COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Annual Growth Survey 2019: For a stronger Europe in the face of global uncertainty
Date: 2018-11-21
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, EU growth strategy, EU investment, economic growth, economic policy, economic reform, euro area, fiscal policy, investment policy, social policy

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 21.11.2018  COM(2018) 770 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Annual Growth Survey 2019:    For a stronger Europe in the face of global uncertainty  
 
 
INTRODUCTION 

In  2019,  Europe’s  economy  is  set  to  continue  expanding,  providing  jobs  to  a  record 
number  of  people  and  lifting  millions  out  of  poverty  and  social  exclusions.  Structural 
reforms,  investment  and  responsible  fiscal  policies  implemented  by  the  Member  States, 
combined with decisive action at European level, including the Investment Plan for Europe, 
have contributed to the restored stability and greater prosperity enjoyed today in the European 
economy. Employment has risen to a record level of 239 million people and unemployment 
has fallen back to pre-crisis level, helping more than 10 million people out poverty or social 
exclusion over the past years.1 

Europe's economy is now entering its sixth year of uninterrupted growth.  Dispersion of 
growth rates across the euro area is the smallest in the history of the Economic and Monetary 
Union. Real convergence has resumed, with higher growth rates recorded in Member States 
with lower levels of GDP per capita. Robust growth and low interest rates have supported a 
continued decline in national government deficits, which in most cases have returned to pre-
crisis levels. The investment gap brought about by the crisis is now nearly closed. After many 
difficult  years,  Greece  successfully  concluded  its  financial  assistance  programme,  with  its 
place at the heart of the euro area and European Union secured. 

The growth of the economy, however, is not benefitting all citizens and countries in the 
same  manner  and  remains  vulnerable  to  global  instability  and  medium  to  long-term 
challenges.  The  fundamentals  for  sustained  growth  in  Europe  are  in  place.  Nevertheless, 
economic  growth  is  projected  to  moderate  and  faces  significant  downside  risks.  Financing 
conditions remain supportive, but some tightening is expected as growth continues, inflation 
picks  up  and  monetary  policy  gradually  normalises.  Concerns  about  the  sustainability  of 
public finances in countries with high debt could lead to increased financing costs across the 
economy,  including  in  the  banking  sector.  Some  Member  States  are  still  experiencing  high 
unemployment  rates  and  household  income  below  pre-crisis  levels.  Others  suffer  from 
underemployment or skill shortages. Productivity growth is subdued and diffusion of digital 
technologies is  slow.  Long-term challenges  – such as population  ageing, digitisation and its 
impacts  on  work,  climate  change  and  unsustainable  use  of  natural  resources  –  remain 
pressing. Additional risk factors include a faster tightening of monetary policy in the US and 
its  potential  ramifications  on  financial  stability  in  emerging  markets;  continued  geopolitical 
tensions  impacting  global  trade  and  persisting  uncertainties  around  the  Union’s  future 
relations with the United Kingdom.  

Rising  challenges  and  global  uncertainty  remind  us  that  the  current  economic 
momentum offers an opportunity not to be missed. Renewed reform efforts, well-targeted 
investment  and the reduction of debt  levels,  in  line with  the common European fiscal  rules, 
are  crucial to  make the  Union and its Member  States stronger, more inclusive and resilient. 
Economic and fiscal policies must preserve macroeconomic stability, tackle high debt levels 
and  create  buffers  against  external  or  domestic  shocks  to  mitigate  employment  and  social 

1 The 2019 draft Joint Employment Report accompanying the Annual Growth Survey provides a full picture of 
recent employment and social developments in the EU. 

1 

 
                                                           
impacts.  Investment  and  structural  reforms  need  to  focus  even  more  on  boosting  potential 
growth.  

A resilient and inclusive economy will allow the Union to leverage its strengths globally 
and  champion  the  benefits  of  multilateralism  and  economic  integration.  The  euro  is  a 
factor  of  stability  and  a  shield  in  the  face  of  growing  risks  to  the  global  economic  outlook. 
Yet, its architecture needs to be further strengthened. A fully integrated and well-functioning 
Single  Market  will  also  help  shield  Europe  from  future  shocks  and  crises,  while  a  genuine 
Capital  Markets  Union  will  unlock  further  funding  for  Europe’s  growth.  Swiftly  equipping 
our Union with a long-term budget that reflects rapid developments in innovation, economic 
environment and geopolitics is also crucial to supporting structural change and make Europe 
stronger and more cohesive in the face of rising  uncertainties, both  at home and abroad. To 
reinforce  the  social  dimension  of  the  Union  and  foster  upward  convergence  towards  better 
living  and  working  conditions,  it  is  necessary  to  turn  the  principles  proclaimed  in  the 
European Pillar of Social Rights into action, at both European and national levels.  

1.  FOUR YEARS ON: GROWTH, JOBS AND INVESTMENT DELIVERED 

from 

just 
In  2014,  Europe  was 
emerging 
the  worst 
financial and economic crisis in 
generations.  Real 
economic 
output  was  only  recovering  to 
pre-crisis  levels  and  a  protracted 
period  of  low  investment,  along 
with  other  factors,  weighed  on 
productivity and competitiveness. 
High  public  deficits  and  other 
macroeconomic 
imbalances 
threatened  the  fragile  recovery. 
The  social  consequences  of  the  crisis  were  deeply  felt  across  the  Union,  with  very  high 
unemployment,  in  particular  among  young  people, 
rising poverty and increasing social inequalities. 

Graph 1 - GDP Growth Dispersion in the euro area 
(2000-2018). Source: European Commission 

Today, Europe has largely turned the page on the 
economic and financial crisis. Europe's economy is 
now entering its sixth year of uninterrupted growth. 
This  solid  economic  growth  has  been  accompanied 
by  a  recovery  in  investment,  stronger  consumer 
demand, improved public finances and continued job 
creation, although at different pace across countries. 
The  dispersion  of  growth  rates  among  euro  area 

2 

 
countries fell to its lowest level since the start of the Monetary Union (see graph 1).2 

Microeconomic performance has also  improved over recent years. The productivity  gap 
with  the  United  States  has  stabilised  and  EU  manufacturing  production  has  increased 
considerably.  Europe’s  manufactured  goods  and  services  have  remained  attractive  in  the 
global  market  place,  despite  falling  demand  from  emerging  markets  and  higher  oil  prices. 
Digital connectivity across Member States has expanded by over 40 % since 2014.  

for 

and 

taking 

growth 

On 
office,  President 
Juncker put forward an ambitious 
"Jobs,  Growth, 
agenda 
Fairness and Democratic Change". 
Jobs, 
investment 
featured  right  at  the  top  of  the  10 
priorities  presented.  Since  then,  the 
three  main  pillars  for  the  EU’s 
economic  and  social  policy  have 
been 
to 
investment,  a  renewed  commitment 
to structural reforms, and the pursuit 
of responsible fiscal policies. In line 
Integrated  Guidelines,3 
with 
these  elements  have 
formed  a 
virtuous  triangle,  which  has  helped 
reinforce  the  recovery  and  support 
the economic growth. 

coordinated  boost 

the 

a 

The  Investment  Plan  for  Europe  has  helped  significantly  to  deliver  on  the  promises 
made  in  2014.4  It  has  already  increased  EU  GDP  by  0.6  %  and  it  is  set  to  contribute  by  a 
further 0.7 % by 2020. It has facilitated the channelling of public and private investment into 
projects that ensure long-term growth. Complementing national actions to improve access to 
finance, the Juncker Plan has boosted and diversified the availability of financial instruments 
during the recovery. It is estimated that its operations have already supported the creation of 
more than 750 000 jobs, and this figure is set to rise to 1.4 million by 2020. 

Progress  made  towards  ensuring  sound  fiscal  policies  and  structural  reforms  was 
essential to reduce debt levels and stimulate the creation of more and better jobs. Under 
the European Semester, structural reforms have supported inclusive growth and employment, 

2 Also see the 2017 Annual Report of the European Central Bank (April 2018), which also highlights how in 
2017 differences in growth rates across the euro area, measured in standard deviations in gross value added, were 
the lowest since 1998 (1998: 1.47σ vs. 2017: 0.75σ). 
3 As set out in the Council Decision (EU) 2018/1215 of 16 July 2018 on guidelines for the employment policies 
of the Member States and in the Council Recommendation (EU) 2015/1184 of 14 July 2015 on broad guidelines 
for the economic policies of the Member States and of the European Union. 
4 Communication from the Commission to the European Parliament, the Council, the European Central Bank, the 
European Economic and Social Committee, the Committee of the Regions and the European Investment Bank. 
Investment Plan for Europe: stocktaking and next steps, COM/2018/771 final. 

3 

 
                                                           
while  facilitating  the  reduction  of  macro-economic  imbalances.  The  mainstreaming  of  the 
European Pillar of Social Rights in the European Semester since 2018 has further supported 
this  process.  Fiscal  discipline  has  safeguarded  financial  stability  in  many  Member  States. 
Public finances are now on a sounder footing, although in high-debt countries fiscal buffers 
need  to  be  rebuilt  more  firmly.  The  quality  of  public  spending  improved,  also  thanks  to 
investment  recovering.  Better  conditions  for  businesses,  including  measures  to  lighten 
administrative  burden  or  make  the  tax  systems  more  efficient,  have  also  been  essential  to 
create  the  right  regulatory  environment  and  promote  a  climate  of  entrepreneurship  and  job 
creation.  Progress  at  national  and  EU  level  in  areas  like  services,  infrastructure,  broadband, 
energy,  transport,  circular  economy,  labour  market  reforms,  healthcare,  education,  research, 
training and innovation created new opportunities for jobs and growth.  

All  these  developments  promoted  inclusive  growth  and  contributed  to  substantial 
improvements  in  labour  market  and  social  conditions.  The  employment  rate  of  people 
aged 20-64 rose to 73.2 % in the second quarter of 2018, the highest level ever reached in the 
EU (see graph 2). With the current trend, the EU is well on track to reach the Europe 2020 
target  of 75% in  2020.  In parallel,  as  a result, 
Graph 2 - Labour market developments 
the unemployment rate has recently dropped to 
6.8  %,  back  to  pre-crisis  level.  Long-term 
unemployment  and  youth  unemployment  are 
also  declining.  Yet  they  remain  high  in  a 
number  of  Member  States.  On  the  back  of 
improved 
the 
number  of  people  at  risk  of  poverty  or  social 
exclusion,  at  113  million  people  in  2017,  has 
dropped  for  the  first  time  below  pre-crisis 
levels. Still, in-work poverty is high and rising 
in several Member States. The risk of poverty 
or  social  exclusion  remains  a  challenge  in 
particular for children, people with disabilities 
and people with a migrant background. 

labour  market  conditions, 

2.  KEY CHALLENGES LOOKING AHEAD  

Despite  the  progress  made,  external  risks  and  challenges  are  increasing,  requiring  a 
stronger and united European response. From the rise of China in the global value-chain to 
the disruption by the US of the post-war economic order through growing trade protectionism, 
the  EU  will  have  to  rise  to  the  challenge  of  an  uncertain  and  rapidly  changing  global 
environment. 

A  prosperous  future  depends  on  Europe’s  ability  to  address  persisting  vulnerabilities, 
provide  answers  to  longer-term  challenges  and  withstand  increasing  global  risks. 
Globalisation  has  supported  economic  growth  but  has  not  brought  the  same  benefits  to  all. 
Some  regions  and  sectors  have  struggled  to  make  the  most  of  market  integration  and 

4 

 
technological  innovation.  High  levels  of  income  inequality  persist,  despite  supportive 
economic conditions. 

In  several  Member  States,  sluggish  reform  momentum,  low  productivity  growth  and 
high  debt  levels  weigh  on  the  growth  potential  of  the  economy.  Population  ageing, 
digitisation  and  climate  change  put  mounting  pressure  on  our  workforce,  social  welfare 
systems and industry, compelling us to innovate and reform to sustain high living standards.  

Box: Main risks and challenges 

  Persisting vulnerabilities: Low productivity growth; persisting income inequality and slow 

reduction in poverty; regional and territorial disparities; high public and private debt and other 
remaining macroeconomic imbalances, notably within the euro area. 

  Short-term challenges: Rising protectionism and geo-political tensions affecting trade 

relations; instability on emerging markets; skills mismatches and emerging labour shortages in 
some countries and sectors; migration; slow diffusion of new digital technologies; gradual 
withdrawal of central bank stimulus; loss of reform momentum/risks of reform reversals and 
aggravation of fiscal imbalances. 

  Medium/long-term challenges: Tapping the growth potential of digitisation; the impacts of 
technological transformations on workers and specific sectors; the impacts of demographic 
changes and the role of migration; mitigation of and adaptation to climate change; sustainable 
use of natural resources. 

Macro-financial  stability  and  sound  public  finances  remain  a  precondition  for 
sustainable  growth.  The  implementation  of  structural  reforms  and  the  recreation  of  fiscal 
room for manoeuvre are mutually reinforcing in this respect: reforms that boost growth lead 
to lower debt levels, while the reduction of debt can create space for investment and growth. 
While all countries should remove bottlenecks to investment, encouraging euro area countries 
with large current account surpluses to invest will help with rebalancing. 

Coping  with  potential  future  shocks  requires  long-overdue  progress  in  deepening  the 
Economic and Monetary Union. The focus needs to be on urgently completing the Banking 
Union  –  including  the  establishment  of  a  backstop  for  the  Single  Resolution  Fund  –  and 
creating  a  meaningful  central  stabilisation  function  to  cope  with  large  asymmetric  shocks 
while keeping strong incentives for structural reforms at national level. The Commission has 
made several concrete proposals to achieve that – most of which now await adoption by the 
Parliament and Council. Global economic uncertainties are impacting business and consumer 
confidence as well as the economic outlook. This is raising the cost of delayed action and is 
strengthentening  the  case  for  consolidating  the  international  role  of  the  euro.  A  strong 
economy will allow the EU to leverage its strengths globally, promoting multilateralism.  

Increasing protectionism and trade tensions on the world stage have also magnified the 
importance of a well-performing Single Market.5 To mitigate these threats, it is essential to 
swiftly  carry  out  pending  reforms  of  capital  and  energy  markets  and  the  digital  economy, 

5 Communication from the Commission to the European Parliament, the European Council, the Council, the 
European Economic and Social Committee and the Committee of the Regions. The Single Market in a changing 
world. A unique asset in need of renewed political commitment, COM/2018/772 final. 

5 

 
                                                           
undertake  credible  enforcement  actions  and  continue  product  and  service  market  reforms  at 
national level. Adopting proposed EU measures6 to strengthen labour mobility by establishing 
clear  and  fair  rules  is  key  to  ensure  the  internal  market  benefits  citizens  more  broadly.  An 
agreement  on  harmonised  rules  for  a  consolidated  corporate  tax  base  would  remove  cross-
border tax obstacles and benefit business in the Single Market.  

Graph 3 - Source: European Commission 

Over  the 
last  two  decades,  total  factor 
productivity  in  the  euro  area  has  lagged 
behind major global competitors (see graph 3). 
Boosting  productivity  is  crucial  to  sustaining 
economic  growth.  In  particular,  it  can  allow  the 
EU to remain competitive, support wage growth, 
jobs  and  promote  upward 
create  quality 
standards.  Higher 
living 
convergence 
productivity growth would also enable the EU to 
expand its contribution in global value chains.  

in 

are 

considerable  differences 

There 
in 
productivity  performance  across  EU  firms, 
regions  and  sectors.  In  particular,  productivity 
growth  in  most  service  sectors  is  failing  to  keep 
pace  with  manufacturing  and  with  international  competition.  This  significantly  affects  EU 
competitiveness,  as  9  of  every  10  newly  created  jobs  have  been  in  service  sectors.  In  most 
Member States, the most productive firms have increased their productivity, whereas the least 
productive  firms  are  stagnating.  This  suggests  that  technological  diffusion  from  the  most 
innovative firms to the rest of the economy has slowed down. Improving allocative efficiency 
would  help  shift  capital  and  labour  from  less  to  more  productive  firms,  reducing  the 
dispersion and increasing productivity overall. Since productivity is a driver of wage growth, 
this would also have an upward effect on wages.  

To thrive,  increasingly  digitised and globalised economies require greater and smarter 
investments  in  skills  and  education.  Digitisation  offers  important  benefits  but  also  entails 
challenges for workers and employers. The ongoing technological shift is translating into fast 
restructuring  even  in  traditional  industries,  which  calls  for  a  better-qualified  workforce  and 
upskilling.  Even  now,  skills  mismatches  are  considerable,  with  40  %  of  EU  employers 
reporting  difficulties  in  recruiting  people  with  the  right  skills.  On  average  in  the  EU,  the 
employment  rates  of  low-educated  workers  are  almost  30  percentage  points  lower  than  for 
high-educated  workers.  More  than  60 million  adults  lack  necessary  literacy,  numeracy  and 
digital skills. 

Wide regional and territorial disparities remain a key issue of concern. The EU has been 
a  unique  convergence  machine,  helping  to  ensure  greater  cohesion  within  and  between 
Member States in  an enlarged Union. Yet,  in  many EU  countries, some regions  are lagging 

6 Proposal for a Regulation of the European Parliament and of the Council establishing a European Labour 
Authority COM/2018/0131 final. 

6 

 
                                                           
behind. While the poorest regions have become more prosperous since 2010, their economic 
gap  with  richer  regions  has  widened.  Technological  change  and  the  energy  transition  could 
increase this  gap, unless suitable measures are taken to  boost regional  competitiveness  (e.g. 
creating  incentives  for  the  adoption  of  new  technologies  and  re-training  of  the  workforce, 
addressing demographic decline). In this respect, investment undertaken through EU cohesion 
policy has a strong role to play, alongside national reforms geared towards boosting potential 
growth,  inclusiveness  and  good  governance.  The  Commission’s  proposals  for  the  new 
Multiannual  Financial  Framework  promote  stronger  links  between  structural  reforms  needs 
identified in the context of the European Semester and European investment in the Member 
States, with the aim of fostering competitiveness and cohesion. 

Even if income inequality is lower within the  EU than in other developed economies, it 
remains  above  pre-crisis  levels.  The  European  Pillar  of  Social  Rights  aims  to  ensure 
convergence towards better working and living conditions. Reforms are crucial in this respect, 
including the development of inclusive and growth-friendly social protection schemes, fairer 
tax-benefit  systems  and  labour  market  institutions  that  effectively  combine  flexibility  and 
security.  As  new  forms  of  work  emerge,  including  platform  and  own-account  work,  social 
protection  traditionally  geared  to  covering  workers  in  full-time  open-ended  contracts  will 
need to be modernised and adapted. In a globalised world, the ability of a single government 
to  tax  the  top  of  the  income  and  wealth  owners  has  become  increasingly  limited.  Ensuring 
fairer  taxation,  including  of  the  digital  economy  in  line  with  proposed  EU  measures,  is  a 
precondition for more inclusive growth. 

Europe’s  ageing  population  is  a  challenge  for  pension,  healthcare  and  long-term  care 
systems. The ratio between the number of people aged 65 and over and those aged 15-64 is 
projected to increase from 28.8 % in 2015 to 35.1 % in 2025 and to over 50 % in 2050. This 
has  important  implications  for  future  economic  growth  and  distribution  of  resources:  it  will 
require  additional  measures  to  ensure  both  fiscal  sustainability  and  adequate  coverage.  The 
situation of young people is especially concerning, as they may face a double burden: having 
to pay higher contribution rates while working, and receiving lower pensions after retirement. 
A  more  dynamic  and  inclusive  labour  market  and  reformed  welfare  systems  could  mitigate 
the social and public finance risks related to population ageing. 

3.  SETTING THE RIGHT PRIORITIES FOR A PROSPEROUS FUTURE 

Europe  needs  to  take  a  long-term  view  and  increase  its  socio-economic  resilience  in 
order to reinforce its ability to weather shocks and grasp new opportunities. The steady 
growth Europe is experiencing today provides the right environment to tackle the pending and 
urgent reforms needed to confront the challenges we face.  

Making  the  appropriate  policy  choices  today  is  key  to  delivering  higher  and  fairer 
growth, better jobs and a stronger capacity to smoothen the impacts of global economic 
cycles.  A  consistent  set  of  priorities  is  essential  to  guide  national  reform  plans  and 
complement efforts  made at  EU level.  The key to  a prosperous future remain (1) delivering 
high-quality  investment;  (2)  focusing  on  reforms  that  increase  productivity  growth, 

7 

 
inclusiveness and institutional quality; and (3) continuing to ensure macro-financial stability 
and sound public finances. 

Delivering high-quality investment 

Investment  provides  the  engine  for  growth  and  job  creation.  Member  States  need  to 
continue fostering an environment that is favourable to growth-enhancing investment. Well-
targeted  public  and  private  investment  should  go  hand  in  hand  with  a  well-designed  set  of 
structural  reforms.  It  should  build  or  upgrade  strategic  infrastructure,  strengthen  human 
capital for tomorrow's competitiveness and improve working and living conditions. It should 
also help deliver on the EU’s objective of moving towards a low-carbon, circular economy, in 
support of long-term sustainability. Investment that enhances environmental sustainability has 
in  fact  the  potential  to  boost  productivity  across  the  economy  through  greater  resource 
efficiency and reduced input costs. 

There  are  significant  investment  gaps  in  research  and  innovation,7  including  in  digital 
infrastructure and intangible assets. The rise of digital technologies is profoundly changing 
the dynamics of innovation. Network effects and the complexity of the innovation process are 
increasing. Innovation benefits are concentrated in a handful of leading companies that have 
achieved strong productivity growth rates. To ensure broader innovation-driven productivity 
gains, wider diffusion and uptake of innovation is needed across the EU. Investment should 
support stronger science-business linkages, with a greater focus on spreading innovation and 
creating  new  markets,  expanding  digital  infrastructure  (e.g.  broadband  and  digitalisation  of 
small and medium-sized enterprises) and developing the right set of skills. 

Investment  in  education,  training  and  skills  is  crucial  to  increasing  productivity  and 
sustaining  employment  in  the  context  of  rapid  change  and  digitisation.  Member  States 
should equip young people with skills that are relevant to labour market needs, while enabling 
and encouraging lifelong learning. They should pay particular attention to adaptability of the 
workforce, especially the low-skilled, to ensure the optimal uptake of technological progress. 
Particular attention is also needed to addressing inequalities in access to quality education and 
training, which persist in most Member States. 

7 Currently, at 2.03 %, the EU is far from achieving the overall target of investing 3 % of GDP on research and 
development and continues to lag significantly behind other advanced economies such as the United States (2.79 
%), Japan (3.29 %) and South Korea (4.23 %).   

8 

 
                                                           
Box: Skills and knowledge for tomorrow’s growth 

High-quality  public  investment  in  education  and  training  is  key  to  boosting  knowledge-
intensive, sustainable and inclusive growth. Weak educational outcomes have major impacts on 
future employment rates, poverty levels and competitiveness. The disruptive impacts of innovation 
on the workplace make quality education and training even more crucial. In most Member States, 
this calls for more investment and reforms of the education and training systems. Efficiency and 
labour  market  relevance  of  investment  aimed  at  raising  educational  attainment  could  be  further 
improved. 

Ensuring  equal  access  to  quality  education  and  achieving  high  educational  outcomes  are 
vital.  This  requires  adequate  investment.  An  overarching  strategic  approach  is  key,  which  often 
needs  to  start  with  ensuring  access  to  quality  early  childhood  education  and  care,  as  a  first  step 
towards success in education and employment later in life. In addition, strengthening basic skills 
should  be  a  priority  for  action,  along  with  reinforcing  the  initial  education  and  continuous 
professional  development  of  teachers  and  trainers.  Member  States  should  also  strengthen 
vocational education and training systems and make them a more attractive as a first choice option 
by increasing their flexibility and alignment with labour market needs, and by making more work-
based  learning  and  apprenticeship  opportunities  available.  Efforts  are  also  needed  to  modernise 
higher education.  

Developing a strategic approach to lifelong skills development is crucial. To increase people’s 
resilience and adaptability to change, policy action should support active engagement of all adults 
in  reskilling  or upskilling activities.  Sound labour  market  and  skills intelligence  should  underpin 
spending decisions and help anticipate possible restructuring needs. The success of lifelong skills 
development strategies largely depends on guidance and support services at all stages of learning. 
Action  should  be  stepped  up  to  provide  access  to  upskilling  for  low-skilled  adults  (including 
transversal and digital skills), helping them acquire labour market relevant qualifications. This will 
also support the integration of migrants and a better use of their skills and qualifications. 

The current economic growth should translate into a frontloading of investment in the 
modernisation and decarbonisation of Europe’s industry, transport and energy systems. 
Infrastructure  investments  in  these  fields  should  meet  the  evolving  needs  of  the  future  and 
facilitate the insertion of EU firms in international value chains within and beyond the Single 
Market. Continued decoupling of energy and resource use from economic growth is needed to 
achieve the EU’s 2030 climate and energy targets, in line with commitments under the Paris 
Agreement. Investing  into  a  low-carbon,  circular  economy,  including  through  innovation,  is 
one  of  the  keys  for  Europe  to  remain  globally  competitive  and  raise  productivity  without 
compromising living standards. Upgrading of transport infrastructures, including investments 
into  smart,  sustainable  and  safe  mobility,  including  zero-emission  mobility,  remains  a 
challenge  in  a  number  of  Member  States.  Targeted  investments  in  residential  construction, 
coupled with simplified national regulations, are needed to make housing more affordable and 
curb energy consumption.  

Private investment, sourced from well-functioning and integrated capital markets, needs 
to be more fully exploited. As the EU finalises the delivery on its action plan on building a 
capital market union,8 Europe's full diversity of capital markets ranging from global hubs to 

8 Communication from the Commission to the European Parliament, the Council, the European Economic and 
Social Committee and the Committee of the Regions. Action Plan on Building a Capital Markets Union, 
COM/2015/0468 final. 

9 

 
 
                                                           
 
 
 
 
 
regionally  integrated  networks  and  local  initiatives  should  be  further  developed  to  finance 
businesses, and promote decarbonisation and the transition to a more sustainable economy.   

The  Commission’s  proposals  for  the  next  EU  Multiannual  Financial  Framework  fully 
support  the  delivery  of  more  and  better  investment  by  national  authorities  and  the 
private sector. As mentioned earlier, the Commission intends to ensure more effective links 
between the European Semester and EU funding for 2021-2027 (see box below). Moreover, 
the  new  InvestEU  Programme9  will  bring  together  under  one  roof  the  multitude  of  EU 
financial instruments available to support investment. This will make EU funding for strategic 
investment  projects  in  Europe  simpler,  more  efficient  and  more  flexible.  By  reinforcing 
existing  practices  in  the  context  of  the  next  Multiannual  Financial  Framework,  EU 
programmes will be used in a coherent manner to maximise the added value of EU financing 
and  support  reforms  at  national  level  in  the  context  of  the  European  Semester,  with  the 
ultimate objective to efficiently deliver on EU policy priorities. 

Box: A greater alignment of the European Semester and EU cohesion funding 

Addressing  the  challenges  identified  in  the  context  of  the  European  Semester is  key  to  boosting 
investment  and  making  it  more  effective  in  achieving  greater  socio-economic  and  territorial 
cohesion  across  the  EU.  At  the  same  time,  investment  is  in  some  cases  needed  to  support  the 
implementation  of  country-specific  recommendations.  Formal  links  already  exists  between  EU 
cohesion  funding  and  the  coordination  of  economic  policies  through  the  European  Semester. 
Creating  even  greater  synergies  and  complementarity  between  them  can  deeply  benefit  both 
processes.  

To achieve this, the 2019 European Semester will have a stronger focus on assessing investment 
needs  to  guide  programming  decisions  for  2021-2027.  The  analysis  in  the  2019  country  reports 
will look at investment needs in each country, including – where relevant – sectoral and regional 
dimensions.  Based  on  this  analysis,  a  new  annex  to  the  country  report  will  identify  those 
investment  needs  that  are  relevant  for  the  European  Regional  Development  Fund,  the  European 
Social Fund Plus and the Cohesion Fund during the 2021-2027 period. This will provide a solid 
analytical input to the programming dialogue with Member States.  

Building on the country reports, the Commission also intends to identify, as part of its proposals 
for the 2019 country-specific recommendations, priority areas for public and private investment to 
further facilitate the implementation of growth-enhancing reforms. 

Focusing reforms efforts on productivity growth, inclusiveness and institutional quality 

High-quality  investment  must  go  hand  in  hand  with  the  appropriate  set  of  structural 
reforms.  A  forward-looking  approach  to  growth  calls  for  renewing  the  focus  of  national 
reform efforts on three key areas: productivity growth, inclusiveness and institutional quality.   

Higher  productivity  growth  should  be  a  central  objective  of  national  reforms.  Broader 
and  faster  uptake  of  productivity-enhancing  technologies  requires  targeted  measures  to 
promote  relevant  investment  (e.g.  tax  incentives),  skills  development  and  stronger  links 
between education and training systems and businesses. Advanced digital technologies such 

9 Proposal for a Regulation of the European Parliament and of the Council establishing the InvestEU Programme, 
COM/2018/439 final 

10 

 
 
                                                           
 
as high-performance computing, cybersecurity and artificial intelligence are now sufficiently 
mature to be deployed and scaled up. This has the potential to create new sources of revenues 
and jobs if the right incentives for companies are in place. 

Member  States  should  take  both  collective  and  individual  responsibility  in  the  Single 
Market  to  release  its  untapped  potential.  Together  with  innovation  and  diffusion  of 
technology,  well-functioning  product  and  services  markets  are  a  key  driver  of  productivity 
growth, as they  enable a more  efficient allocation of resources. While some Member States 
have  a  favourable  business  environment,  others  need  deeper  reforms  to  facilitate  entry  and 
exit  in  markets  for  goods  and  services.  Reforms  are  particularly  needed  in  the  energy, 
telecommunication,  transport,  business  services  and  retail  markets.  There  are  still  protected 
rent-seeking behaviours that delay the introduction of innovations and new business models, 
including the collaborative and circular economy. In many cases, insolvency frameworks are 
not effective enough to unlock resources for new businesses.  

Further reforms are needed to strike the right balance between  flexibility and security 
on the labour market.  Labour legislation and social systems  should provide security to  all 
types  of  workers,  facilitate  transitions  between  jobs  and  statuses,  foster  mobility  and 
flexibility,  while  better  tackling  labour  market  segmentation  and  in-work  poverty.  More 
effective active labour market policies and public employment services are key in this respect. 
In  some  Member  States,  tax  and  policy  incentives  aimed  at  broadening  participation  of 
women in the labour market could also create important avenues for productivity gains.  

Inclusiveness  should  also  be  at  the  core  of  reform  efforts,  ensuring  that  productivity 
gains  benefit  all  citizens.  This  requires  a  stronger  focus  on  quality  education,  training  and 
adult  learning,  notably  for  the  low-skilled  (see  dedicated  box);  appropriate  and  innovative 
design  of  tax-benefits  systems  and  continued  or  improved  access  to  quality  healthcare, 
childcare and long-term care services.  

Wage  growth,  resulting  from  increased  productivity,  can  reduce  inequalities  and 
support  upward  convergence  of  living  standards.  Real  wage  developments  continued  to 
trail  behind  productivity  in  2017  on  average,  following  a  longer-term  trend.  In  a  context  of 
declining  collective  bargaining  coverage,  policies  enhancing  the  institutional  capacity  of 
social  partners  could  be  beneficial  in  countries  where  social  dialogue  is  weak  or  has  been 
negatively affected by the crisis. 

Tackling  poverty  and  inequalities  also  requires  inclusive  and  efficient  tax-benefit 
systems.  National  reforms  of  tax-benefit  systems  should  focus  on  the  adequacy  of  benefits 
and coverage as well as optimising incentives for labour market participation. In a number of 
Member States, combating tax fraud, evasion and avoidance remains essential to ensuring fair 
burden  sharing  between  taxpayers  and  securing  tax  revenues  for  investment  in  high-quality 
public  service.  Across  the  EU,  corporate  tax  avoidance  alone  is  estimated  at  EUR  50-70 
billion per year.  

Member  States  should  further  promote  activation  and  social  inclusion  policies  and 
universal  access  to  affordable  and  quality  care  services.  Policy  action  is  particularly 

11 

 
needed  to  foster  participation  by  non-standard  workers  and  the  self-employed  in  social 
security schemes. Wider access to high-quality care services (e.g. childcare or long-term care) 
would ensure more opportunities for women to  enter or stay in  employment  and reduce the 
risk  of  poverty  and  social  exclusion  among  children  and  vulnerable  groups.  More  efficient 
policies  to  integrate  migrants  in  the  labour  market  would  support  their  wider  social 
integration. To ensure fiscal sustainability and maintain universal access to quality healthcare, 
Member States need to increase cost-effectiveness by investing in innovation, improving the 
integration  of  healthcare  at  the  primary,  specialised  outpatient  and  hospital  care  levels  and 
strengthening links with social care to meet the needs of an ageing population. A greater focus 
on prevention is also warranted to underpin these efforts. 

Well-performing public institutions contribute to higher growth and are a precondition 
for  the  successful  delivery  of  other  reforms.  Empirical  analyses  show  that  better 
institutional  quality  is  generally  associated  with  higher  productivity.  This  includes  elements 
related  to  the  effectiveness  of  the  public  administration,  the  degree  of  digitisation  of  public 
services, the quality and stability of the regulatory environment, the fight against corruption 
and respect for the rule of law. All these aspects can have an impact on investment decisions 
and could be improved by sharing and implementing EU best practices more widely. Member 
States  should  also  focus  more  systematically  on  the  quality  of  governance  and  actively 
address shortcomings. 

The  rule  of  law,  effective  justice  systems  and  robust  anti-corruption  frameworks  are 
crucial to attracting business and enabling economic growth. This relates in particular to 
the  independence  and  efficiency  of  court  systems  as  well  as  a  comprehensive  approach  to 
fighting  corruption,  which  combines  prevention,  effective  prosecution  and  sanctions.  This 
needs  to  be  coupled  with  transparency  and  integrity  in  the  public  sector,  effective  legal 
protection of whistle-blowers, the presence of independent media and more engagement with 
civil society. In some Member States, stronger law enforcement needs to be complemented by 
sound  prevention  policies  and  incentives  to  use  of  electronic  payment  systems  or  digital 
solutions to tackle the shadow economy.   

Today’s  still  favourable  economic  growth  provides  optimal  conditions  for  successfully 
implementing  reforms,  yet  in  some  countries  reform  efforts  are  losing  momentum.  To 
support and incentivise the continued implementation of reform efforts at national level, the 
Commission  has  proposed  the  creation  of  the  Reform  Support  Programme.10  This  new  EU 
budgetary tool for 2021-2027 is set to provide financial incentives for reforms and increased 
technical  assistance,  building  on  the  success  of  and  high  demand  for  the  current  Structural 
Reform Support Programme. 

Ensuring macroeconomic stability and sound public finances 

Macroeconomic imbalances in the EU have declined, but vulnerabilities persist. A global 
reassessment  of  risks  in  international  financial  markets  could  prompt  investors  to  re-assess 

10 Proposal for a Regulation of the European Parliament and of the Council on the establishment of the Reform 
Support Programme, COM/2018/391 final.  

12 

 
                                                           
legacy  risks  such  as  high  debt  levels,  remaining  weaknesses  in  banking  sectors  and  limited 
fiscal  policy  space  in  some  Member  States.  A  further  correction  of  large  stock  imbalances 
therefore  requires  further  reductions  in  high  private  and  public  debt  and  additional 
strengthening of the financial sector. This will help create the necessary fiscal space to ensure 
long-term sustainability, build capacity to deal with future crises and free up funds for future 
investment.  

Credible actions to achieve agreed fiscal objectives, in line with the common European 
rules,  remains  essential.  In  many  countries,  debt  remains  high,  reducing  the  room  for 
absorbing  negative  income  shocks.  As  the  economy  continues  to  grow,  the  time  is  ripe  to 
build  up  the  fiscal  buffers  needed  to  cope  with  the  next  downturn  and  mitigate  potential 
employment and social impacts. A number of Member States have reduced their public debt 
and achieved or exceeded their medium-term  budgetary objective,  creating scope for higher 
public investment to support potential growth.  However, several others continue to shoulder 
high  levels  of  public  debt,  which  constrain  their  ability  to  invest  for  the  future.  These 
countries have also made less progress in reducing public debt over recent years. They should 
use  the  current  economic  expansion  to  build  up  buffers;  further  strengthen  their  public 
finances,  in  particular  in  structural  terms;  and  prioritise  expenditure  on  items  that  foster 
resilience and growth potential. The Stability and Growth Pact provides clear rules to ensure 
responsible fiscal policies. 

Improving  the  quality  and  composition  of  public  finances  is  important  for  ensuring 
macroeconomic  stability  and  a  crucial  element  of  Member  States’  fiscal  policy.  On  the 
revenue side, efficient tax systems that provide incentives for investment and growth should 
be established. Efforts are also needed on the expenditure side, through spending reviews and 
by prioritising expenditure that fosters long-term growth and equity.  

Ensuring long-term sustainability of public finances is also key.  People today lead longer 
healthy  lives,  but  demographic  change  is  also  exerting  increasing  pressure  on  welfare 
systems. Pension reforms aimed at adapting the balance between working life and retirement 
and  supporting  complementary  retirement  savings  remain  essential.  Implementing  such 
reforms  is  often  politically  difficult  and  their  reversal  should  be  avoided,  as  this  could 
jeopardise  fiscal  sustainability,  reduce  growth  potential  and  intergenerational  fairness. 
Improved  governance  of  public  procurement  could  also  greatly  contribute  to  more  efficient 
public spending in several Member States. 

Financial  sector’s  resilience  has  improved,  but  efforts  to  reduce  non-performing  loans 
and  strengthen  supervisory  frameworks  need  to  continue.  While  some  Member  States 
made substantial progress reducing the stock of non-performing loans, in others more efforts 
are  needed,  including  on  insolvency.  The  adoption  of  the  measures  presented  by  the 
Commission  in  March  2018,11  in  accordance  with  the  action  plan  to  tackle  non-performing 

11 The package includes a proposal for a directive on credit servicers, credit purchasers and the recovery of 
collateral, a proposal for a regulation amending the capital requirements regulation and a blueprint on the set-up 
of national asset management companies. 

13 

 
                                                           
loans  in  Europe,12  will  support  these  developments.  The  opportunities  provided  by 
technological developments and a fully integrated market within a completed Banking Union 
need to be further exploited. Macro-prudential frameworks need to be adapted to address risks 
of  overheating  and  prevent  new  imbalances  from  building  up.  National  supervisory 
frameworks and their coordination should be improved further to ensure full implementation 
of  EU  rules  against  money  laundering  and  adequate  risk  prevention  and  management  by 
banks. 

CONCLUSIONS AND NEXT STEPS 

The EU and its Member States need decisive and concerted policy action to deliver on 
the promise of inclusive and sustainable growth in the future, all the more so in light of 
rising  global  uncertainty.  Europe  needs  to  increase  its  growth  potential  and  economic  and 
social resilience, thus reinforcing its ability to weather shocks and turn long-term challenges 
into opportunities. 

Member States should take account of the priorities identified by the Commission in this 
Annual  Growth  Survey  in  their  national  policies  and  strategies,  particularly  when 
drawing  up  their  national  reform  programmes.  They  should  do  so  while  accelerating 
implementation  of their  reform  agendas and key reforms  highlighted in  the country-specific 
recommendations. They should make full use of the policy and funding instruments available 
to them at EU level to foster growth-enhancing investment. It will be particularly important to 
ensure  even  greater  synergies  between  priorities  established  through  the  coordination  of 
economic  and  social  policies  at  EU  level  and  funding  from  the  EU  budget,  in  line  with  the 
Commission’s proposals for the next Multiannual Financial Framework.  

The  Commission  will  continue  the  dialogue  established with  Member  States  under  the 
European  Semester.  Its  aim  is  to  reach  a  common  understanding  of  the  most  pressing 
challenges in the forthcoming country reports and identify the areas for priority action in the 
next round of country specific recommendations. The establishment of National Productivity 
Boards could benefit national debates on how to boost productivity by providing high-quality 
and  independent  analysis  and  enhancing  national  ownership  of  reforms.13  Member  States 
should  ensure  that  social  partners  and  national  parliaments  are  fully  involved  in  the  reform 
process.  Their  involvement,  along  with  a  broader  engagement  with  civil  society,  is 
fundamental  to  improving  ownership  and  legitimacy  of  reforms  and  bringing  about  better 
socio-economic outcomes. 

12 Council of the European Union, Council conclusions on action plan to tackle non-performing loans in Europe, 
11 July 2017. 
13 Currently, thirteen Member States have appointed a National Productivity Board: Cyprus, Finland, France, 
Greece, Ireland, Lithuania, Luxembourg, the Netherlands, Portugal and Slovenia. Three non-euro area Member 
States have appointed a National Productivity Board: Denmark, Hungary and Romania. 

14