus declined 
by 0.5% of GDP, while the surplus in the Netherlands widened by 2.5% of GDP. In all these 
four cases, those surpluses outturns are well above what can be explained by fundamentals, 
always by at least 5 percentage points of GDP. The dynamics of the surplus in the Netherlands 
and  Malta  were  considerably  driven  by  cross-border  transactions  linked  to  the  activities  of 
multinational  corporations  and  of  internationally-oriented  service  sectors  that  affect  both  the 
trade  and income  balances.  A  number  of  other countries  have  been  recording  current  account 
surpluses for some years even if below the threshold, which is also the case of large euro area 
countries, notably Italy (see also Box 2 for more on the euro area current account surplus). 

9 

 
 
 
 
 
Graph 2: Current account balances and benchmarks in 2017 

Source: Eurostat (BPM6 data) and Commission services calculations. 
Note: Countries are ranked by current account balance  in  2017.  Cyclically-adjusted current account balances: 
see  footnote  15.  Current  account  norms:  see  footnote  16.  The  NIIP-stabilising  current  account  benchmark  is 
defined as the current account required to stabilise the NIIP at the current level over the next 10 years or, if the 
current  NIIP  is  below  its  country-specific  prudential  threshold,  the  current  account  required  to  reach  the  NIIP 
prudential threshold over the next 10 years.17  

Graph 3: Evolution of current account balances 

Source: Eurostat and Commission services calculations. 
Note: Countries are presented in increasing order of the  variation in the NIIP-to-GDP ratio between 2007 and 
2017. The variation owed to the cycle is computed as the variation of the current account that is not accounted 
for by the variation of the cyclically-adjusted current account balance; see footnote 15. 

17 For the methodologies for current account benchmarks see L. Coutinho et al. (2018); for country-specific NIIP 
prudential thresholds see footnote 18.  

10 

-8-40481216CYSKELFIFRPTLVBELTESATITEELUSIDEIENLMTUKROPLCZHUSEHRBGDKEuro areaNon-euro area% of GDPCurrent account (CA), BoPCyclically-adjusted CACA normNIIP-stabilising CA-24-120122436-10-5051015SELUFIATBEFRUKDESKCYNLITCZPLDKPTHUROHRSIESELIEMTLTEELVBGpps. of GDP% of GDP201620172017: 2016 + variation owed to the cycleChange 2007-2017 (pps of GDP) (rhs) 
 
 
 
 
 
                                                      
Net international investment positions (NIIPs) have continued improving in almost all Member 
States but deeply negative positions remain a concern in a number of them. NIIP stocks are still 
largely  in  negative  territory  for  many  EU  Member  States  (Graph  4).  In  a  majority  of  EU  countries 
displaying a negative NIIP, the stock of foreign liabilities exceeds the NIIP that could be justified on 
the basis of economic fundamentals, while only in a minority of cases it seems to be below prudential 
threshold.18 In some countries, the stock of foreign liabilities is large also when computed net of less 
risky financial instruments (NENDI). Improvements in the NIIPs continued in 2017 thanks to current 
account  outcomes  often  in  positive  territory  and  to  recovering  nominal  GDP  growth  (Graph  5). 
Improvements  tended  to  be  somewhat  milder  than  in  earlier  years  with  valuation  effects  often 
contributing less to the NIIP improvement or even marginally detracting from the NIIP. The sign and 
strength  of  NIIP  variations  had  no  strong  link  with  starting  NIIP  levels,  but  net-debtor  countries 
improved or stabilised their readings in 2017 in a majority of cases. 

 

 

 

 

In  2017,  almost  half  of  the  Member  States  recorded  NIIPs  worse  than  the  scoreboard 
threshold of -35% of GDP. Some continued exceeding -100% of GDP (Cyprus, Greece, Ireland 
and  Portugal)  and  Spain  -80%  of  GDP;  also  Bulgaria,  Croatia,  Hungary,  Latvia,  Lithuania, 
Poland, Romania and Slovakia were still behind the -35% of GDP mark.  

In  countries  with  largely  negative  NIIPs,  the  readings  are  generally  below  country-specific 
benchmarks,  both  NIIP  norms  and  NIIP  prudential  thresholds.  This  is  the  case  in  Ireland, 
Greece,  Cyprus,  Portugal,  and  also  Spain.  Greece  recorded  a  marginal  worsening  of  the  NIIP 
and  Portugal  posted  unchanged  readings,  in  both  cases  with  valuation  effects  dampened 
somewhat  the  NIIP  in  2017;  all  of  the  others  improved  their  outcomes.  These  most  negative 
NIIPs are  marked by a  strong incidence of net debt  liabilities.19 The figures for Cyprus and 
Ireland have to be seen also in the light of the relevance for them of  activities of multinational 
corporations and of internationally-oriented service sectors; and in Greece in light of the large 
external public debt at highly concessional rates.  

In  countries  with  intermediate  negative  NIIPs,  but  still  below  the  -35%  of  GDP  scoreboard 
threshold,  NIIP  often  appear  below  norm  and  in  some  cases  slightly  below  prudential 
thresholds.  In  those  countries,  equity  has  a  large incidence  on the  negative  NIIP,  including  in 
light of inward net FDI stocks. In countries with moderate external stock positions, NIIPs are 
often above the respective norms, except for the cases of France and Slovenia, where they are 
below. 

In most of the countries with large and positive NIIP stocks, NIIPs are above norm and have 
been increasing  in 2017, on the back of large current account surpluses. The Netherlands and 
Denmark recorded marginal falls in their NIIP on account of negative valuations effects. Malta 

18 NIIP in line with fundamentals are obtained as the cumulation over time of current account norms (see also 
footnote 16). NIIP prudential thresholds are determined from the maximisation of the signal power in predicting 
a balance of payment crisis, taking into account country-specific information summarised by per-capita income. 
For  the  methodology  for  the  computation  of  NIIP  stocks  in  line  with  fundamentals  see  A.  Turrini  and  S. 
Zeugner,  "Benchmarks  for  Net  International  Investment  Positions",  European  Economy,  Discussion  Paper, 
forthcoming.  
19  As  reflected  by  the  NENDI  variable,  i.e.  the  NIIP  net  of  non-defaultable  instruments.  On  the  positive  side, 
improvements in the NIIPs in these countries in 2017 were mostly driven by improvements in the NENDI. 

11 

 
 
 
                                                      
and  the  Netherlands  ended  2017  with  NIIPs  at  around  60%  of  GDP,  Belgium,  Denmark  and 
Germany above 50%.20  

Graph 4: Net international investment positions (NIIPs) and benchmarks in 2017 

Source: Eurostat (BPM6, ESA10), Commission services calculations.  
Note:  Countries  are  presented  in  decreasing  order  of  the  NIIP-to-GDP  ratio  in  2017.  NENDI  is  the  NIIP 
excluding non-defaultable instruments, see Box 1 for more information. For the concepts of NIIP norm and NIIP 
prudential threshold, see footnote 18.  

Graph 5: Dynamics of the net international investment positions (NIIPs) 

Source: Eurostat 
Note: Countries are presented in decreasing order of variation of the NIIP-to-GDP ratio in 2017. 

20 The relevance of the NENDI varies considerably across that group of countries, reflecting also the relevance of 
their financial centres, like in Luxembourg and Malta, or the external debt liabilities of banks and multinationals' 
headquarters as in the Netherlands. 

12 

-175-125-75-252575MTNLDKDEBELUATFISEITUKFRCZEESILTBGROHULVPLHRSKESPTCYELIE% of GDPNIIPNENDIPrudential NIIP/NENDI thresholdNIIP norm+230-3947-259-15-12-9-6-303691215182124UKFRBESENLELFIATLUCZPLPTDKSKROCYESLVDESIITHULTBGEEHRMTIEAverage annual change, pps . of GDP2013-20142015-20162017 
 
 
 
 
 
                                                      
Cost  competitiveness  developments  have  become less  supportive  of  rebalancing.  Post-crisis  unit 
labour  cost  (ULC)  patterns  were  characterised  by  relatively  subdued  dynamics  in  countries  having 
witnessed  demand  compression  after  the  unwinding  of  large  current  account  deficits.  ULC  growth 
started  resuming  with  the  economic  recovery,  remaining  however  relatively  subdued  despite  labour 
market tightening. Marked accelerations in ULCs were recorded in a number of countries in central 
and  eastern  Europe:  since  2012  in  Bulgaria  and  Estonia,  2013  in  Latvia  and  Lithuania,  2016  in 
Czechia, Hungary and Romania. ULCs have further accelerated in 2017 in most Member States on the 
back of the consolidation of the economic expansion, without however a significant pick up in labour 
costs in large net-creditor countries. As a result, the tendency started in 2016 towards a pattern of cost 
competitiveness developments that appear less supportive of rebalancing remains confirmed (see also 
Box 2).  

  Unit  labour  costs  have  been  accelerating  in  most  Member  States.  ULC  growth  in  recent 
years  was  particularly  strong  in  Bulgaria,  Estonia,  Latvia,  and  Lithuania  (Graph  6);  for  all  of 
them the scoreboard threshold is crossed. In 2017, ULC accelerations from earlier years stood 
out  clearly  in  Bulgaria  and  Romania  and,  to  a  lesser  extent,  also  Czechia,  Luxembourg  and 
Slovakia. Estimates for 2018 point to scenarios of continued ULC dynamism in many of them, 
accelerating  more  markedly  in  Czechia,  Hungary,  Latvia,  Lithuania,  and  Romania,  and 
decelerating but remaining high in Bulgaria. 

  The cross-country pattern of unit labour cost growth broadly reflects differences in labour 
market  tightness.  The  countries  where  the  ULC  have  been  growing  the  fastest  are  generally 
those recording lower unemployment rates (Graph 8). Countries that recorded fast rates of GDP 
growth  in  past  years,  notably  the  Baltics  and  a  number  of  other  countries  in  eastern  Europe, 
display both low or moderate unemployment and high growth rates for ULC, while labour cost 
dynamics are generally more contained in countries with higher unemployment. Such relation is 
expected  from  the  operation  of  Phillips  curve  dynamics  but  holds  only  loosely,  as  some 
countries exhibit ULC growth rates well in excess of what the relation would imply, notably the 
Baltics,  Bulgaria,  the  Czechia,  Hungary  or  Romania.  At  the  same  time,  others  display  lower 
ULC  growth  than  expected  (e.g.,  Croatia,  Finland,  and  Ireland).  In  the  former  group,  strong 
wage growth may also be associated with labour supply shortages linked to outward migration, 
skill shortages, skill mismatch.21 

  Nominal wage  growth  provided  the  biggest  contribution  to  the  ULC  growth  observed in 
2017. In most Member States, the largest contribution to ULC growth was provided by nominal 
wage growth, labour productivity playing a relatively milder role. Labour productivity generally 
contributed to slow down ULC growth, both on account of capital deepening and TFP growth, 
while reduced worked hours often implied reduced productivity (Graph 7).  

  ULC growth patterns are increasingly delinked from external rebalancing needs. While in 
the crisis period unemployment tended to be higher in net-debtor countries that were subject to 
current account reversals and the ensuing demand compression, unemployment rates have been 
converging  since  the  economic  recovery  started,  implying  that  the  patterns  of  ULC  growth, 
which broadly reflects the different degree of labour market tightness, are increasingly de-linked 
from external rebalancing needs. In 2017, and somehow confirming the pattern already seen in 
2016,  some  net-debtor  countries  have  seen  ULC  growing  again  after  years  of  reduction  or 

21 See e.g., European Commission (2018), "Labour markets and wage developments in Europe", Annual review 
2018,  and  Z.  Darvas  and  I.  Gonçalves  Raposo  (2018),  "The  ever-rising  labour  shortages  in  Europe",  Bruegel 
Blog Post, January 25 2018. 

13 

 
 
 
                                                      
stagnation, with the accelerations being more noticeable in Cyprus, Greece and Portugal. At the 
same time, persistently tight labour markets in net-creditor countries have not translated so far 
into significant wage accelerations.  

Graph 6: Unit labour cost growth in recent years 

Source: AMECO; 2018 data come from the European Commission autumn 2018 economic forecast.  
Note: Countries are presented in increasing order of unit labour cost growth in 2017. 

Graph 7: Growth in unit labour cost and its drivers, 2017 

Source: AMECO and Commission services calculations 
Note: Countries are presented in increasing order of unit labour cost growth in 2017. 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.  

14 

-4-20246810IEFIITESMTCYNLELATFRSIBEDEPTLVLTSKEELUHRDKSEUKPLCZHUROBGEuro areaNon-euro area2010-20132014-20162017ij2018fAverageannual % change-6.5-6%-3%0%3%6%9%12%15%IEFIITESMTCYNLELATFRSIBEDEPTLVLTSKEELUHRDKSEUKPLCZHUROBGEuro areaNon-euro area% change / percentage points changeLabour productivity: TFP contributionLabour productivity: hours workedLabour productivity: capital deepeningCompensation per hourNominal unit labour cost growth 
 
 
 
 
 
 
Graph 8: Unit labour cost growth and unemployment rate 

Source: AMECO 

Price  competitiveness  developments  measured  by  Real  Effective  Exchange  Rates  (REERs) 
reflect only partly cost competitiveness changes based on ULCs. Differences in ULC growth have 
translated into cost competiveness gains and losses for EU Member States when measured by ULC-
based  REERs,  which  take  into  account  both  changes  in  ULC  growth  relative  to  competitors  in 
domestic and third markets as well as developments in nominal exchange rates (Graph 9).  

  Over recent years, a majority of euro-area Member States recorded reductions in the ULC-
based REER, meaning that comparative drops in labour costs were sufficient to compensate for 
the appreciation of the euro in effective terms since 2016. A few euro-area countries, however, 
and notably the Baltics, recorded instead cost competitiveness losses measured by the ULC-
based REER. Among non-euro area countries, changes in the ULC-based were mostly linked to 
nominal exchange rate fluctuations, as measured by nominal effective exchange rates (NEERs). 
Depreciations  implied  competitiveness  gains  in  Poland,  Romania,  Sweden,  and  the  United 
Kingdom; appreciations had mostly implications for Bulgaria and Czechia. In recent years, cost 
competitiveness gains measured by changes in the ULC-based REER were in general of a larger 
magnitude  in  net-debtor  countries.  The  evidence  is  consistent  with  the  one  reviewed  above 
relating to ULC dynamics. 

  Price  competitiveness  dynamics,  measured  by  the  GDP  deflator-based  REER,  were  more 
contained than cost competitiveness dynamics, measured according to the ULC-based REER. 
It  implies  that  part  of  the  variation  in  ULC  affected  price-cost  margins  rather  than  being 
transferred  into  prices  (Graph  9).  Evidence  suggesting  margin  compression  was  particularly 

15 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK-2024680510152025ULC, average  annual % change 2016-2018Unemployment rate (%), average 2016-2017 
 
 
 
 
 
strong  in  the  countries  recording  large  cost  competitiveness  losses,  in  particular  the  Baltic 
countries, Bulgaria and Romania.22  

 

In  a  number  of  countries,  very  moderate  or  negative  consumer  price  inflation  rates  were 
reflected  in  strong  competitiveness  gains  as  measured  by  the  HICP-based  REER.  Two 
countries, Cyprus and Ireland, were even below the lower scoreboard threshold in 2017. In most 
countries,  the  current  competitiveness  position is more favourable than  it was  before  the 
crisis as the HICP-based REER level lies below the one recorded at previous peaks. The real 
depreciation coincided in most cases with a reduction of the relative price of non-tradables, and 
an increased share of tradables in the economy, improving the potential for export-led growth 
dynamics.  However,  in  few  countries,  notably  Austria,  Estonia  and  Lithuania,  current  HICP-
based REER figures are close or above previous peaks.  

Graph 9: Nominal and real effective exchange rates (NEER and REER) 

Source: AMECO 
Note: Countries are presented in increasing order of the average annual variation of the Real Effective Exchange 
Rate  (REER)  based  on  ULC  growth  between  2015  and  2017.  The  REERs  based  on  ULC  and  on  the  GDP 
deflator  and  the  Nominal  Effective  Exchange  Rate  (NEER)  are  computed  vis-à-vis  37  trading  partners;  the 
HICP-based REER is computed vis-à-vis 42 trading partners as in the AMR scoreboard. 

22 While margin compression prevents cost competitiveness to affect the terms of trade, thereby containing the 
impact  on  trade  flows  in  industries  characterised  by  product  differentiation  and  pricing-to-market,  persistent 
reduced profitability would over time imply a shrinking tradable sector. 

16 

8090100110120-4-2024IEFICYITELNLESMTFRBEATSIDEPTSKLUEELVLTUKHRSEPLDKHUROCZBGEuro areaNon euro areaNEER, avg. annual % change, 2015-2017REER-ULC, avg. annual % change, 2015-2017REER-GDP deflator, avg. annual % change, 2015-2017REER-HICP level, 2017, peak over 2009-2016 = 100 (rhs)Average annual % change-7.5Index, peakyear (2009-2016)= 100 
 
 
 
 
 
 
 
                                                      
Export market share gains are recorded in a majority of EU countries, but are becoming smaller 
in  magnitude.  The  cumulated  export  market  share  change  over  5  years  recorded  in  2017  shows 
positive  values  in  most  EU  Member  States,  and  only  in  one  country  (Greece)  export  market  shares 
losses  were  beyond  the  scoreboard  threshold.  More  recent  data  show  a  differentiated  picture,  with 
gains still prevailing but becoming more moderate in 2017 against the backdrop of the appreciation of 
the euro and less supportive commodity price dynamics. At the same time, while export activity of EU 
countries continued its recovery in 2017, export growth by other economies came close to that of the 
EU in 2017 with an acceleration from previous years.23 

  The  past  overall  positive  trend  in  export  market  shares  for  the  EU  has  been  favoured  by  a 
rebound  in  intra-EU  export  demand  and  competitiveness  gains  as  reviewed  above.  Market 
share  gains  were  in  general  somehow  more  pronounced  in  net-debtor  countries  and 
Central and some Eastern European countries, meaning that stronger competitiveness gains 
in those countries also tended to translate into an advantage in terms of export penetration.  

  More recent data on annual market share changes indicate gains in 2016, followed by generally 
more moderate outturns for 2017 (Graph 10). Gains became more moderate in almost all EU 
Member States in 2017, while stronger gains were recorded in Greece and Lithuania, reflecting 
a reversal of previous large losses. 

Graph 10: Change in export market shares, recent years 

Source: Eurostat, Commission services calculations. 
Note: Countries are presented in increasing order of the annual variation of the export market shares in 2017. 

23 See European Commission autumn 2018 forecast; and IMF (2018), World Economic Outlook, October 2018. 
See also Table 2.1 in annex for export performance against advanced economies. 

17 

-12-8-404812LUUKFRSEDKDEATCYSKHUBEMTIEEEITESNLCZLVHRROPTFIBGSIELPLLTAnnual % change201520162017+40.6-14.3 
 
 
 
 
 
 
                                                      
Box 2: The euro area dimension of macroeconomic imbalances 

The euro area current account has stabilised at very high levels.  The current account balance of 
the euro area increased visibly after the 2008 crisis and until 2016. Since then its value has stabilised 
at around 3.2% of GDP in 2016 and 2017, based on Balance of Payments statistics.24 The euro-area 
current  account  surplus  remains  the  largest  worldwide,  and  is  estimated  to  be  above  the  value  that 
would  be  expected  on  the  basis  of  economic  fundamentals  (about  1.5%  of  euro  area  GDP).25  At 
unchanged policies, the euro area current account surplus is expected to edge down somewhat by 2020 
according  to  the  European  Commission  autumn  2018  forecast.26  Factors  that  could  contribute  to  a 
reduction of the surplus include a relative weakening of cyclical conditions in other areas of the world 
economy, the unfolding of the effects from restrictive trade policies and from the recent euro effective 
real  appreciation,  a  possible  further  euro  appreciation  (inter  alia  linked  to  upward  market  pressures 
arising  from  the  persistent  large  external  surplus),  or  the  protraction  of  the  ongoing  trend  towards 
higher oil prices.  

Graph  B.1:  Euro  area  current  account 
evolution: breakdown by country  

Graph  B.2:  Euro  area  current  account 
evolution: breakdown by items  

Source: AMECO, Balance of payments figures. 

Source: Eurostat, Balance of payment figures.  
Note:  "18*"  refers  to  the  four  quarters  moving 
average data until 2018-Q2. 

24  The  euro-area  current  account  figures  based  on  balance  of  payments  data  were  recently  slightly  revised 
downward, and currently show a surplus that is lower by about 0.3 and 0.1 percentage points of GDP for 2015 
and 2016 respectively compared with the figures available one year ago. The current account balance of the euro 
area aggregate vis-à-vis the rest of the world was at 3.2% of GDP in both 2016 and 2017, according to figures 
from both balance of payments and national accounts. Yet the current accounts of euro area Member States sum 
up to 3.5% and 4% of euro area GDP for 2016 and 2017 respectively. The discrepancies between the euro area 
aggregate  and  the  sum  of  the  current  account  balances  of  the  Member  States  are  due  to  adjustments  for 
asymmetries in the reported Member State data.  
25  For  the  methodology  for  the  computation  of  current  account  balances  in  line  with  fundamentals  (current 
account norm) see footnote 16 and references therein. The IMF (External Sector Report 2018) also suggests the 
euro area current account norm to be at around 1.5% of GDP. 
26 Forecast based on national accounts figures.  

18 

-4-3-2-10123403040506070809101112131415161718fDEESFRITNLOtherEA-19% of GDP-6-4-20246030406070809101112131415161718*% of GDPIncome balanceServices balanceNon-energy goods balanceEnergy balance (SITC3)Current account bal.Current account normCyclically-adjusted CA 
 
 
 
 
 
 
                                                      
The  built-up  of  the  euro-area  surplus  reflects  the correction  of  current  accounts  previously  in 
deficit coupled with the persistence of large surpluses The euro-area current account position was 
broadly  balanced  before  2008,  recorded  a  deficit  in  that  year  amid  a  large  drop  in  world  export 
demand, and moved into surplus after the 2008 financial crisis mainly in light of the sharp correction 
of large deficits following a reversal in private cross-border financial flows (Graph B.1). The surplus 
further increased after 2011 with the spreading of the debt crisis to Spain and Italy and the ensuing 
compression  in  domestic  demand  that  contributed  to  shift  the  current  account  balance  of  these 
countries  into  surplus.  Since  2011,  there  was  also  a  gradual  increase  in  the  large  current  account 
surplus  of  Germany.  At  present,  the  current  account surplus  of  the  euro  area  is  mainly  the  result of 
large surpluses recorded in Germany and the Netherlands, whose combined external positions account 
for  the  bulk  of  the  euro-area  surplus  (Graph  B.1).  Since  2016,  the  gradual  reduction  in  the  German 
current account surplus is associated with the stabilisation of the surplus recorded by the euro area.  

The recent evolution of the euro-area current account was mainly linked to the energy, income 
and services balance.  The non-energy  goods' balance recorded an improvement in the aftermath of 
the financial crisis reflecting the relative weak cyclical position of the euro area compared with other 
world areas and accounting for most of the current account improvement (Graph B.2). Consistently, 
over  the  same  period,  the  euro-area  cyclically-adjusted  current  account  balance  recorded  a  milder 
improvement. Starting from 2013, in light of the euro area output recovery, the surplus of the goods' 
balance stabilised and started shrinking only very moderately, amid a robust performance of exports in 
value  and  volume  as  compared  with  other  advanced  economies.27  The  post-crisis  behaviour  of  the 
energy  balance  was  mainly  driven  by  variations  in  oil  prices.  After  a  major  fall  in  2008,  oil  prices 
recovered  between  2009  and  2011,  and  dropped  again  between  2014  and  2016,  underpinning 
variations in the opposite direction in the euro-area energy balance. The recovery in oil prices started 
at  mid-2016  is  behind  the  deterioration  in  the  energy  balance  recorded  since  then.28  The  negative 
contribution  of  the  energy  balance  to  the  euro  area  surplus  since  2016  was  compensated  by  an 
improvement  in  the  services'  balance.  The  income  balance,  despite  the  improving  capital  income 
balance associated with a positive and growing NIIP at euro-area aggregate level, remains in negative 
territory and has deteriorated in 2017 in light of dynamics recorded in net corporate income.  

The  dynamics  of  the  euro-area  surplus  is  linked  to  domestic  demand  lagging  behind  that  of 
economic  activity  and  sustained  export  demand,  building  on  supportive  global  demand  for 
European  goods and  services  and on  an  improved  competitive  position.  The  difference  between 
aggregate income and spending, which corresponds to net exports, has been widening since after the 
2008 financial crisis until 2016 (see Graph B.3). At the onset of the crisis, subdued demand dynamics 
reflected a large-scale private sector deleveraging process, notably in net-debtor countries concerned 
by  current  account  sudden  stops,  while  increased  net  borrowing  by  the  government  sector  helped 
cushioning  the  impact  of  the  crisis  on  incomes  (Graph  B.4).  After  the  aggravation  of  the  euro-area 
debt crisis in 2011, deleveraging started also in the government sector, which has provided the largest 
contribution to the increase in the overall net lending position of the euro area since then. Net lending 
figures  for  the  household  sector  are  currently  twice  larger  compared  with  the  pre-crisis  period,  and 
non-financial corporations, which normally record net borrowing needs, have been posting a positive 
net  lending  position  since  2013.  Government  net  lending  remains  in  negative  territory  and  has  only 
recently  reached  levels  consistent  with  falling  government  debt  ratios  in  most  euro-area  countries. 

27 See also ECB, Economic Bulletin 05/2018, Box 2.  
28  In  assessing  energy  balance  prospects  it  should  also  be  taken  into  account  the  progressive  structural 
improvement in the euro-area energy balance for a given level of oil prices associated with the reduced weight of 
energy-intensive  activities  and  the  increased  energy  efficiency  of  production  processes.  See,  e.g.,  IAE  (2018), 
"Energy Efficiency 2017", International Energy Agency. 
19 

 
 
 
                                                      
Despite  active  deleveraging,  the  protracted  stagnation  of  nominal  GDP  after  the  crisis  implied  that 
debt-GDP ratios remained historically high for households, corporations and governments in a number 
of euro-area countries. Deleveraging is currently taking place amid favourable economic conditions. 

Graph  B.3:  Euro-area  output,  domestic 
demand, net exports and core inflation 

Graph B.4: Euro-area net lending/borrowing 
by sector  

Source: AMECO 

Source: Eurostat 

Challenges  remain  linked  to  the  persistence  of  stock  imbalances,  the  durability  of  the  current 
economic expansion, and the limited room for cushioning negative shocks in high-debt countries. 
After almost a decade of sluggish dynamics, euro-area domestic demand is recovering, the output gap 
is moving into positive territory, and inflation is expected to gradually approach the target of monetary 
authorities (Graph B.3). The ongoing expansion is supporting the correction of stock imbalances but a 
number of challenges loom ahead. First, there is uncertainty on the durability of the current expansion, 
as the conditions for ensuring growth on a sustainable basis are not always in place, notably linked to 
persistent  investment  gaps,  insufficient  framework  conditions  to  stimulate  productivity  growth,  and 
unused  human  capital  potential.29  Second,  rebalancing  within  the  euro  area  is  still  incomplete. 
Countries  with  a  past  of  large  deficits  remain  characterised  by  large  negative  net  international 
investment  positions  coupled  with  large  stocks  of  private  or  government  debt  that  represent 
vulnerabilities. Moreover, the same countries that are burdened by high debt are generally also those 
with relatively smaller room for relying on potential output growth for a reduction in the debt ratios, 
meaning that the room for private and public savings to cushion negative output shocks is likely to be 
limited (Graph B.6).  

Symmetric rebalancing in the euro area would help restoring sustainable growth while ensuring 
macroeconomic  stability  looking  forward.  An  appropriate  combination  of  policies  is  needed  to 
make sure that growth is sustainable going forward, and compatible with macroeconomic stability. In 
net-debtor  countries,  running  down  large  stocks  of  foreign  and  domestic  debt  requires  maintaining 
prudent current account balances and ensuring an appropriate pace of debt reduction while keeping the 
objective of raising the growth potential via appropriate investment and reforms and avoiding the risk 

29  See  European  Commission,  Annual  Growth  Survey  2019,  and  B.  Pierluigi  and  D.  Sondermann  (2018), 
"Macroeconomic imbalances in the euro area: where do we stand?" ECB Occasional Paper 211/2018. 

20 

-4-3-2-101234850090009500100001050003040506070809101112131415161718f%Billion euro(2010 prices)EA trade balanceminEA core inflation (%, rhs)EA output gap (% GDP, rhs)EA Output (GDP)EA aggregate demand-8-6-4-202468030405060708091011121314151617% of GDPHouseholdsGeneral governmentFinancial corporationsNon-Financial corporationsTotal Economy 
 
 
 
 
 
                                                      
of pro-cyclical tightening in bad times. Enhancing productivity prospects is particularly needed in net-
debtor  countries  both  for  the  sustainability  of  debt  stocks  and  to  make  relative  competitiveness 
developments more supportive of rebalancing, in a context in which the relative competitiveness gains 
of  net-debtor  countries  that  started  in  2012  have  recently  been  narrowing  (Graph  B.5).  Conversely, 
policies  to  foster  investment  and  overcome  wage  inertia  would  help  addressing  persistent  large 
surpluses  in  net-creditor  countries  while  contributing  to  support  the  growth  potential  and  to  make 
growth prospects less dependent upon foreign demand. 

Graph  B.5:  Rebalancing  across  the  EA 
(unemployment, wage and ULC growth) 

Graph  B.6:  Debt  and  potential  growth 
prospects across euro-area countries 

Source: AMECO 
Note:  "Surplus"  countries  include  Austria,  Belgium, 
Finland,  Germany, 
the 
Netherlands; all the other current euro area members 
are considered as "deficit" countries.  

Luxembourg, 

and 

Source: AMECO  
Note: the size of the bubbles represents the value of 
the government debt (% GDP) in 2017 

21 

-2261014-2024603040506070809101112131415161718fULC ''Surplus" countriesULC ''Deficit" countriesCompensation/employee EAUnemployment rate EA (rhs)% change%BEDEEEIEESFRITCYSILTNLATPTLVSKFILUMTEL050100150200250300350-1012345Private debt (% GDP) 2017Average potential GDP growth (%) 2018-22 
 
 
 
 
 
 
 
 
 
 
 
Private  sector  debt  ratios  are  gradually  falling,  but  remain  elevated  in  a  number  of  Member 
States. Twelve Member States exceeded the scoreboard threshold for private debt in 2017, the same 
set of countries as in last year's AMR. Private debt ratios are highest in Cyprus, Ireland, Luxembourg, 
and the Netherlands, although their figures are influenced by cross-border transactions linked with the 
activity  of  multinational  corporations.  Particularly  high  levels  of  private  debt  are  recorded  also  in 
Belgium, Denmark, Portugal, Sweden, and the United Kingdom, with stocks of private debt in excess 
of 160% of GDP. The relative contribution of households and non-financial firms to high private debt 
levels  varies  across  Member  States.  In  the  case  of  Belgium,  Ireland,  and  Luxembourg,  high  overall 
private debt ratios are mainly accounted for by the indebtedness of non-financial corporations (NFCs). 
Conversely, in Denmark and the United Kingdom, the household sector is driving the large stocks of 
private debt. Cyprus, the Netherlands, Sweden and Portugal experience comparatively high debt levels 
in both the corporate and household sectors. Differences in the stock of private debt across countries 
are, to a large extent, explained by differences in fundamental factors justifying the accumulation of 
debt,  including  prospects  for  growth  and  investment,  and  financial  development.  An  assessment  of 
debt  levels  should  thereby  take  into  account  those  factors,  as  well  as  other  elements  affecting  risks 
posed by high debt from a forward-looking perspective.30 

Graph 11: Pace of deleveraging of non-financial corporations 

Source: Eurostat consolidated annual sectoral accounts, Commission services calculations. 
Note: Countries are presented in decreasing order of the debt-to-GDP ratio in 2017. 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 
cases of Croatia and Ireland (2001) and Cyprus (2006). Observations for LU, IE, BE have been truncated to fit 
the scale. 

30 Those factors are taken into account in country-specific benchmarks developed by the European Commission 
in cooperation with the EPC LIME Working Group (European Commission, "Benchmarks for the assessment of 
private debt", Note for the Economic Policy Committee, ARES (2017) 4970814). A first benchmark permits to 
assess  private  debt  against  values  that  can  be  explained  on  the  basis  of  economic  fundamentals.  A  second 
benchmark consists of prudential thresholds based on the maximisation of the signal power in predicting banking 
crises and incorporating country-specific information on bank capitalisation, government debt, level of economic 
development. In most EU Member States, private debt-to-GDP ratios in excess of the AMR scoreboard threshold 
are also in excess of both country-specific benchmarks. 

22 

-12-9-6-30369050100150200250300LUCYIENLBESEPTFRUKBGFIESDKATMTITEEHRLVELSKHUSIDEPLCZROLT15151514160912170813100908090112091010101709090116001009pps. of GDP % of GDPChange in debt-to-GDP: Peak to 2015 (annual average) (rhs)Change in debt-to-GDP, 2016 (rhs)Change in debt-to-GDP, 2017 (rhs)Debt-to-GDP 2017 (lhs) 
 
 
 
 
                                                      
Graph 12: Pace of household deleveraging 

Source: Eurostat consolidated annual sectoral accounts, Commission services calculations. 
Note: Countries are presented in decreasing order of the debt-to-GDP ratio in 2017. 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 
cases of Croatia and Ireland (2001).  

Private debt-GDP ratios are receding from the peak in most Member States, at a pace that is not 
always in line with deleveraging needs. Deleveraging has started first in NFCs, and has been faster 
as compared with that recorded in the household sector both because of more negative net credit flows 
in the corporate sector and because of a stronger impact of nominal growth in the reduction of debt-to-
GDP ratios given the larger size of the corporate debt stocks as compared with households.  

 

In a number of countries, NFCs have managed to cut back at least about half of the debt-to-
GDP  ratios  accumulated  between  2000  and  the  year  in  which  their  debt  peaked  (Croatia, 
Denmark,  Estonia,  Hungary,  Italy,  Latvia,  Lithuania,  Portugal,  Romania,  Slovenia,  Spain, 
Sweden, and the United Kingdom). However, the speed of deleveraging was not always in line 
with  deleveraging  needs,  as  in  four  countries  with  some  of  the highest  corporate  debt  ratios 
(Luxembourg,  Ireland,  Cyprus,  the  Netherlands  and  Belgium),  corporate  deleveraging  has 
been  modest  relative  to  debt  stocks,  while  in  France  NFC  debt  levels  have  kept  growing 
(Graph 11).  

  Households leverage ratios declined over the past two years in the three Member States where 
households are most indebted (Cyprus, Denmark, and the Netherlands), as well as other high 
debt  countries  such  as  Greece,  Portugal,  and  Spain  (Graph  12).  Household  are  no  longer 
deleveraging  in  the  United  Kingdom  and  relatively  high  debt  ratios  in  Finland  and  Sweden 
kept growing further. 

23 

-12-9-6-30369020406080100120140DKCYNLSEUKPTFILUESBEFRELDEMTATIEITSKEEPLHRCZSILTLVBGHURO09141017090917170917171300121009121709161013120909091010pps. of GDP % of GDPChange in debt-to-GDP: Peak to 2015 (annual average) (rhs)Change in debt-to-GDP, 2016 (rhs)Change in debt-to-GDP, 2017 (rhs)Debt-to-GDP 2017 (lhs) 
 
 
 
 
 
 
Graph  13:  Decomposition  of  the  change  in 
NFC debt-to-GDP (2018 Q1) 

Graph  14:  Decomposition  of  the  change  in 
Household debt-to-GDP (2018 Q1) 

Sources: Eurostat non-consolidated quarterly sectoral accounts, Commission services calculations. 
Notes: the graphs present a breakdown of the year-on-year evolution of the non-consolidated debt-to-GDP ratios 
into  five  components:  credit  flows,  potential  and  cyclical  real  GDP  growth,  inflation  and  other  changes.  The 
cyclical component of GDP growth is computed as the difference between actual and potential growth. Active 
deleveraging involves net repayment of debt (negative net credit flows), usually leading to a nominal contraction 
of the sectorʼs balance sheet. Passive deleveraging, on the other hand, consists in positive net credit flows being 
outweigthed by higher nominal GDP growth, leading to a decrease in the debt-to-GDP ratio.  

Deleveraging  increasingly  relies  on  higher  rates  of  nominal  GDP  growth.  Private  sector  credit 
flows are recovering but remain moderate and in no Member State exceeded the scoreboard threshold 
in  2017.  Nominal  GDP  growth  has loosened  the pressure to  deleverage  actively,  which  has resulted 
into  fewer  countries  exhibiting  negative  credit  flows  either  to  corporations  or  to  households,  and 
negative flows on average of a lower absolute value (Graphs 13 and 14). In addition, some countries 
that  were  not  deleveraging  previously  started  to  deleverage  "passively",  i.e.,  only  because  nominal 
GDP growth is reducing debt-to-GDP ratios and since net credit flows are adding to debt. This is the 
case  of  Italy,  Austria,  and  Czechia  as  far  as  NFCs  are  concerned,  and  Austria,  Estonia,  and  Poland 
regarding the household sector. As shown in Graphs 13 and 14, a good deal of recent nominal growth 
rates  are  estimated  to  have  cyclical  nature  (e.g.,  in  Cyprus,  Greece,  Spain,  Portugal,  and  Croatia). 
Looking  forward,  the  prospects  for further  passive  deleveraging  will increasingly  depend  on  growth 
potential, as the cyclical component growth will start fading off as output gaps are turning positive for 
a growing number of countries. 

24 

-35-25-15-5515IELUBEESSIPTROELDKCYHRHUBGMTFIEENLATPLCZITLVDEFRLTUKSKSEActive deleveragingPassive deleveragingNodeleveragingpps. of GDPNet credit flowsReal growth, potentialReal growth, cyclicalInflationOther changesD/GDP, ch.-40-15-12-9-6-3036CYIEELESNLPTHUDKLVMTATPLEEHRROUKITSILTBGDEFICZLUBEFRSESKActivedeleverag.Passive deleveragingNo deleveragingpps. of GDPNet credit flowsReal growth, potentialReal growth, cyclicalInflationOther changesD/GDP, ch. 
 
 
 
 
 
 
 
Conditions  in  the  EU  banking  sector  are  improving  but  low  levels  of  profitability  and  large 
stocks of NPLs persist in some countries. This is the case, in particular, in Greece, Cyprus, Italy, and 
Portugal (Graphs 15 and 16). On the positive side, in 2017 the recovery in banking sector profitability 
was particularly strong in those countries, and NPL reductions were often quite sizeable.  

  The  growth  in  financial  sector  liabilities  slowed  down  in  2017  in  most  EU  countries  and 
remains well within the scoreboard threshold in all but two Member States.31 Bank credit flows 
moderated in 2017 after their previous pick up, with bank credit growth remaining stronger for 
the household sector than for the non-financial corporations.  

  Most  Member  States  witnessed  further  improvements  in  bank  profitability  and  capital 
ratios over the past year. Bank equity valuations have grown until early 2018 and a downward 
correction took place afterwards, partially offsetting their previous increase partly linked to the 
flattening  of  yield  curves  and  the  associated  compression  of  interest  rate  margins.  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.  

  The stocks of NPLs remain elevated in a number of Member States. The NPL ratio in 2017 
is notably high in Greece and Cyprus where NPLs amount respectively to 45% and 30% of total 
loans, and in Italy, Portugal, Bulgaria, Ireland, and Croatia where the NPLs stocks remain close 
to  10%  of  total  loans.32  After  having  grown  over  the  post-crisis  period,  NPLs  have  started 
declining at different speed across the EU. Latest figures indicate continued progress on the 
front of NPL reduction, including those countries with high shares of NPLs (except Greece), 
notably in Portugal and Italy (Graph 16).33  

31  Czechia    and  Slovakia  are  the  exceptions.  In  the  case  of  the  former,  the  rapid  growth  in  financial  sector 
liabilities  in  2017  is  largely  attributable  to  financial  transactions  prior  to  the  end  of  the  exchange  rate 
commitment, and hence do not reflect domestic lending activity. In Slovakia, the increase was mainly accounted 
for  by  a  rise  in  central  bank  liabilities  to  non-euro  residents.  This  could  have  been  linked  to  the  reserve 
management  services  provided  by  the  National  Bank  of  Slovakia,  which  have  no  immediate  impact  on  the 
domestic economy. 
32 NPLs in the set of scoreboard auxiliary indicators is defined as total gross NPLs and advances as percentage of 
total gross loans and advances (gross carrying amount), for the reporting sector "domestic banking groups and 
stand-alone banks, foreign controlled subsidiaries and  foreign controlled branches, all institutions”. Values are 
provided in Table 2.1. 
33  Harmonised  NPL  ratios  are  available  only  since  2014,  Graph  17  displays  the  ratio  of  gross  non-performing 
debt instruments on total gross debt instruments, which is available in longer time series, and that refers, besides 
loans, also to other debt instruments held by the banking sector. The latter is typically slightly lower than NPL 
ratios. The maximum difference between the two ratios currently amounts to 4 p.p. (for Greece), while for most 
Member States it is below 1 p.p. 

25 

 
 
 
 
                                                      
Graph 15: Bank profitability and capital ratios  Graph 16: Non-performing debt instruments 

Sources: ECB, Commission services calculations. 
Notes: Data on gross non-performing debt instruments for 2008 are unavailable for CZ, HR, SE and SI. 

House  prices  kept  increasing in  almost  all  EU  countries in  2017,  but  house  price  growth  rates 
seem  to  be  moderating  where  signs  of  overvaluations  are  the  strongest.  Despite  continued 
sustained growth in house prices across the EU, 2017 data reveal fewer countries where house price 
growth  is  above  the  scoreboard  threshold  as  compared  with  respect  to  2016.  In  2017,  only  six 
countries  (Bulgaria,  Czechia,  Ireland,  the  Netherlands,  Portugal,  and  Slovenia)  exhibited  values 
beyond  the  threshold,  while  the  AMR  2018 identified  cases above  threshold  in  ten  countries  on  the 
basis  of  2016  data.  Those  changes  reflect  medium-to-moderate  decelerations  from  values  above  the 
threshold and accelerations in few countries. Negative real house price growth in 2017 was recorded 
only in Greece and Italy. More recent data indicate that growth rates in the first half of 2018 from one 
year  earlier  have  been  above  the  6%  scoreboard  threshold  in  Hungary,  Ireland,  Latvia,  the 
Netherlands, Portugal, Slovakia, and Slovenia. 

  The protraction of sustained rates of real house price growth have brought house prices back to 
or above the pre-crisis maxima in a number of countries, namely Austria, Belgium, Czechia, 
Germany,  Luxembourg,  Malta,  and  Sweden.  Real  house  price  growth  rates  above  those  of 
income and other relevant variables normally determining house prices are driving house price 
levels in a territory of possible overvaluation in a growing number of countries (Graph 17).34  

34 The analysis of price valuations is based on an average of three metrics: (i) affordability gap (price-to-income 
deviation  with  respect  to  its  long-term  average);  (ii)  dividend  gap  (price-to-rent  deviation  from  its  long-term 
average); and (iii) estimates of deviations of house prices from equilibrium values justified by housing demand 
and supply  fundamentals. See N. Philiponnet and A. Turrini (2017), "Assessing House  Price  Developments  in 
the  EU",  European  Commission  Discussion  Paper  048,  May  2017.  An  alternative  indicator  based  on  ratios  of 
house  price  levels  to  household  disposable  income  per  capita  suggests  that  overvaluations  could  be  present  in 
Croatia, Cyprus, Estonia, while indications of overvaluation are less evident for Denmark, Czechia, Latvia (see 
European Commission, European Economic Forecast – Winter 2016, European Economy, Institutional Paper no. 
20, 2016 (box 1.4)). 

26 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUK-15-10-5051015201015202530Return on equity (2017)Tier 1 ratio (2018 Q1)EAEA (2015)EUEU(2015)051015202530354045ELCYPTITHRBGIESILVHUPLROESSKLTATFRBEDKMTCZEENLDEUKSEFILU17141615141213131013101313151014131314151610141615141415% of total gross debt instrumentsCountry | Peak year2008Increase to peak2018Q12016Q1 
 
 
 
 
 
                                                      
  Real  house  price  accelerations  in  2017  took  place  especially  in  countries  with  negative  or 
mildly positive valuation gaps (Graph 18). Decelerations were instead observed in countries 
presenting  stronger  indications  of  overvaluation,  including  in  light  of  affordability 
constraints, the implementation of macro-prudential policies, and the mechanical effect on real 
house price growth associated with the pick-up in inflation rates (e.g., in Austria, Luxembourg, 
and  the  United  Kingdom).  Currently,  the  strongest  house  price  growth  rates  are  recorded  in 
countries  with  moderate  or  no  sign  of  overvaluation.  Quarterly  data,  also  for  early  2018, 
indicate  accelerations  in  Estonia,  Croatia,  Hungary,  Poland,  Portugal,  Slovenia,  and  Slovakia. 
Decelerations are observed especially in Bulgaria, Czechia, Romania, and Sweden, where house 
price  growth  entered  negative  territory  in  the  first  half  of  2018  on  a  year-on-year  basis.35 
Ireland, Portugal, and Slovenia recorded double-digit growth rates in the first half of 2018 from 
one year earlier. 

 

In a number of countries, including Denmark, Luxembourg, Sweden, and the United Kingdom, 
overvalued house prices coexist with large household debt levels. The Netherlands is marked 
by very high household debt. The growth of the mortgage stock in 2017 was particularly rapid 
(above  5%  over  the  previous  year)  in  Austria,  Belgium,  Bulgaria,  Czechia,  Estonia,  France, 
Lithuania, Luxembourg, Malta, Poland, Romania, and Slovakia.  

Graph 17: House prices changes and valuation 
gaps in 2017 

Graph 18: Valuation gaps and changes in price 
growth between 2016 and 2017 

Source: Eurostat 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 fundamental model of valuation 
gaps; see footnote 34. 

35 The countries reported are those with real house price growth rates in the first half of 2018 that are above or 
below the annual growth rate in 2017 by at least 2 percentage points. 

27 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK-30369-40-200204060Deflated HP growth, 2017 (%)Estimated valuation gap, 2017 (%)BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK-12-10-8-6-4-2024-40-200204060Change in deflated housing prices growth between 2016 and 2017 (%)Estimated valuation gap, 2017 (%) 
 
 
 
 
 
 
                                                      
Government debt ratios stopped growing across the EU but debt levels remain elevated in many 
countries. Scoreboard values exceeded the threshold in 15 Member States in 2017. Belgium, Greece, 
Italy and Portugal display debt levels exceeding 100% of GDP, with Italy seeing significant increase 
in its funding cost in 2018. For eight countries (Belgium, Cyprus, Finland, France, Ireland, Portugal, 
Spain,  and  the  United  Kingdom)  government  debt  in  excess  of  60%  of  GDP  combines  with  private 
sector indebtedness beyond the respective threshold. Government debt-to-GDP  ratios have generally 
embarked  into  downward  trajectories  (Graph  19).  Yet  in  countries  with  high  levels  of  public  debt, 
deleveraging has started only recently and proceeds at low pace. Among all EU countries, debt ratios 
are forecast to grow only in Lithuania and Romania in 2019. Overall, government sector deleveraging 
is  taking  place  in  light  of  the  gradual  improvement  in  budgetary  positions  over  the  past  years, 
continued  nominal  GDP  growth  and  reduced  interest  payments.  However,  a  growing  number  of 
countries  are  expected  to  run  pro-cyclical  budgetary  loosening  at  the  possible  expense  of  the  room 
available in the future to cushion negative output shocks.  

Graph 19: Government debt 

Source: Eurostat 

28 

020406080100120140160180200ELITPTBECYFRESUKATHRHUSIIEDEFINLSKPLMTSELVDKCZLTROBGLUEE14151415141716161515101513101615141313141011131514161314% of GDPCountry | Year of the peak2008Incr. to peak2018Q22016Q2 
 
 
 
 
 
 
 
Box 3: Employment and social developments 

EU labour markets continued to improve during 2017 and the first half of 2018 with disparities 
across the EU decreasing from elevated levels. Employment has grown further and reached a new 
high in number of persons employed in the EU as a whole. Unemployment has been declining in all 
EU countries even if joblessness remains high in a number of them. The recovery has contributed to a 
decline in some poverty indicators but the social situation remains a concern in some Member States. 
Since  2008,  relative  poverty  risk  increased  in  the  EU,  but  severe  material  deprivation  decreased, 
especially in Eastern European Member States with a high initial level. 

In 2017, the unemployment rate decreased in all Member States. Improvements were the strongest 
in  countries  with some  of the  highest  levels  of  unemployment  (reductions  of  2 percentage  points or 
more  in  Croatia,  Greece,  Portugal,  and  Spain).  Nevertheless,  seven  Member  States  (Greece,  Spain, 
Croatia, Cyprus, Italy, Portugal, and France) exceeded the MIP scoreboard indicator threshold of an 
average  10%  over  the  past  3  years.  In  2017,  unemployment  rates  were  still  higher  than  in  2008  in 
about  two-thirds  of  the  Member  States.  In  the  whole  EU  and  in  the  euro  area,  unemployment  rates 
were about 3 percentage points below the peaks reached in 2013, but still ½ and 1½ percentage points 
higher than in 2008. Unemployment rates continued to steadily decrease in the first half of 2018, down 
to 6.9% and 8.3% in Q2-2018 in the EU and the euro area respectively.  

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 72.1% in 2017 for the EU as a whole, 
well above the pre-crisis peak of 70.3% recorded in 2008. The employment rate kept increasing in the 
second quarter of 2018 up to a record 73.2%.  

Activity rates continued to increase nearly everywhere in the EU. Only three countries registered a 
declining  activity  rate  over  the  last  three  years:  Spain  (-0.3  percentage  points),  Cyprus  (-0.4),  and 
Luxembourg  (-0.6).  In  all  three  cases,  the  decline  exceeds  the  scoreboard  threshold  of  -0.2.  On 
aggregate, in 2017 for the EU and the euro area activity rates were at 73.3% and 73.1% respectively, 
i.e., 2½ and 2 percentage points above their 2008 levels. That increasing trend has been mostly due to 
increasing labour market participation by older workers and women.  

Long-term  and  youth  unemployment  remain  elevated  in  various  EU  countries  but  have 
improved more strongly than the rest of the labour market. Long-term unemployment decreased in 
all Member States in 2017. Only two countries recorded rates that are higher than three years earlier: 
in  Austria,  the  long-term  unemployment  stood  at  1.8%  (0.3  percentage  points  higher  than  in  2014), 
while in Finland it stood at 2.1% (an increase of 0.2 percentage points since 2014). Neither increase 
exceed  the  scoreboard  threshold  of  0.5  percentage  points.  The  highest  rates  of  long-term 
unemployment  were  observed  in  Greece  (15.6%),  Spain  (7.7%),  Italy  (6.5%),  and  Slovakia  (5.1%). 
The youth unemployment rate fell in all EU countries in the three years to 2017. Falls of 10 percentage 
points or more over the same period were recorded in Bulgaria, Croatia, Cyprus, Portugal, Slovakia, 
and Spain. Yet the youth unemployment rate is still above 30% in 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.   

While  improving,  the  social  situation  is  still  a  source  of  concern  in  various  EU  countries  as 
suggested by standard measures of poverty and deprivation. The share of people at risk of poverty 
or  social  exclusion  (AROPE)  decreased  in  the  EU  by  one  percentage  point  to  22.5%  from  2016  to 
2017.36 This is about one percentage point below the rate observed at the onset of the crisis and about 

36  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), which measures monetary poverty relative 
to the national income distribution and is calculated as the share of persons with disposable income (adjusted for household 
29 

 
 
 
 
 
 
 
 
 
                                                      
two percentage points below the peak observed in 2013. Most countries recorded decreases in 2017. 
Increases  were  recorded  by  Austria,  Denmark,  Luxembourg,  and  the  Netherlands,  albeit  from 
comparatively low levels. The level of the AROPE rate varied considerably from 38.9% in Bulgaria, 
followed  by  Romania,  Greece  and  Lithuania,  to  around  12%  in  Czechia,  followed  by  Finland, 
Slovakia,  and  the  Netherlands.  These  overall  developments  in  poverty  and  social  exclusion  reflect 
different  evolutions  of  its  various  components.  The  share  of  people  at  risk  of  poverty  (AROP)  has 
increased in some Member States, while it has decreased in others in recent years: the largest increases 
over  a  three-year  period  were  recorded  in  Lithuania  (3.8  percentage  points)  and  Luxembourg  (2.3), 
while a significant decrease was recorded in Greece (1.9) and Poland (2.0). In contrast, severe material 
deprivation  (SMD)  declined  over  a  3-year  period  (and  also  in  2017)  in  most  EU  Member  States;  it 
declined over 5 percentage points over a three-year period in Hungary, Latvia, Malta, and Romania. 
Finally, whereas the recovery brought a decline in the share of people (under 60) living in households 
with very low work intensity in most countries, that share increased in Finland and Lithuania in the 
three years to 2017; and, in-work poverty stabilised at a peak of 9.6% for the EU as a whole in the last 
two years. 

composition) below 60% of the national median; (2) Severe material deprivation (SMD), which covers indicators related to a 
lack of resources, and represents the share of people experiencing at least 4 out of 9 deprivations items, based on the inability 
to  afford  some  specific  types  expenses;  (3)  People  living  in  households  with  very  low  work  intensity  are  those  aged  0-59 
living in households in which adults (aged 18-59) worked less than 20% of their total work potential during the past year. The 
income reference period for the data behind these measures is a fixed 12-month period, such as the previous calendar or tax 
year to which the data refer for all countries, except the United Kingdom for which the income reference period is the current 
year  and  Ireland  for  which  the  survey  is  continuous  and  income  is  collected  for  the  last  twelve  months.  As  of  the  time  of 
writing, 2017 data are available for all countries except Ireland and the United Kingdom.  

30 

 
 
 
 
 
                                                                                                                                                                      
SUMMARY OF MAIN CHALLENGES ACROSS MEMBER STATES CASES AND SURVEILLANCE 

3. 
IMPLICATIONS 

Overall, risks remain present in a number of Member States, and in different combinations. The 
degree  of  severity  of  the  challenges  for  macroeconomic  stability  vary  significantly  across  Member 
States,  depending  on  the  nature  and  extent  of  vulnerabilities  and  unsustainable  trends,  and  the  way 
they  interact  and  combine  together.  The  main  sources  of  risks  combine  according  to  a  number  of 
typologies summarised as follows: 

  A  number  of  Member  States  are  mainly  affected  by  multiple  and  interconnected  stock 
vulnerabilities. This is typically the case for countries that were hit by boom-bust credit cycles 
coupled  with  current  account  reversals  that  also  had  implications  for  that  banking  sector  and 
government debt.  

o 

o 

In  the  case  of  Cyprus  and  Greece,  elevated  debt  stocks,  and  large  negative  net 
international investment positions are coupled with remaining challenges for the financial 
sector.  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 potential growth.  

In Croatia, Ireland, Portugal and Spain, vulnerabilities stemming from stock legacy issues 
are  also  significant,  multiple,  and 
interconnected.  In  Bulgaria,  high  corporate 
indebtedness is coupled with lingering issues with the financial sector. In those countries, 
stock  imbalances  are  receding  on  the  back  of  economic  expansions,  associated  in  some 
cases  with the re-emergence  of  cost  pressures  manifested  at the  level  of  housing  prices 
(notably  in  Ireland,  and,  increasingly  so,  Portugal)  as  well  as  stalling  gains  in  cost 
competitiveness (strong ULC increases recorded in particular in Bulgaria).   

 

 

In a few Member States, vulnerabilities are mainly linked to large stocks of general government 
debt  coupled  with  concerns  relating  to  potential  output  growth  and  competitiveness.  This  is 
particularly the case for Italy, where vulnerabilities are also linked to the banking sector and the 
large  but  recently  declining  at  fast  pace  stock  of  NPLs.  Belgium  and  France  also  face  a  high 
general government debt and potential growth issues amidst also compressed competitiveness, 
but  are  not  confronted  with  similar  potential  risks  to  government  debt  or  stemming  from 
vulnerable  banks.  In  France  a  comparatively  high  stock  of  corporate  debt  is  on  the  rise.  In 
Belgium, a relatively high stock of household debt is coupled with possibly overvalued house 
prices. 

Some Member States are characterised by  large and persistent current account surpluses that 
also reflect, to a varying degree, subdued private consumption and investment, in excess of what 
economic  fundamentals  would  justify.  This  is  the  case  notably  for  Germany  and  the 
Netherlands.  In  the  case  of  Germany,  it  is  combined  with  deleveraging  in  all  sectors  of  the 
economy,  even  though  debt  levels  are  not  comparatively  high.  In  the  Netherlands,  a  large 
surplus is coupled with a high stock of household debt and strong house price growth. The large 
and persistent surpluses may imply forgone growth and domestic investment opportunities that 
bear consequences for the rest of the euro area in a context of still below-target inflation and an 
external backdrop that is becoming increasingly uncertain and may turn less supportive. 

 

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.  

31 

 
 
 
o 

o 

In Sweden, and to a smaller extent in Austria, Denmark, Luxembourg, the Netherlands, 
and the United Kingdom sustained house price growth has been taking place in a context 
of  possible  overvaluation  gaps  and  significant  levels  of  household  debt,  but  recent 
evidence is pointing at house price decelerations. In a number of countries, strong house 
price  growth  is  coupled  with  more  limited  evidence  of  overvaluation  and  contained 
household debt stocks (e.g., Czechia, Hungary, and Latvia).  

In Czechia, Estonia, Hungary, Latvia, Lithuania, and Romania, ULC continue to grow at 
a  relatively  strong  pace  while  price  competitiveness  is  edging  down.  In  the  case  of 
Romania, accelerating ULC are recorded against the background of a worsening current 
account  balance  deficit  and  pro-cyclical  fiscal  policies  that  could  exacerbate  possible 
overheating pressures. 

Forthcoming  IDRs will help going deeper into the analysis of those challenges and assessing policy 
needs.   

Overall,  IDRs  are  warranted  for  13  Member  States:  Bulgaria,  Croatia,  Cyprus,  France, 
Germany,  Greece,  Ireland,  Italy,  the  Netherlands,  Portugal,  Romania,  Spain,  and  Sweden. 
Eleven  of  these  Member  States  were  subject  to  an  IDR  in  the  previous  annual  cycle  of  MIP 
implementation.  Following  established  practice,  a  new  IDR  will  be  prepared  to  assess  if  the 
imbalances  identified  are  aggravating  or  are  under  correction,  with  the  view  to  update  existing 
assessment. The Member States concerned are Bulgaria, Croatia, Cyprus, France, Germany,  Ireland, 
Italy, the Netherlands, Portugal, Spain, and Sweden. An IDR will also be issued for Greece, to assess 
possible  imbalances  stemming  from  a  number  of  sources,  notably  stock  vulnerabilities.  Greece  was 
previously  excluded  from  MIP  surveillance  because  subject  to  a  macroeconomic  adjustment 
programme  in  the  context of  financial  assistance  until  August  2018. The  AMR assessment  does  not 
point to significant additional risks as compared to the ones identified in the last available IDRs for a 
number of Member States that exited MIP surveillance in recent years (Slovenia in 2018, Finland in 
2017, Belgium and Hungary in 2016) or that were subject to IDRs not leading to the identification of 
imbalances (Austria and Estonia in 2016). It seems warranted instead to carry out an IDR for Romania 
to assess the evolution and possible re-emergence of risky developments identified already in previous 
IDRs, notably in relation to competitiveness and external balance.  

32 

 
 
 
 
 
 
4. 

IMBALANCES, RISKS AND ADJUSTMENT: MEMBER STATE-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 an improving 
current  account  balance  and  a 
favourable  net 
international  investment  position.  After  some  years  of 
wage moderation unit labour cost growth has increased 
but  remains  contained.  A  limited  decrease  in  export 
market  share  was  recorded  in  2017.  Private  debt  is 
relatively  high, 
for  non-financial 
in  particular 
corporates,  though  widespread  cross-country  intra-
group  lending  inflates  debt  figures.  Risks  related  to 
household  debt  originate  predominantly  from  the 
housing market where real house price growth has been 
moderate  in  recent  years  although  no  correction  has 
taken  place  for  the  fast  increase  prior  to  2008. 
Government  debt  has  levelled  off  and  it  has  slightly 
decreased  compared  to  its  2014  peak.  However,  the 
elevated  level  continues  to  represent  a  major  challenge  for  the  long-term  sustainability  of  public 
finances. The labour market situation has improved with unemployment continuing to fall, including 
long-term and youth unemployment. The activity rate remains low compared to other EU countries in 
contrast with the high and increasing vacancy rate. 

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

imbalances 

in  particular  related 

Bulgaria:  In  March  2018,  Bulgaria  was  found  to  be 
experiencing 
to 
vulnerabilities in the financial sector coupled with high 
the 
indebtedness  and  non-performing 
corporate  sector.  In  the  updated  scoreboard,  three 
indicators are beyond the indicative threshold, namely 
investment  position  (NIIP), 
the  net 
nominal  unit  labour  cost  growth  and  real  house  price 
growth.  

international 

loans 

in 

The current account surplus further increased in 2017, 
while  the  negative  NIIP  mainly  reflects  FDI  has 
improved  further.  Unit  labour  cost  growth  increased 
markedly in 2017, but the real effective exchange rate 
remained broadly stable and there were some gains in 
export market shares. High corporate debt continues to 

33 

Graph A1: Debt across sectors in the economySource: Eurostat05010015020008091011121314151617% of GDPBelgiumNon-financial corporationsHouseholdsGeneral GovernmentGraph A2: Private debt and non-performing loansSource: Eurostat and ECB051015202502040608010012014008091011121314151617% of GDPBulgariaHouseholdsNon-financial corporationsNon-Performing Loans (rhs)% of total loans 
 
 
 
 
be a concern, although the debt ratio has gradually decreased over the last few years, in part due to the 
robust  nominal  GDP  growth.  Credit  flows  are  picking  up  again,  which  will  slow  down  the 
deleveraging process, but could also support higher private investment and stronger potential growth. 
Also, the ratio of non-performing loans, albeit decreasing, remains high, in particular for the corporate 
sector.  While  there  has  been  progress  in  improving  financial  sector  supervision  following  the  2016 
asset  quality  review,  some  vulnerabilities  still  warrant  attention,  including  related-party  transactions 
and  exposures  to  hard-to-value  assets.  Real  house  prices  have  increased  fast  and  construction  and 
mortgage  credit  have  also  picked  up.  There  are  not  yet  signs  of  overvaluation  at  this  stage,  but  the 
current  dynamics  on  the  housing  market  justify  close  attention.  In  this  context  of  positive  cyclical 
developments,  unemployment  decreased  further,  notably  for  youth  and  long-term  unemployed  and 
activity rates improved. 

Overall,  the  economic  reading  highlights  issues  relating  to  the  remaining  vulnerabilities  in  the 
financial  sector  and  corporate  debt.  Therefore,  the  Commission  finds  it  opportune,  also  taking  into 
account  the  identification  of  an  imbalance  in  March  2018,  to  examine  further  the  persistence  of 
imbalances or their unwinding. 

Czechia: In the previous round of the MIP, no macroeconomic imbalances were identified in Czechia. 
In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative  threshold,  namely  real 
house price growth and total financial sector liabilities.  

The current account balance has been on an improving trend 
and  recorded  a  small  surplus  in  2017.  The  end  of  the 
exchange rate commitment in April 2017 was followed by an 
appreciation of the real effective exchange rate, while the net 
international  investment  position  continued  to  strengthen, 
although  at  a  slower  pace  than  in  previous  years.  Nominal 
unit labour costs have increased on the back of strong wage 
rises and are projected to accelerate further in the context of 
acute  labour  market  shortages.  Despite  the  appreciation  of 
the  real  effective  exchange  rate,  there  still  have  been  some 
gains  in  export  market  shares  in  recent  years.  House  price 
growth,  and  mortgage  credit,  have  accelerated  further  and 
warrant  close  monitoring.  However,  private  sector  debt  is 
moderate, 
is  stable. 
including  household  debt  which 
Government  debt  is  low  and  continues  to  reduce  supported 
by  the  general  government  budget  surplus.  Growth  of 
financial sector liabilities accelerated significantly in 2017 to 
beyond  the  indicative  threshold.  This  was  principally  due  to  the  purchasing  of  CZK-denominated 
deposits by non-residents prior to the end of the exchange rate commitment. The unemployment rate 
decreased further and the labour market is very tight.  

Overall,  the  economic  reading  highlights  issues  relating  to  competitiveness  and  pressures  in  the 
housing market although the risks appear contained at this stage. Therefore, the Commission does not 
see it necessary at this stage to carry out further in-depth analysis in the context of the MIP. 

34 

Graph A3: GDP, ULC and house pricesSource: Commission services-6-4-2024681008091011121314151617Rate of change y-o-y (%)CzechiaULC growthGDP growthDeflated house price index 
 
 
 
 
Denmark:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in 
Denmark.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative  threshold, 
namely the current account balance and the private sector debt.  

net 

investment 

international 

The  current  account  balance  continues  to  show  large 
surpluses.  Consecutive  surpluses  have  led  to  a  large 
positive 
position, 
generating  positive  net  primary 
income  which 
reinforces  the  positive  current  account  balance.  Unit 
labour cost growth is contained even if a tighter labour 
market  puts  pressure  on  wages  and  productivity 
dynamics  are  muted.  Export  market  share  growth  is 
broadly  flat.  While  slowing  at  the  national  level, 
housing  prices  continued  to  grow  more  quickly  in  the 
main  metropolitan  areas.  These  developments  warrant 
close attention. Household debt remains the highest in 
the  EU  as  percentage  of  GDP  and  is  only  slowly 
decreasing  in  a  context  of  modest  credit  growth. 
Households  have  continued  to  increase  their  savings, 
reflecting  efforts  to  reduce  debt  and  macro-prudential 
policy  measures  have  been  introduced  to  restrict  risky 
loan  taking.  Corporate  indebtedness,  on  the  other  hand,  remains  moderate.  The  labour  market 
continues  improving,  employment  growth  is  solid  and  labour  shortages  are  becoming  more 
widespread. 

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 March 2018, the Commission concluded 
that  Germany  was  experiencing  macroeconomic 
imbalances,  in  particular  related  to  its  large  current 
account  surplus  reflecting  subdued  investment  relative 
to  saving  both  in  the  private  and  public  sector.  In  the 
updated  scoreboard,  a  number  of  indicators  remain 
beyond  the  indicative  threshold,  namely  the  current 
account balance and government debt.  

is  expected 

The  current  account  continues  to  show  very  large 
surpluses  although  it  narrowed  slightly  in  2017  on  an 
annual basis. With steady domestic demand growth, the 
current  account  surplus 
to  continue 
narrowing,  but  to  remain  at  a  high  level  and  lead  to 
further  increases  in  the  net  international  investment 
position.  Unit  labour  cost  growth  remains  moderate. 
Export  growth  strengthened  in  2017  but  there  was  a 
slight  loss  in  export  market  shares.  Private  sector 
deleveraging  continues  despite  low  private  sector  debt.  At  the  same  time,  business  investment  is 
increasing  relative  to  GDP.  Housing  investment  continues  to  rise  too,  but  it  is  still  lagging  behind 
housing  needs  in  metropolitan  areas.  Real  house  prices  growth  and  construction  costs  have  been 

35 

Graph A5: Net lending/borrowing by sectorSource: Eurostat-505101508091011121314151617% of GDPGermanyCorporationsHouseholds and NPISHGeneral governmentTotal economyGraph A4:Household debt and house price indexSource: Eurostat and ECB50607080901001101201300204060801001201401600708091011121314151617House price index, 2015=100Household debt, % of GDPDenmarkOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
increasing and warrant attention, also with respect to regional disparities in prices and availability of 
housing. Credit growth is gradually strengthening. The household saving rate remains at an elevated 
level  despite  moderate  wage  growth  and  robust  private  consumption,  reflecting  higher  inflows  of 
distributed corporate income. Government debt continued to decrease and is expected to fall below the 
threshold  of  60%  of  GDP  by  2019  while  the  sizeable  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  persistent  surplus  of  savings  over 
investment reflected in the high and only gradually declining current account surplus underlining the 
need for continued rebalancing. Therefore, the Commission finds it useful, also taking into account the 
identification  of  an  imbalance  in  March  2018,  to  examine  further  the  persistence  of  imbalances  or 
their unwinding.  

Estonia:  In  the  previous  round  of  the  MIP,  no 
macroeconomic 
in 
imbalances  were 
Estonia.  In  the  updated  scoreboard,  nominal  unit 
labour cost growth is beyond the indicative threshold.  

identified 

The current account surplus further increased in 2017 
and the net international investment position improved 
to  reach  a  level  within  the  threshold.  Nominal  unit 
labour  cost  continue  grow  at  a  high  rate  reflecting 
inflation  and  the  buoyant  wage  growth.  Productivity 
dynamics  have  been  muted,  weighing  somewhat  on 
cost  competitiveness  indicators.  The  real  effective 
exchange  rate  continued  to  appreciate  while  export 
market  shares  have  been  stable.  Real  house  price 
growth  has  been  dynamic  in  recent  years  but  has 
slowed  to  moderate  levels  in  2017.  Private  debt 
deleveraging  has  been  ongoing  while  the  public  debt 
level is very low.  The labour market is tightening but 
inward migration has alleviated the labour shortages to some extent.  

Overall,  the  economic  reading  highlights  issues  related  to  the  nominal  unit  labour  costs  but  risks 
appear contained. Therefore, the Commission will at this stage not carry out further in-depth analysis 
in the context of the MIP. 

36 

Graph A6: Decomposition of unit labour costSource: Commission services-10-8-6-4-2024681009101112131415161718f19fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28Estonia 
 
 
 
 
 
 
 
 
 
 
 
Ireland:  In  March  2018,  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.  In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative 
threshold,  namely  the  net  international  investment  position  (NIIP),  the  real  effective  exchange  rate 
(REER), private debt, public debt as well as the annual change in real house prices.  

to 

The current account position showed a large surplus 
in  2017  compared  to  a  substantial  deficit  in  2016 
and surpluses the years before. Volatility in imports 
of  intellectual  property  and  contract  manufacturing 
were  contributing  to  these  swings  in  the  current 
account  balance  in  the  past  years.  37  The  NIIP  has 
continued  improving  but  remains  highly  negative, 
largely  due 
the  activities  of  multinational 
companies with limited connections to the domestic 
economy.  Strong  productivity  growth,  also  inflated 
by  operations  of  multinationals,  in  recent  years  has 
contributed  to  improved  competitiveness.  Private 
debt remains very high, although it has continued to 
decline.  Households  have  continued  reducing  their 
debt and Irish banks have lowered their exposures to 
domestic companies, suggesting continued corporate 
deleveraging.  The  situation  of  domestic  non-financial  companies  is  more  difficult  to  interpret  given 
the weight of multinationals on total corporate debt. House price growth has been very dynamic since 
2014 mainly on the back of supply constraints and warrant close monitoring. On the back of strong 
economic  growth,  the  ratio  of  public  debt  to  GDP  is  falling  but  remains  high.  The  non-performing 
loans  ratio  has  been  declining  over  the  last  years,  but  remains  elevated.  Although  banks  are  well 
capitalised,  provisioning  levels  have  declined.  Their  profitability,  albeit  still  subdued,  is  improving 
gradually.  The  unemployment  rate  fell  below  the  MIP  threshold  in  2017  and  long-term  and  youth 
unemployment keep declining. 

Overall, the economic reading highlights issues relating to the volatility of the external position and 
the stock of private and public debt as well as the rapid growth of house prices and relatively high 
share of non-performing loans. Therefore, the Commission finds it opportune, also taking into account 
the identification of imbalances in March 2018, to examine further the persistence of imbalances or 
their unwinding. 

Greece:  From  2010  and  until  recently,  Greece  has  been  under  financial  assistance  programmes. 
Therefore, the surveillance of imbalances and correcting measures has taken place in the context of the 
programmes, and not under the MIP.  In recent years, Greece has taken important steps to reduce its 
flow imbalances and to manage related risks, but legacy stock imbalances are expected to persist. This 
is  reflected  in  the  updated  scoreboard,  where  a  number  of  indicators  are  beyond  the  indicative 
threshold,  namely  the  net  international  investment  position  (NIIP),  losses  in  export  market  shares, 
government debt and unemployment rate.  

37 Contract manufacturing is a process in which resident multinational companies issue contracts to foreign firms 
to produce goods on their behalf. As resident companies own these goods, their sales are recorded as exports of 
the resident country even though they do not enter the domestic economy. 

37 

Graph A7: Household debt and house price indexTotalSource: Eurostat and ECB5070901101301501700204060801001201400708091011121314151617House price index, 2015=100Household debt, % of GDPIrelandOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
                                                      
to  be  sustained 

While the private sector has a positive NIIP, the high 
share  of  public  external  debt  results  in  an  overall 
significantly  negative  NIIP.  Although  much  of  the 
external  public  debt  has  been  given  at  highly 
concessional rates, long-term sustainability of the NIIP 
will  require  the  recent  improvements  in  the  current 
account 
in  an  environment  of 
increasing  domestic  demand.  Significant  losses  in 
export  market  shares  have  been  observed  in  the  last 
five  years,  but  the  trend  appears  to  have  reverted  in 
2017. The government debt-to-GDP ratio is very high, 
though it is expected to decline and its sustainability is 
underpinned  by  the  Eurogroup  agreement  of  June 
2018.  House  prices  continued  to  fall  in  real  terms  in 
2017  but  has  stabilised  in  early  2018.  Credit  growth 
remains  negative  as  private  debt  deleveraging 
continues.  The  high  level  of  non-performing  loans 
hampers the restoration of a healthy flow of credit to the economy, which is required for supporting 
growth  in  the  medium  term.  Unemployment  is  declining  but  remains  high,  notably  regarding  long-
term and youth unemployment.  

Overall,  the  economic  reading  highlights  issues  linked  to  the  high  public  and  external  debt,  low 
savings and high stock of NPLs, all in a context of high unemployment, low productivity growth and 
sluggish investment activity. Therefore, the Commission finds it opportune to examine further the risks 
involved in an in-depth analysis with a view to assess whether an imbalance exists. 

Spain: In March 2018, the Commission concluded that 
Spain was experiencing macroeconomic imbalances, in 
particular  relating  to  the  high  levels  of  external  and 
internal  debt,  both  private  and  public,  in  a  context  of 
high  unemployment.  In  the  updated  scoreboard,  a 
number  of 
indicative 
threshold,  namely  the  net  international  investment 
position (NIIP), the private and government debt ratios, 
the  unemployment  rate  as  well  as  the  growth  in  the 
activity rate.  

indicators  are  beyond 

the 

External  rebalancing  has  continued  although  relatively 
slowly,  and  while  the  NIIP  has  improved  it  remains 
very  high.  Nominal  ULC  growth  has  been  stable  in  a 
context of contained wage growth and low productivity 
growth.  Export  market  growth  has  been  moderate  in 
year-on-year terms despite the slight appreciation of the 
real effective exchange rate in 2017. Private sector debt 
has continued to decline throughout 2017, especially for corporations, but deleveraging needs remain. 
Moreover, new credit has started flowing again, supporting a rebound in investment. For households, 
the pace of debt decline is also held back by a strong increase in consumer credit. House prices have 
been  recovering  in  recent  years  in  the  context  of  previously  undervaluation.  In  recent  years,  strong 
economic growth has been the main driver of the reduction in the general government deficit but the 
persistent deficits imply that the government debt ratio is only slowly decreasing. Unemployment has 

38 

Graph A8:NIIP, private debt and government debtSource: Eurostat-160-140-120-100-80-60-40-20008091011121314151617050100150200250300350GreecePrivate sector debt (rhs)General government debt (rhs)Net international investment position%of GDP% of GDPGraph A9: NIIP and CA balanceSource: Commission services-10-8-6-4-2024-120-100-80-60-40-200200708091011121314151617SpainNet international investment position (NIIP)NIIP Ex. Non-Defaultable Instruments (NENDI)Current account balance (rhs)% of GDP 
 
 
 
been  declining  rapidly,  but  remains  very  high,  especially  among  youth.  At  the  same  time,  the  low 
productivity growth makes competitiveness gains hinge upon cost advantages.  

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 March 2018 
and their cross-border relevance, to examine further the persistence of imbalances or their unwinding.  

France:  In  March  2018,  the  Commission  concluded 
that  France  was 
experiencing  macroeconomic 
imbalances  in  particular  relating  to  high  public  debt 
low 
and  weak  competitiveness 
the  updated  scoreboard, 
productivity  growth.  In 
government  and  private 
the 
unemployment  rate  indicators  are  on  or  beyond  the 
indicative threshold.  

sector  debt  and 

in  a  context  of 

the  net 

international 

The current account deficit was broadly stable in 2017 
investment  position 
while 
deteriorated.  Despite a  pick-up  in  export  growth  there 
were some small losses in export market shares in 2017 
while the real effective exchange rate stabilised. Due to 
a  moderation  of  wage  developments,  unit  labour  cost 
growth  was 
contained.  However,  productivity 
dynamics remained sluggish. Vulnerabilities stemming 
from  the  high  and  still  increasing  government  debt 
remain  a  major  source  of  concern.  The  combination  of  high  public  and  private  debt  represents  an 
additional  vulnerability.  Private  sector  debt  is  relatively  high,  in  particular  for  non-financial 
companies,  while  credit  growth  is  slightly  picking  up.  Real  house  prices  increased  moderately.  The 
labour market situation improves with the unemployment indicator moving within the threshold.  

Overall,  the  economic  reading  highlights 
issues  relating  to  high  indebtedness  and  weak 
competitiveness,  in  a  context  of  low  productivity  growth.  Therefore,  the  Commission  finds  it 
opportune,  also  taking  into  account  the  identification  of  an  imbalance  in  March  2018,  to  examine 
further the persistence of imbalances or their unwinding. 

39 

Graph A10: Debt across sectors in the economySource: Eurostat0501001502002503000405060708091011121314151617% of GDPFranceGovernmentNon financial corporationsHouseholdMIP Threshold for private debt 
 
 
 
 
 
 
 
 
 
 
 
 
was 

Croatia 

experiencing 

Croatia:  In  March  2018,  the  Commission  concluded 
that 
excessive 
macroeconomic  imbalances,  linked  to  high  levels  of 
public,  private  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.   

although 

remaining  beyond 

Supported by a widening current account surplus, the 
negative NIIP, which to a large extent reflect FDI, has 
strengthened, 
the 
threshold  and  exposed  to  persistent  currency-related 
risks. Negative nominal ULC growth points to further 
gains in cost competitiveness, although the REER has 
been stable. As a result, in 2017, Croatia continued to 
gain  market  shares  but  at  a  slower  pace  than  in  previous  years.  Private  sector  debt  continued 
decreasing despite a recovery of credit flows in 2017. The reduction of non-performing loans in the 
banking  sector  slowed,  and  a  large  share  of  loans  to  non-financial  corporations  remains  non-
performing.  The  government  debt  ratio  declined  further  in  2017  also  on  account  of  an  improving 
general government balance. The unemployment rate continued to decrease. However, labour market 
participation remains very low and, combined with sluggish productivity developments; it continues to 
weigh on potential growth. Risks associated with the country's largest employer, Agrokor, diminished 
after its creditors adopted a debt restructuring plan.  

Overall, the  economic  reading  highlights the  still  high  but  decreasing  debt  levels  and  currency  risk 
exposures in all sectors of the economy and the importance of higher potential growth for a durable 
correction. Therefore the Commission finds it useful, also taking into account the identification of an 
excessive imbalance in March 2018, to examine further the persistence of macroeconomic risks and to 
monitor progress in the unwinding of excessive imbalances. 

Italy:  In  March  2018,  the  Commission  concluded  that 
Italy  was  experiencing  excessive  macroeconomic 
imbalances, in particular involving risks stemming from 
the  very  high  public  debt  and  protracted  weak 
productivity  dynamics  in  a  context  of  high  non-
performing  loans  (NPLs)  and  unemployment.  In  the 
updated  scoreboard,  two  indicators  are  beyond  the 
indicative  threshold,  namely  government  debt  and  the 
unemployment rate.  

The  external  position  is  relatively  strong  with  current 
account  surpluses  and  an  improving  net  international 
investment  position.  The  government  debt 
ratio 
stabilised  at  a  very  high  level  in  2017  but  the 
government's 
than  expected 
fiscal  plans,  weaker 
recovery and higher borrowing costs hamper a reduction 
of  the  debt-to-GDP  ratio  looking  forward.  At  the  same 
time, weak productivity growth and a shrinking working 

40 

Graph A12: Potential growth and public debtSource: Commission services050100150-2-101230305070911131517Rate of change y-o-y (%)ItalyCapital accumulation contributionTotal factor productivity contributionTotal labour (hours) contributionPotential growthGeneral government debt (rhs)% of GDPGraph A11: NIIP, private debt and government debtSource: Eurostat-100-90-80-70-60-50-40-30-20-10008091011121314151617050100150200250CroatiaPrivate sector debt (rhs)General government debt (rhs)Net international investment position%of GDP% of GDP 
 
 
 
 
age population weigh on Italy's potential growth. Low productivity growth is rooted in long-standing 
structural  weaknesses,  including  a  business  environment  less  favourable  than  in  peer  countries, 
financing constraints, a lack of high-skilled people and a low level of investments in intangible assets. 
Banks’ balance sheet repair has progressed and the Italian banking sector became profitable again in 
2017.  However,  vulnerabilities  remain,  in  particular  for  medium  and  small  banks,  which  still  hold 
large legacy stocks of non-performing loans and are more exposed to sovereign risk than large banks. 
Labour market conditions are gradually improving, but the unemployment rate remains high, far above 
pre-crisis  levels,  in  particular  for  young  people  and  the  long-term  unemployed.  The  overall 
participation  rate  is  rising  but  remains  below  the  euro-area  average.  On  the  back  of  the  on-going 
recovery, Italy's macroeconomic imbalances have stopped deteriorating but they remain sizeable and 
are  unwinding  only  gradually.  The  slowdown  in  real  GDP  growth  and  the  renewed  tensions  on  the 
sovereign bond market could undermine the progress achieved so far.  

Overall, the economic reading highlights issues relating to the high level of public debt in a context of 
higher  market volatility  and  high  unemployment.  Productivity  dynamics remain weak  amid  renewed 
concerns about the bank-sovereign feedback loop. Therefore, the Commission finds it opportune, also 
taking into account the identification of an excessive imbalance in March 2018, to examine further the 
persistence  of  macroeconomic  risks  and  to  monitor  progress  in  the  unwinding  of  excessive 
imbalances. 

Cyprus:  In  March  2018,  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  in  2017,  namely  the  current  account,  the  net  international 
investment  position  (NIIP),  the  real  effective  exchange  rate  (REER),  private  sector  debt  and 
government debt, the unemployment rate as well as the change in labour activity rate.  

remains 

substantial. 

corporates,  while 

The current account deficit widened in 2017 against 
a  background  of  strong  import  growth  and  the 
Cost 
negative  NIIP 
competitiveness  adjustment  reduced  as  unit  labour 
the  real  effective 
costs  grew  marginally  and 
exchange  rate  stabilized.  The 
level  of  private 
indebtedness is amongst the highest in the EU, both 
for 
the 
and 
households 
deleveraging  process 
In  particular, 
household 
are  negative.  Downward 
adjustment in real house prices has passed its through 
and house prices started to moderately increase. The 
very high level of non-performing loans hampers the 
flow of credit to the economy, which is required for 
supporting potential growth in the medium term. The 
government  debt-to-GDP  ratio  remains  very  high. 
Unemployment is rapidly declining yet still elevated, 
in  particular  youth  unemployment,  though  over  the 
last three years the long-term and the youth unemployment have improved. 

savings 

slow. 

is 

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 March 2018, to 

41 

Graph A13: Debt and non-performing loansSource: Eurostat and ECB010203040010020030040050008091011121314151617% of GDPCyprusGeneral GovernmentHouseholdsNon-financial corporationsGross Non-Performing Loans (rhs)% of total loans 
 
 
 
 
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 beyond the indicative thresholds, namely the net 
international investment position (NIIP) and unit labour cost growth.  

The current account is broadly balanced and the negative 
NIIP, which largely consists of FDI, has improved given 
the  strong  nominal  GDP  growth  although  it  remains 
above the threshold. Unit labour costs have been growing 
fast  for  several  years  in  comparative  terms,  reflecting 
strong  wage  growth  and  a  tight  labour  market  and  the 
indicator  has  remained  above  the  scoreboard  threshold 
since 2014. The impact on external price competitiveness 
and  the  export  performance  has  been  limited  so  far, 
cushioned  in  part  by  reduced  profit  margins.  Going 
forward,  wage  growth  is  expected  to  remain  strong  due 
to  further  tightening  of  the  labour  market.  Altogether, 
country's 
these  developments  pose 
competiveness  and 
the 
medium term. Real house price growth remains dynamic. 
While  in  2017  house  prices  decelerated  in  comparison 
with 2016, they have accelerated again in the first half of 
2018.  Overall,  credit  growth  has  been  subdued. 
Government and private debt are relatively low.  

risk 
the  growth  prospects  over 

to 

a 

Overall, the economic reading highlights issues relating to the dynamics in the labour market and the 
external competitiveness although the risks appear contained at this stage. Therefore, the Commission 
does not see it necessary at this stage to 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  net 
international investment position (NIIP) and nominal unit 
labour costs.  

thresholds,  namely 

indicative 

the 

The  current  account  is  broadly  balanced  and  given  the 
strong  nominal  GDP  growth,  the  negative  NIIP,  which 
largely consists of FDI, has improved although it remains 
slightly above the threshold. Unit labour cost growth has 
been  high  for  years  in  comparative  terms,  and  the 
indicator has been beyond the scoreboard threshold since 
2015,  driven  by  high  wage  growth  reflecting  the  tight 
labour market and, amongst other factors, a fast increase 
in  the  minimum  wage  since  2016.  The  impact  of  rising 
labour  costs  on  external  cost  competitiveness  and  the 
export performance has been limited so far, cushioned in 
part  by  reduced  profit  margins,  which  in  itself  may  not  be  sustainable  in  the  longer  term.  Going 
forward,  wage  growth  is  expected  to  remain  strong  in  a  context  of  falling  unemployment  and  a 

42 

Graph A14: Decomposition of unit labour costSource: Commission services-15-10-5051009101112131415161718f19fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28LatviaGraph A15: Decomposition of unit labour costSource: Commission services-15-10-5051009101112131415161718f19fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28Lithuania 
 
 
 
 
 
tightening labour market. Altogether, these developments may weigh on the country's competiveness 
and  the  growth  prospects  over  the  medium  term.  House  price  growth  has  been  dynamic  in  recent 
years, gradually increasing although still within the threshold. Credit growth has picked up. Public and 
private debt levels continue to be relatively low and stable. 

Overall, the economic reading  highlights  issues  relating  to  unit labour  costs  dynamics and  external 
competitiveness although the risks appear contained at this stage. Therefore, the Commission does not 
see it necessary at this stage to carry out further in-depth analysis in the context of the MIP. 

Luxembourg:  In  the  previous  round  of  the  MIP,  no 
macroeconomic 
in 
imbalances  were 
Luxembourg.  In  the  updated  scoreboard, a  number  of 
indicators are beyond the indicative threshold, namely 
private  indebtedness  as  well  as  the  change  in  the 
activity rate and the long-term unemployment rate.  

identified 

The  external  position  continues  to  show  a  stable 
current  account  surplus  and  a  positive  and  constant 
NIIP.  However, 
the  country's  position  as  an 
international  financial  centre  has  a  more  important 
impact on the figures than the activity of the domestic 
economy. Cumulated export market shares gains have 
stabilised.  However,  some  market  losses  have  been 
recorded  most  recently,  partially  fostered  by  the 
worsening in cost competitiveness, deteriorated in turn 
by  the  stronger  unit  labour  cost  growth  and  import 
prices  growth.  During  the last  decade, real  house  prices  have  been  growing  at a  relatively  high  rate 
which  overall  continue  to  warrant  close  monitoring.  The  increase  in  house  prices  takes  place  in  the 
context  of  a dynamic  labour  market  combined  with  the  sizeable net  migration flows  and  favourable 
financing  conditions  while  supply  is  relatively  constrained  and  remains  insufficient  to  counteract 
strong  demand.  Housing  affordability  keeps  on  deteriorating  in  view  of  constantly  increasing  house 
prices.  Corporate  indebtedness  is  very  high  but  this  is  mostly  related  to  cross-border  intracompany 
loans.  The  level  of  household  debt,  mostly  mortgages,  has  been  steadily  increasing,  reflecting  the 
dynamism of the real estate market and favourable credit conditions. Although lower interest rates and 
longer mortgage duration have lessened households' financial strain and most of new mortgages are set 
on fixed rates, a large share of indebted households remains exposed to interest rates hikes. Risks for 
the country financial stability are however mitigated by the solidity of the banking sector. Public debt 
remains  very  low.  Despite  the  recent  economic  slowdown,  the  labour  market  is  tightening  and 
unemployment declining further. 

Overall, the economic reading points mainly to some contained risks related to constantly increasing 
housing prices and household 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  in 
Hungary. In the updated scoreboard, some indicators are beyond the indicative threshold, namely net 
international investment position (NIIP) and government debt.  

43 

Graph A16: Household debt and house price indexSource: Eurostat and ECB50607080901001101200102030405060700708091011121314151617House price index, 2015=100Household debt, % of GDPLuxembourgOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
The  current  account  surplus  over  recent  years  has 
implied  a  rapid  and  sustained  improvement  in  the 
negative NIIP which also to a large extent reflects FDI. 
Export market shares increased in 2017, supported by a 
growing  car  industry.  Nominal  unit  labour  costs  have 
been  substantially 
in  a  context  of  a 
increasing 
tightening 
labour  market.  Administrative  wage 
increases also added to labour cost increases, but they 
were  partly  offset  by  the  reduction  of  employers’ 
social  contributions.  Lending  flows  to  the  private 
sector  turned  positive  but  the  stock  of  private  sector 
credit  continued  to  decrease  in  2017.  The  growth  of 
real  house  prices  has  moderated  after  significant 
increases 
in  previous  years.  Nonetheless,  high 
valuations  in  certain  regions  and  the  fast  run-up  of 
mortgage  lending  warrant  attention.  The  ongoing 
recovery  in  the  real  estate  market  may  contribute  to 
further reduce the share of non-performing loans, which is still high. The banking sector has improved 
its  profitability  and  its  shock-absorbing  capacity.  Despite  a  favourable  economic  cycle,  government 
debt has declined only gradually on the back of pro-cyclical fiscal policy. Unemployment decreased to 
historic  low  levels  and  the  tightening  labour  market  contributed  to  rapid  wage  growth,  which 
continued to exceed productivity gains.  

Overall, the economic reading highlights issues relating to the housing market and a tightening 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, no macroeconomic imbalances were identified in Malta. In 
the updated scoreboard, the current account balance is beyond the indicative threshold.  

reflects 

fluctuations 

developments.  Cost 

investment  position.  However, 
in 

The high current account surplus increased further in 
2017  to  significantly  high  levels,  coinciding  with  a 
strong  improvement  of  the  already  positive  net 
the 
international 
external  position 
the 
internationally-oriented  corporate  sector  rather  than 
domestic 
competitiveness 
developments  and  REER  developments  have  been 
relatively 
favourable,  while  moderate  wage 
developments  coupled  with  relatively  strong  labour 
productivity growth have kept unit labour cost growth 
moderate.  The  private  sector  debt-to-GDP  ratio 
decreased  substantially  in  2017,  underpinned  by 
strong  nominal  GDP  growth.  While  corporate  sector 
leverage  remains  high,  the  growth  rate  of  credit  to 
households  has  been  decelerating.  The  government 
debt-to-GDP  ratio  has  been  on  a  firm  downward  trend.  Real  house  prices  have  increased  in  2017, 
warranting  monitoring.  In  particular,  the  strong  economic  activity  and  limited  possibilities  to  invest 

44 

Graph A18: Household debt and house price indexSource: Eurostat and ECB50607080901001101200102030405060700708091011121314151617House price index, 2015=100Household debt, % of GDPMaltaOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs)Graph A17: GDP, ULC and house pricesSource: Eurostat-15-10-5051015-10-8-6-4-20246808091011121314151617Rate of change y-o-y (%)HungaryULC growthGDP growthDeflated house price index (rhs)Rate of change y-o-y (%) 
 
 
 
private  savings  has  led  to  a  renewed  interest  in  the  housing  market.  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 or from the perceived institutional framework. The 
labour market continues to perform vigorously, with strong employment growth accompanied by low 
and further declining unemployment.  

Overall, the economic reading points to issues related to the external position and housing markets in 
the context of robust economic growth although risks appears contained at this stage. Therefore, the 
Commission will at this stage not carry out further in-depth analysis in the context of the MIP. 

The Netherlands: In March 2018, the Commission concluded that the Netherlands was experiencing 
macroeconomic imbalances, in particular involving a high stock of private debt and the large current 
account surplus. In the updated scoreboard a number of indicators are beyond the indicative threshold, 
namely the three year average of the current account balance, private sector debt and real house price 
growth.  

The  current  account  surplus  remains  very  high  and 
increased  further  in  2017  while  the  positive  net 
international  investment  position  decreased  slightly. 
While  all  sectors  are  net  savers,  the  current  account 
surplus  increase  in  2017  was  mainly  driven  by  non-
financial  corporations  with  a  savings  surplus  related 
to  relatively  high  corporate  profitability  and  a 
comparatively  low  investment  rate.  Unit  labour  cost 
developments  are  muted  with  wage  growth  in  line 
with  productivity  developments.  Private  debt  is  at 
high levels where corporate debt is also explained by 
intra-group debt of multinationals. Household debt is 
high  and  fuelled  by  a  generous  tax  treatment  of 
owner-occupied  homes  and  favourable  mortgage 
rates. While household debt as a share of GDP is on a 
decreasing  trend,  nominal  debt  is  increasing  again. 
There  is  a  strong  recovery  in  the  housing  market  as 
house  prices  accelerated  further  in  2017,  also  in  the  context  of  a  sub-optimally  functioning  rental 
market. The labour is tightening with low and falling unemployment. 

Overall,  the  economic  reading  highlights  issues  relating  to  the  high  household  debt  and  the  large 
domestic savings surplus. Therefore, the Commission finds it opportune, also taking into account the 
identification  of  an  imbalance  in  March  2018,  to  examine  further  the  persistence  of  imbalances  or 
their unwinding. 

45 

Graph A19: Net lending/borrowing by sectorSource: Eurostat-505101508091011121314151617% of GDPThe NetherlandsHouseholdsGeneral governmentFinancial corporationsNon-Financial corporationsTotal Economy 
 
 
 
 
 
 
Austria: In the previous round of the MIP, no macroeconomic imbalances were identified in Austria. 
In the updated scoreboard, only the government debt indicator is beyond the indicative threshold.  

The  current  account  surplus  remained  stable  at  a 
moderate  level  in  2017  with  a  slightly  positive  net 
international 
investment  position.  Export  market 
shares  were  stable.  Unit  labour  cost  growth  is  low 
supported  by  an  increase  in  labour  productivity 
growth  combined  with  limited  wage  growth.  Real 
house  prices  continued  its  growing  trend  but  at  a 
decelerated pace in 2017 as compared to 2016. While 
these  developments  warrant  monitoring,  the  price 
increase does not appear to be credit-driven and little 
acceleration  in  credit  growth  is  observed.  Moreover, 
both  corporate  and  household  debt  ratios  are  slowly 
decreasing.  Also  government  debt  continued  its 
downward  path  and  declined  in  2017  on  the  back  of 
strong economic growth and the ongoing asset wind-
down  from  nationalised  financial  institutions.  The 
banking sector situation improved further also linked 
to  the  recovery  in  neighbouring  countries.  In  these  favourable  economic  conditions  and  with  strong 
employment growth, the unemployment rate decreased notably.  

Overall,  the  economic  reading  highlights  issues  relating  to  the  housing  sector,  but  risks  appear 
contained. Therefore, the Commission does not see it necessary at this stage to 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,  the  net  international  investment  position  (NIIP)  is  beyond  the  indicative 
threshold.  

The  current  account  balance  improved  to  a  broadly 
balanced position in 2017 while the negative NIIP was 
stable. External vulnerabilities remain contained, given 
that foreign direct investments account for a major part 
of  foreign  liabilities.  Gains  in  export  market  shares 
were strong again in 2017. Coinciding with both strong 
productivity  growth  and  rising  wages,  nominal  unit 
labour  cost  growth  is  contained.  The  private  sector 
debt-to-GDP  ratio  declined  in  2017,  reflecting  strong 
GDP  growth  and  an  appreciation  of  the  zloty  against 
the  currencies  in  which  part  of  the  outstanding  debt 
stock 
is  denominated.  General  government  debt, 
measured  as  percentage  of  GDP,  decreased  further 
from  already  relatively  low  levels  on  the  back  of  fast 
nominal economic growth, a lower headline deficit and 
an  appreciation  of  the  zloty.  Banking  sector  risks 
labour  market 
remained  contained.  The  strong 
performance  persisted,  resulting  in  a  decline  in  the 
unemployment rate to a very low level. 

46 

Graph A21: NIIP and CA balanceSource: Commission services-8-6-4-202-80-60-40-2002008091011121314151617% of GDP% of GDP PolandNet international investment position (NIIP)NIIP Ex. Non-Defaultable Instruments (NENDI)Current account balance (rhs)Graph A20: Household debt and house price indexSource: Eurostat and ECB506070809010011012001020304050600708091011121314151617House price index, 2015=100Household debt, % of GDPAustriaOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
Overall, the economic reading highlight issues related to the net international investment position but 
risks are limited. Thus, the Commission does not see it necessary at this stage to carry out an in-depth 
analysis in the context of the MIP.  

Portugal: In March 2018, the Commission concluded 
that  Portugal  was  experiencing  macroeconomic 
imbalances, in particular involving the large stocks of 
net external liabilities,  private and  public  debt,  and  a 
high  share  of  non-performing  loans  in  a  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 price growth. 

growth 

The current account position is stable showing a small 
surplus  while  the  NIIP  remains  deeply  negative  and 
the  pace  of  adjustment  is  projected  to  remain  very 
slow.  Price  competitiveness  has  deteriorated  slightly 
in 2017 as the real effective exchange rate appreciated 
marginally.  Nominal  ULC 
increased 
moderately  while  labour  productivity  growth  was 
negative in 2017. Yet, these developments are broadly in line with those in trading partners and there 
are  gains  in  export  market  shares.  Private  debt  deleveraging  is  on-going  and  credit  growth  remains 
weak. Government debt is still very high but projected to decrease steadily. Banks have strengthened 
significantly their balance sheets and net income, but vulnerabilities still persist, as the stock of non-
performing loans is still high despite its recent decline. House prices retain a strong growth but in the 
context of previously undervaluation and a broadly stable mortgage stock. Benefiting from the positive 
economic cycle, the labour market has undergone a broad-based improvement over the past years and 
unemployment has dropped significantly.  

Overall,  the  economic  reading  highlights  issues  relating  to  imbalances  in  stock  variables,  in 
particular  net  external  liabilities,  public  and  private  debt,  banking  sector  vulnerabilities  and  weak 
productivity  growth.  Therefore,  the  Commission  finds  it  opportune,  also  taking  into  account  the 
identification  of  an  imbalance  in  March  2018,  to  examine  further  the  persistence  of  imbalances  or 
their unwinding. 

47 

Graph A22: NIIP, Private debt and government debtSource: Eurostat-140-120-100-80-60-40-20008091011121314151617050100150200250300350% of GDP% of GDPPortugalPrivate sector debt (rhs)General government debt (rhs)Net international investment position 
 
 
 
 
 
 
 
 
 
 
 
Romania:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in 
Romania. In the updated scoreboard one indicator is beyond the indicative threshold, namely the net 
international investment position (NIIP).  

The  current  account  deficit  continued  to  deteriorate  in 
2017 on account of an acceleration of imports, mainly 
of  consumption  goods.  Despite  the  increasing  current 
account  deficit,  the  negative  NIIP,  which  consists 
mostly of FDI, further improved on the back of strong 
nominal  GDP  growth.  Exports  continued  to  perform 
well in 2017 and Romania gained further export market 
shares.  Unit  labour  costs,  however,  increased  very 
significantly  in  2017  due  to  higher  wage  growth, 
particularly  in  the  public  sector.  While  Romania's 
export  performance  has  been  strong  so  far,  past 
evidence suggests public wage growth is likely to also 
spill-over to the private sector, which could trigger cost 
competitiveness losses looking forward. The growth of 
real  house  prices  declined  marginally  in  2017  and 
remains  moderate. The  banking  sector  continues  to be 
well capitalized and liquid. The growth of credit to the 
private  sector  picked  up  slightly  but  remains  subdued.  The  unemployment  rate  further  declined  in 
2017 reflecting a tightening of the labour market, while  the activity rate improved somewhat. Given 
the  strong  nominal  GDP  growth,  both private  and  public  debt  declined as  a  share  of  GDP  and  both 
remain  relatively  low.  However,  the  fiscal  stance  is  set  to  remain  expansionary  in  the  medium  run 
despite favourable economic conditions and could have a negative impact on public debt and current 
account dynamics. Both the deteriorating trade deficit and the acceleration of ULC are linked to the 
government's persistently pro-cyclical fiscal policy, which has stimulated an already strongly growing 
economy through repeated tax cuts and public wage increases. Moreover, frequent and unpredictable 
legislative  changes  contribute  to  an  uncertain  business  environment,  with  negative  repercussions  on 
business  decisions  and  investments,  possibly  affecting  the  attractiveness  of  the  country  to  foreign 
investors.   

The  economic  reading  suggests  that  vulnerabilities  have  increased,  particularly  with  respect  to  the 
external position and competitiveness. Overall, the Commission finds it opportune to examine further 
the risks involved in an in-depth analysis with a view to assess whether imbalances exist. 

longer 

Slovenia  was 

Slovenia:  In  March  2018,  the  Commission  concluded 
that 
experiencing 
no 
macroeconomic  imbalances.  In  the  updated  scoreboard, 
government debt and real house price growth are beyond 
the indicative threshold.  
The  large  current  account  surplus  increased  further  in 
2017  due  to  strong  export  growth.  The  negative  NIIP 
improved  substantially  and  is  no  longer  beyond  the 
threshold.  Export  market  shares  increased  while  unit 
labour  cost  growth  was  contained  and  real  effective 
exchange  rate  depreciated.  Private  debt  decreased 
further, driven by the corporate sector while credit flows 
to  the  private  sector  have  turned  positive.  Investment 

48 

Graph A24: Private debt and non-performing loansSource: Eurostat and ECB051015202502040608010012014008091011121314151617% of GDPSloveniaHouseholdsNon-financial corporationsNon-Performing Loans (rhs)% of total loansGraph A23: Net lending/borrowing by sectorSource: Eurostat-15-10-505101508091011121314151617% of GDPRomaniaCorporationsHouseholds and NPISHGeneral governmentTotal economy 
 
 
 
improved significantly but remains still below the historical averages. House price growth increased 
somewhat faster than in the previous years while residential investment is stable and mortgage credit 
growth contained. Government debt remains high but has decreased since its peak in 2015. Projected 
ageing costs continue to pose risks to medium and long-term fiscal sustainability. The banking sector 
has  stabilised,  its  leverage  is  decreasing  and  the  still  relatively  high  share  of  non-performing  loans 
continues its downward trend with further reductions expected. The labour market improved further, 
with the activity rate increasing and unemployment rate decreasing. Labour productivity growth also 
picked up somewhat in 2017.  

Overall, the economic reading highlights issues relating mainly to the long-term fiscal sustainability. 
Therefore, the Commission does not see it necessary at this stage to carry out further in-depth analysis 
in the context of the MIP. 

Slovakia:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  in 
Slovakia.  In  the  updated  scoreboard,  the  net  international  investment  position  (NIIP)  and  total 
financial sector liabilities are in breach of the indicative threshold. 

negative, 

notwithstanding 

The current account balance deficit widened further in 
2017  but  remains  moderate  overall.  The  NIIP  is 
substantially 
some 
improvement recently, while risks are limited as much 
of  the  foreign  liabilities  relates  to  foreign  direct 
investment,  especially  in  the  expanding  automotive 
industry  and  in  the  financial  sector.  Export  market 
shares  and  the  real  effective  exchange  rate  have  been 
broadly  stable.  Nominal  unit  labour  cost  growth 
increased, driven by strong wage growth in the context 
of  a tightening  labour  market.  Growth  in  house  prices 
remains strong but eased in 2017 compared to 2016 to 
a  rate  just  within  the  threshold  value.  Private  sector 
credit decelerated somewhat while the private debt-to-
GDP ratio kept increasing overall. The largely foreign-
owned  banking  sector  is  well-capitalised.  Further 
declines  in  both  total  and  long-term  unemployment 
rates have been accompanied by increases in the participation rate.  

Overall, the economic reading highlights issues relating to external aspects, the housing market and 
credit growth but risks appear contained so far. Therefore, the Commission will at this stage not carry 
out further in-depth analysis in the context of the MIP.  

49 

Graph A25: Household debt and house price indexSource: Eurostat and ECB50607080901001101201301400510152025303540450708091011121314151617House price index, 2015=100household debt, % of GDPSlovakiaOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
 
 
 
 
Finland: In the previous round of the MIP, no macroeconomic imbalances were identified in Finland. 
In  the  updated  scoreboard,  a  number  of  indicators  are  beyond  the  indicative  threshold,  namely  the 
level of private sector debt and government debt.  

The current account balance remained slightly negative 
in  2017  after  several  years  of  deficits  while  the  net 
international investment position is marginally positive. 
Export market shares recovered for a second year in a 
row, while cost competitiveness indicators improved as 
unit  labour  costs  fell  and  the  real  effective  exchange 
rate  depreciated.  In  2018  and  2019,  export  growth  is 
likely to still outpace import growth. Nevertheless, cost 
competitiveness  indicators  are  expected  to  stabilise  as 
the  positive  effect  of  the  Competitiveness  Pact  fades 
out partly. Public and private sector debt-to-GDP ratios 
came down further in 2017, reflecting the strong output 
recovery.  However,  favourable  credit  conditions,  low 
interest rates and the improved economic outlook have 
accelerated  private  credit  growth,  which  may  limit 
deleveraging  going  forward,  while  private  debt  is  still 
at  an  elevated  level.  Household  debt  is  high  and  the 
household saving rate historically low. The financial sector remains well capitalised, limiting risks to 
financial  stability,  while  relatively  stable  real  house  prices  point  to  limited  risks  to  the  household 
sector debt. The public debt ratio is reducing, reflecting the improved economic growth environment. 
Employment continues to expand and unemployment to decrease as a result of the higher economic 
activity.  

Overall, the economic reading highlights challenges related to the private sector debt but risks remain 
limited. Overall, the Commission does not see it necessary at this stage to carry out further in-depth 
analysis in the context of the MIP.  

Sweden:  In  March  2018,  the  Commission  concluded 
that  Sweden  was  experiencing 
in 
particular  involving  overvalued  house  price  levels 
coupled with a continued rise in household debt. In the 
updated scoreboard, private sector debt is beyond the 
indicative threshold.  

imbalances, 

The  current  account  surplus  remains  moderate  and 
narrowed in 2017. The NIIP has fallen slightly and is 
now close to balance. Export market share losses have 
moderated  and  the  indicator  is  now  somewhat  below 
the  threshold.  Unit  labour  cost  growth  is  contained 
while the real effective exchange rate has depreciated. 
Household  debt  is  high  and  has  grown  continuously 
since 2008, including in 2017. This increase has been 
coupled  with  house  prices  rises  implying  risks  for 
macroeconomic  stability.  In  autumn  2017,  house 
prices declined somewhat but remain overall very high. House prices and household indebtedness are 
being pushed up by the favourable tax treatment of home-ownership, low mortgage interest rates and 

50 

Graph A26: Debt across sectors in the economySource: Eurostat0501001502002500405060708091011121314151617% of GDPFinlandGovernmentNon financial corporationsHouseholdMIP Threshold for private debtGraph A27: Household debt and house price indexSource: Eurostat and ECB506070809010011012001020304050607080901000708091011121314151617House price index, 2015=100household debt, % of GDPSwedenOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
specific  features  in  the  mortgage  market.  Risks  in  the  banking  system  appear  contained,  as  asset 
quality and profitability remain high and household finances are generally strong. The labour market is 
tightening and unemployment falling further.  

Overall, the economic reading highlights issues relating to high private debt and the housing sector. 
Therefore, the Commission finds it useful, also taking into account the identification of an imbalance 
in March 2018, 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  are  beyond  the  indicative  threshold, 
namely the current account deficit, private sector debt 
and government debt. 

financing  needs 

The current account narrowed slightly in 2017, driven 
primarily  by  an  improvement  in  the  primary  income 
balance,  but  the  significant  deficit  and  associated 
remain.  The 
sizeable  external 
depreciation  of  sterling  has  supported 
the  net 
international  investment  position,  which  is  mildly 
negative,  and  improved  price  competitiveness  in  a 
labour  cost  growth. 
context  of  moderate  unit 
However,  to  date  the  net  trade  response  to  weaker 
sterling has been disappointing. After several years of 
gradual  deleveraging,  the  private  sector  debt-to-GDP 
ratio  has  bottomed  out.  In  particular,  household  debt  remains  high  and  continues  to  warrant  close 
monitoring. Real house price growth has slowed and the cost of housing is stabilising, though at a high 
level.  Government  debt  is  high  and  broadly  stable.  Strong  employment  growth  continued  to  be 
accompanied by low and 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  does  not  see  it  necessary  at  this  stage  to  carry  out  further  in-depth 
analysis in the context of the MIP.  

51 

Graph A28: Household debt and house price indexSource: Eurostat and ECB50607080901001101200204060801001200708091011121314151617House price index, 2015=100Household debt, % of GDPUnited KingdomOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
 
52 

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 52.6 0.9 3.9 1.1 1.5p-1.5 187.0 103.4 7.8b0.7 0.3b-0.8b-3.9bBG3.1 -42.8 -3.3 19.4 13.6p6.2 6.2 100.1 25.6 7.7 1.1 2.3 -3.5 -10.9 CZ1.0 -26.5 5.4 8.2 5.9 9.1p4.1 67.4 34.7 4.0 22.9 2.4 -1.7 -8.0 DK8.1 56.3 -2.1 0.5 3.0 3.2 -1.4 204.0 36.1 6.0 4.1 0.7b-0.4b-1.6 DE8.4 54.0 -2.5 6.5 5.1 2.9 4.9 100.1 63.9 4.2 4.0 0.5 -0.6 -0.9 EE2.3 -31.4 2.9 2.6 12.4 1.8 3.6 106.4 8.7 6.3 9.7 3.6 -1.4 -2.9 IE2.9 -149.3 -6.2 64.4 -17.2 9.5p-7.5 243.6 68.4 8.4 4.3 0.9 -3.6 -9.0 EL-0.8 -142.5 -2.8 -10.0 -1.0p-2.2e-0.8p116.4p176.1 23.3 -12.9 0.9 -3.9 -8.8 ES1.8 -83.8 -2.5 9.8 0.0p4.5 0.2p138.8p98.1 19.6 4.0 -0.3 -5.2 -14.6 FR-0.6 -20.1 -2.9 2.7 1.3p1.8 7.0p148.2p98.5 10.0 4.3 0.5 -0.3 -1.9 HR3.6 -62.4 0.0 20.0 -4.3d2.8 1.2 98.4 77.5 13.5 3.9 0.3 -5.5 -17.7 IT2.3 -5.3 -3.1 2.0 1.1 -2.0p2.1 110.5 131.2 11.6 4.3 1.5 -1.2 -8.0 CY-5.0 -121.5 -6.6 6.9 -2.7p1.3p8.7p316.3p96.1 13.0 -2.3 -0.4 -3.2 -11.3 LV0.6 -56.3 1.7 7.8 14.7 5.5 0.3 83.5 40.0 9.4 6.1 2.4 -1.3 -2.6 LT-0.7 -35.9 2.3 9.7 16.0 5.4 3.7 56.1 39.4 8.0 14.0 2.2 -2.1 -6.0 LU5.0 47.0 -0.9 25.2 7.1 4.1 -15.5 322.9 23.0 6.1 -1.7 -0.6 0.5 -6.9 HU4.0 -52.9 0.1 11.3 6.7 3.3 0.9 71.4 73.3 5.4 -8.0 4.2 -2.0 -9.7 MT8.4 62.6 -2.3 11.2 1.7 4.1p2.9 120.2 50.9 5.2 4.7 4.4 -1.1 -1.2 NL8.3 59.7 -1.6 1.2 -0.2p6.0 3.0p252.1p57.0 5.9 2.0p0.7 -1.0 -3.8 AT2.1 3.7 0.3 2.3 3.7 3.5 4.3 122.5 78.3 5.7 1.8 1.0 0.3 -0.5 PL-0.3 -61.2 -3.4 28.4 4.5p1.7 2.7 76.4 50.6 6.2 6.3 1.7 -2.3 -9.1 PT0.4 -104.9 -0.7 14.6 3.5p7.9 1.3p162.2p124.8 10.9 1.8 1.5 -3.9 -10.9 RO-2.2 -47.7 -5.5 37.0 11.9p4.0 1.7p50.8p35.1 5.9 8.1 1.6 -0.8 -5.7 SI5.7 -32.3 -2.0 18.6 3.4 6.2 0.8 75.6 74.1 7.9 5.1 3.3 -2.2 -9.0 SK-2.0 -65.6 -1.9 6.7 6.9 4.4 5.9 96.1 50.9 9.8 17.9 1.8 -4.2 -10.8 FI-0.7 2.4 -2.6 -4.3 -2.5 0.5 8.2 146.4 61.3 8.9 -3.8 1.3 0.2 -0.4 SE4.0 1.8 -5.4 -4.3 3.7 4.6 13.1 194.4 40.8 7.0 6.8 1.0 -0.2 -5.1 UK-4.6 -8.6 -10.7 -1.0 5.4 2.4 8.4 169.0 87.4 4.8 -1.6 0.9 -1.1 -4.9 Figures highlighted are the ones at or beyond the threshold. Flags: b: Break in series. d: Definition differs. e: Estimated. p: Provisional. 1)Fortheemploymentindicators,seepage2oftheAMR2016.2)Housepriceindexe=sourceNCBforEL.3)ForNominalunitlabourcostHR,d:employmentdatausenationalconceptinsteadofdomesticconcept.4)Unemploymentrate,Activityrate,Long-termunemploymentrateandYouthunemploymentrate:BE:Revision in the survey methodology; IE: introduction of the new Labour Force Survey in substitution to the Quarterly National Household Survey as data source; DK: data collection improvement, introduction of computer-assisted web interviewing.      (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 volume exports of goods and services)Table 1.1: MIP Scoreboard 2017Year2017External imbalances and competitivenessInternal imbalancesEmployment indicators¹ 
 
 
  
53 

 
 
 
 
54 

%3 year change in pp%3 year change in pp%3 year change in pp%3 year change in pp%3 year change in ppBE1.4 68.0b3.5b19.3b9.3b-2.7b20.3 -0.9 15.9 0.4 5.1 -0.8 13.5 -1.1 BG1.8p71.3 3.4 12.9 15.3 -4.9 38.9 -1.2b23.4 1.6 30.0 -3.1 11.1 -1.0 CZ1.6 75.9 1.0 7.9 6.3 -1.8 12.2 -2.6 9.1 -0.6 3.7 -3.0 5.5 -2.1 DK1.6 78.8b1.3b11.0 7.0b1.2b17.2 -0.7 12.4 0.3 3.1 -0.1 10.0 -2.2 DE1.4 78.2 1.6 6.8 6.3 -0.1 19.0 -1.6 16.1 -0.6 3.4 -1.6 8.7 -1.3 EE2.7 78.8 1.9 12.1 9.4 -2.3 23.4 -2.6b21.0 -0.8 4.1 -2.1 5.8 -1.8bIE2.9 72.7 3.0 14.4 10.9b-4.4b::::::::EL1.5p68.3 15.6 43.6 15.3 -3.8 34.8 -1.2 20.2 -1.9 21.1 -0.4 15.6 -1.6 ES2.6p73.9 7.7 38.6 13.3 -3.8b26.6 -2.6 21.6 -0.6 5.1 -2.0 12.8 -4.3 FR1.1p71.5 4.2 22.3 11.5 0.3b17.1 -1.4 13.3 0.0 4.1 -0.7 8.1 -1.5 HR2.2d66.4 4.6 27.2 15.4 -3.9 26.4 -2.9 20.0 0.6 10.3 -3.6 12.2 -2.5 IT1.2 65.4 6.5 34.7 20.1 -2.0 28.9 0.6 20.3 0.9 10.1 -1.5 11.8 -0.3 CY3.9p73.9 4.5 24.7 16.1 -0.9 25.2 -2.2 15.7 1.3 11.5 -3.8 9.4 -0.3 LV0.0 77.0 3.3 17.0 10.3 -1.7 28.2 -4.5 22.1 0.9 11.3 -7.9 7.8 -1.8 LT-0.5 75.9 2.7 13.3 9.1 -0.8 29.6 2.3 22.9 3.8 12.4 -1.2 9.7 0.9 LU3.4 70.2 2.1 15.4 5.9 -0.4 21.5 2.5 18.7 2.3 1.2 -0.2 6.9 0.8 HU2.0 71.2 1.7 10.7 11.0 -2.6 25.6 -6.2 13.4 -1.6 14.5 -9.5 6.6 -6.2 MT5.2 72.2 1.6 11.3 8.6b-1.7b19.2 -4.6 16.8 0.9 3.3 -6.9 6.7 -3.1 NL2.2p79.7 1.9 8.9 4.0 -1.5 17.0 0.5 13.2 1.6 2.6 -0.6 9.5 -0.7 AT1.7 76.4 1.8 9.8 6.5 -1.2 18.1 -1.1 14.4 0.3 3.7 -0.3 8.3 -0.8 PL1.4p69.6 1.5 14.8 9.5 -2.5 19.5 -5.2 15.0 -2.0 5.9 -4.5 5.7 -1.6 PT3.3p74.7 4.5 23.8 9.3 -3.0 23.3 -4.2 18.3 -1.2 6.9 -3.7 8.0 -4.2 RO2.8p67.3 2.0 18.3 15.2 -1.8 35.7 -4.6 23.6 -1.5 19.7 -6.2 6.9 -0.3 SI2.9 74.2 3.1 11.2 6.5 -2.9 17.1 -3.3 13.3 -1.2 4.6 -2.0 6.2 -2.5 SK2.2 72.1 5.1 18.9 12.1 -0.7 16.3 -2.1 12.4 -0.2 7.0 -2.9 5.4 -1.7 FI1.2 76.7 2.1 20.1 9.4 -0.8 15.7 -1.6 11.5 -1.3 2.1 -0.7 10.7 0.7 SE2.3 82.5 1.2 17.8 6.2 -1.0 17.7 -0.5 15.8 0.2 1.1 0.1 8.8 -0.2 UK1.0 77.6 1.1 12.1 10.3 -1.6 ::::4.9p-2.5p::Activity 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. d: Definition differs. p: Provisional. 1)Officialtransmissiondeadlinefor2017dataonPeopleatriskofpovertyandsocialexclusionis30November2018whiledatawereextractedon24October2018.2)NominalunitlabourcostandlabourproductivityforHRd:employmentdatausenationalconceptinsteadofdomestic concept. 3) Labour Fource Survey indicators for IE: introduction of the new LFS  in substitution to the Quarterly National Household Survey (QNHS) as data source.      (cid:9)(cid:9)(cid:9)(cid:9)Source: European Commission, EurostatYear2017Employment rate(1 year % change)Table 2.1 (continued): Auxiliary indicators, 2017