REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2021 (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances)
Date: 2020-11-18
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: coronavirus disease, economic disparity, economic growth, economic recovery, economic statistics, epidemic, euro area, macroeconomics, multilateral surveillance, national accounts, public debt

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 18.11.2020  COM(2020) 745 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 2021                          (prepared in accordance with Articles 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances) {SWD(2020) 275 final}  
 
 
This alert mechanism report (AMR) initiates the tenth annual round of the macroeconomic imbalance 
procedure (MIP). The procedure aims at detecting, preventing and correcting imbalances that hinder 
the proper functioning of Member State economies, the economic and monetary union or the Union 
as  a  whole,  and  at  spurring  appropriate  policy  responses.  The  implementation  of  the  MIP  is 
embedded in the European Semester of economic policy coordination to ensure consistency with the 
analyses  and  recommendations  made  under  other  economic  surveillance  tools  (Articles  1  and  2  of 
Regulation (EU) No 1176/2011). 1  

This year's surveillance cycle of the European Semester, including the implementation of the MIP, is 
being  adjusted  in  light  of  the  creation  of  the  Recovery  and  Resilience  Facility  (RRF).  The  annual 
sustainable growth strategy (ASGS), adopted in mid-September 2020, took stock of the economic and 
social  situation  in  Europe,  set  out  broad  policy  priorities  for  the  EU  as  well  as  provided  strategic 
guidance for the implementation of the RRF. 

The  AMR  analysis  is  based  on  the  economic  reading  of  a  scoreboard  of  selected  indicators, 
complemented by a wider set of auxiliary indicators, analytical tools and assessment frameworks and 
additional  relevant  information,  including  recently  published  data  and  forecasts.  This  year's  AMR 
includes  a  reinforced  forward-looking  assessment  of  risks  to  macroeconomic  stability  and  for  the 
evolution of macroeconomic imbalances. The AMR includes also an analysis of the euro area-wide 
implications of the Member States macroeconomic imbalances. 

The AMR 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  (Article  5  of Regulation  (EU)  No 
1176/2011). Taking into account discussions on the AMR with the European Parliament and within 
the  Council  and  the  Eurogroup,  the  Commission  will  then  prepare  IDRs  for  the  Member  States 
concerned. The IDRs will be published in spring 2021, and will provide the basis for the Commission 
assessment  regarding  the  existence  and  severity  of  macroeconomic  imbalances,  and  for  the 
identification of policy gaps. 

1.  EXECUTIVE SUMMARY 

This Alert Mechanism Report (AMR) is carried out against the backdrop of the COVID-19 crisis. 
Given the rapid and marked change in economic conditions brought about by the COVID-19 crisis, this 
report’s economic reading includes a reinforced forward-looking assessment of risks to macroeconomic 
stability and for the evolution of macroeconomic imbalances. To this end, it is necessary to look beyond 
the AMR scoreboard final annual data, which in this year's AMR covers the period up to 2019. Thus, 

1  The  United  Kingdom  left  the  European  Union  on  31  January  2020  on  the  basis  of  the  Agreement  on  the 
withdrawal  of  the  United  Kingdom  of  Great  Britain  and  Northern  Ireland  from  the  European  Union  and  the 
European  Atomic  Energy  Community  ('the  Withdrawal  Agreement',  OJ  C  384  I,  12.11.2019,  p.  1),  Union  law 
continues to apply to and in the United Kingdom for the duration of the transition period ending on 31 December 
2020.  

 
 
 
 
 
 
 
                                                      
 
this year's report, compared with previous years, makes a greater use of forecasts and high-frequency 
data to gauge the potential implications of the COVID-19 crisis.2  

The current surveillance cycle of the European Semester is being temporarily adjusted to ensure 
consistent  and  effective  implementation  of the  Recovery  and  Resilience Facility  (RRF),  and  this 
will also affect the implementation of the Macroeconomic Imbalance Procedure (MIP). The 2021 
Annual  Sustainable  Growth  Strategy  (ASGS),  which  was  adopted  in  mid-September,  launched  this 
year's European Semester cycle and set out strategic guidance for the implementation of the RRF.3 The 
RRF  foresees  that  Member  States  will  adopt  Recovery  and  Resilience  Plans  (RRPs)  which  set  out 
reforms and investment that address key economic challenges and are aligned with EU priorities, which 
includes the country-specific recommendations addressed to the Member States in recent years and in 
particular  in  the  2019  and  2020  Semester  cycles.  The  RRF  is  therefore  an  opportunity  for  Member 
States to implement reforms and investments in line with MIP-related recommendations that address the 
underlying  and  long-standing  structural  causes  of  existing  macroeconomic  imbalances.  Specific 
Monitoring  of  policy  responses  to  existing  macroeconomic  imbalances  is  not  taking  place  in  autumn 
2020,  but  instead  monitoring  will  take  place  in the context  of  the  assessment  of  the  RRPs.4  The  next 
vintage  of  in-depth  reviews  (IDRs)  will  be  published  in  spring  2021,  jointly  with  the  assessment  of 
Stability and Convergence Programmes, and will look closely into the gravity and evolution of already 
identified imbalances and inquire the risks of emergence of new ones.5  

Most  existing  macroeconomic  imbalances  have  been  undergoing  a  process  of  correction  amid 
favourable  macroeconomic  conditions  up  until  the  outbreak  of  the  COVID-19  crisis.  Flow 
imbalances,  such  as  excessively  large  current  account  deficits  or  buoyant  credit  growth,  had  been 
corrected  in  the  years  following  the  2008  financial  crisis,  in  a  context  of  broad-based  private  sector 
deleveraging.  The  economic  expansion  that  started  in  2013  supported  the  correction  of  stock 
imbalances, which has started later and progressed more slowly, by prompting the reduction of private, 
public,  and  external  debt-to-GDP  ratios  and  by  strengthening  bank  balance  sheets.  At  the  same  time, 
over recent years, the economic expansion has brought some overheating risks, mainly at the level of 
house prices dynamics and cost competitiveness developments, especially in countries where economic 
growth was buoyant.  

A number of existing macroeconomic imbalances are being aggravated by the COVID-19 crisis, 
and  new  risks  may  loom.  In  particular,  government  and  private  debt-to-GDP  ratios  are  on  the  rise. 
Going  forward,  private  sector  debt  repayment  might  be  challenged  by  subdued  levels  of  economic 
activity, bankruptcies, and a weak labour market. Such debt distress would affect banks’ balance sheets 
and further impair their profitability. At the same time, excessively buoyant labour cost and house price 

575 

COM(2020) 

final,  Annual 

2  Regulation  (EU)  1176/2011  explicitly  mentions  that  AMR  analysis  would  draw  on  other  relevant  information 
(Article 3.2). Scoreboard data is included in Tables 1 and 2 at the end of this report. This report is accompanied by 
a statistical annex.  
3 
https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1658  
4 For Member States with identified imbalances, Specific Monitoring is a targeted surveillance of policy progress 
to  address  imbalances  in  addition  to  the  surveillance  taking  place  in  the  European  Semester  cycle.  In  previous 
years, it was carried out in autumn. 
5  For  Member  States  identified  with  imbalances  or  excessive  imbalances  this  February,  country-specific 
commentaries in this year's AMR (Section 5) also summarise latest MIP-relevant CSRs and action taken by those 
countries to implement them. 

Sustainable  Growth 

available 

Strategy 

2021, 

at: 

1 

 
 
 
 
 
                                                      
 
dynamics  that  characterised  the  recent  past  are  expected  to  fade,  but  concerns  may  arise  if  such 
adjustment turns into excessive downward corrections, notably of house  prices in Member States with 
already high household debt. 

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

  Developments  in  current  accounts  in  most  EU  Member  States  following  the  COVID-19 
crisis are likely  not to  be  major.  Current  account  deficits remain  moderate  in most  countries. 
Some  large  current  surplus  persist  although  narrowing  in  recent  years.  Current  accounts  are 
forecast  to  move  relatively  little  with  the  COVID-19  crisis.  This  is  in  sharp  contrast  with  the 
developments  during  the  global  financial  crisis,  when  deficits  in  EU  countries  were  significant 
and the crisis triggered their unwinding. The stability of current account figures however masks 
big shifts in the contribution of different sectors to the overall external position, as large increases 
in the net lending position of the private sector are being offset by substantial worsening of the 
net lending position of governments in their efforts to cushion the impact of the crisis.  

  The  improvements  recorded  in  the  net  international  investment  position  (NIIP)  of  most 
Member  States  in  past  years  are  expected  to  stop.  While  large  stock  of  external imbalances 
persist  in  a  number  of  Member  States,  NIIP  improvements  continued  in  2019  in  most  EU 
countries, driven by current account outturns above NIIP-stabilising levels, nominal GDP growth, 
and  sometimes  large  positive  valuation  effects.  Going  forward,  improvements  in  the  NIIP-to-
GDP ratio are expected to come to a halt, on the back of the large GDP contraction in 2020 and 
relatively stable current account outturns.  

 

Some  external  financing  tensions  surfaced  at  the  onset  of  the  COVID-19  crisis  in  some 
non-euro area Member States.  Capital movements and exchange rates of some non-euro area 
Member  States  were  subject  to  market  pressure  over  a  brief  period  in  late  March  and  April  in 
light of increased risk aversion. Such pressures have since eased amid improved financial market 
outcomes.  

  The labour market impact of the COVID-19 crisis has so far been relatively mild compared 
to  the  scale  of  the  recession,  thanks  also  to  policy  measures  such  as  short-time  work 
schemes,  but  unemployment  is  expected  to  rise.  The  crisis  ended  years  of  improving  labour 
markets  across  the  EU.  To  date,  it  has  led  mostly  to  a  fall  in  average  hours  per  worker  while 
headcount unemployment has only increased a little. This phenomenon of labour hoarding, i.e. of 
companies holding on to their employees, which has characterised many EU economies in 2020 is 
largely owed to government-subsidised initiatives to preserve jobs, notably temporary short-time 
work  schemes.  Unemployment  is  however  expected  to  increase  with  some  lag,  as  it  typically 
happens  after  recessions.  There  are  in  particular  risks  of  significant  job  losses  in  the  sectors 
strongly affected by the pandemic, depending both on how long lasting these effects will prove, 
and on the strength of the policy response.  

  Unit  labour  costs  (ULCs)  have  been  accelerating  in  various  EU  countries  in  recent  years 
given  wage  increase  and  weak  productivity  growth,  but  are  expected  to  moderate  going 
forward,  following  a  stark  increase  in  2020.  Strong  ULC  dynamics  in  a  context  of  robust 
economic  growth  was  recorded  in  several  central  and  eastern  European  and  Baltic  countries  in 
recent  years.  Falling  labour  productivity,  stemming  from  the  fall  in  production  coupled  with 
maintaining  jobs,  is  projected  to  push  ULC  growth  up  in  2020,  despite  a  marked  slowdown  in 
wage growth. In 2021, the projected gradual recovery in economic activity is expected to imply a 
rebound in headline productivity, which would partly offset the ULC increase in 2020. 

2 

 
 
 
 
 
  Corporate  debt  is  expected  to  increase  considerably  across  the  board  in  2020,  notably  on 
account  of  liquidity  needs.  Borrowing  to  finance  working  capital  surged  with  the  COVID-19 
outbreak,  and  credit  to  non-financial  corporations  has  increased  in  most  countries.  Credit 
guarantees have helped businesses to borrow in support of their operations, and also to strengthen 
their liquidity positions. Debt repayment moratoria also contributed to the debt increase. Growing 
debt levels, combined with the significant drop in GDP in 2020, are expected to sharply increase 
debt-to-GDP  ratios  especially  in  the  short  term.  Going  forward,  the  dynamics  of  debt-to-GDP 
ratios are likely to improve with the recovery but servicing debt could be challenging particularly 
in sectors impacted by the pandemic in a more lasting way. This would impact the balance sheets 
of lenders too. 

  Household  debt  dynamics  appear  relatively  contained.  Before  the  COVID-19  crisis, 
household credit started growing again at a dynamic pace in a number of countries after years of 
deleveraging  or  subdued  dynamics.  The  evolution  of  the  household  debt  stock  appears  to  be 
somewhat  decelerating  in  2020.  This  is  happening  despite  the  impact  of  debt  moratoria,  which 
have  eased  liquidity  pressures  from  indebted  households  and  reduced  the  pace  of  repayments. 
Household debt-to-GDP ratios are mechanically growing in 2020 in light of the drop in GDP. At 
the same time, household savings have risen amid a sharp drop in consumption. Debt repayment 
prospects for households are clouded by the deterioration in labour markets.  

  House price growth remained robust into 2020, with accelerations in some countries, but a 
moderation  and  possible  downward  corrections  look  likely.  In  2019,  house  prices  kept 
growing at high rates, also in a number of countries that were showing risks of overvaluation. The 
impact of the crisis on employment prospects and household incomes will normally be reflected 
in  a  moderation  of  house  price  dynamics.  Latest  quarterly  data  already  point  to  a  softening  of 
housing  markets  in  more  than  half  of  the  EU  countries.  House  price  growth  forecasts  suggest 
downward corrections in a large majority of Member States over the period 2020-2021. 

  After  having followed  a downward  trend in recent  years  on the  back  of  stronger  nominal 
GDP  growth,  government  debt  is  currently  on  the  rapid  rise  in  all  Member  States, 
especially in those where the COVID-19 crisis had the most severe impact.  In recent years, 
government debt has kept declining in most Member States, while in a few high-debt countries 
reductions  were  absent  or  limited.  During  the  crisis,  governments  across  the  EU  have  let 
automatic stabilisers function and have provided direct fiscal and liquidity support to mitigate the 
health crisis and the private sector spending retrenchment. Government debt ratios are increasing 
more  where  pre-crisis  debt  levels  were  already  the  highest,  reflecting  also  the  fact  that  the 
recession has  been  deeper in those  countries.  Exceptional  monetary  easing  and various  EU  and 
euro  area  level  initiatives  have  kept  financing  costs  at  historically  low  levels  and  supported 
confidence.  While  some  countries  have  taken  advantage  of  the  high  liquidity  and  demand  by 
investors to lengthen the maturity structure of their sovereign debt, the structure of government 
debt might entail risks for others, notably on account of short maturity structures and high shares 
of debt denominated in foreign currency.  

  Conditions  in  the  banking  sector  improved  in  past  years,  but  the  COVID-19  shock  could 
test the resilience of the EU banking sector. Conditions in the banking sector have improved 
considerably  since  the  global  financial  crisis,  with  stronger  capital  ratios  and  liquidity  buffers 
than a decade ago. However, the sector has remained challenged by low levels of profitability in a 
low  interest  rate  environment,  and,  in  a  few  countries,  by  still  relatively  high  levels  of  non-
performing loans. Ample liquidity provided by central banks helped avoiding a credit crunch after 
the COVID-19 outbreak and the suspension of dividend payments and some temporary regulatory 

3 

 
 
 
 
 
relief is also giving further breathing space to banks. The crisis is expected to harm asset quality 
and  profitability  prospects.  Rising  debt  repayment  difficulties  by  corporations  and  households 
would translate into non-performing loans (NPLs) going forward, especially once debt moratoria 
have  expired.  Downward  corrections  in  house  prices  may  affect  collateral  valuations  and 
therefore bank balance sheets. 

The COVID-19 shock is exacerbating existing imbalances within the euro area, which highlights 
the need of making the best use of the EU support measures. According to the Commission autumn 
2020  economic  forecast,  the  Member  States  most  impacted  economically  by  the  COVID-19  crisis 
because of the gravity of the pandemic or of the dependence on highly exposed sectors are characterised 
by  relatively  large  stocks  of  government  and  external  debt.  The  COVID-19  crisis  thus  appears  to  be 
accentuating  existing  patterns  within  the  euro  area  regarding  domestic  and  foreign  indebtedness.  A 
number of the countries highly impacted by the COVID-19 crisis were in the recent past characterised 
by anaemic potential growth. Hence, the pandemic could also be exacerbating economic divergences. In 
parallel, despite the large fall in world demand, a trade surplus is currently projected to persist for the 
euro area as a whole, highlighting that there could be further room to expand domestic demand at the 
euro area aggregate level to foster the recovery, while supporting the ECB efforts to reach the inflation 
target.  In  light  of  growing  indebtedness  in  all  Member  States,  the  RRF  and  other  financial  support 
instruments put in place at euro area and EU level, including SURE, REACT-EU and higher flexibility 
in the use of remaining EU funds, can help Member States create the conditions for a durable recovery 
and strengthen resilience. Going forward, it is important that supportive policy measures, reforms and 
investments  put  in  place  across  the  euro  area  are  combined  in  such  a  way  to  address  effectively 
macroeconomic imbalances, in particular where they are excessive.   

All in all, with the COVID-19 crisis, risks appear to be on the rise in countries already identified 
with (excessive) imbalances. To some extent, the COVID-19 crisis is a setback in the gradual reduction 
in imbalances in many Member States, which was mainly driven by the economic expansion since 2013. 
At the same time, pre-existing overheating pressures related to strong house price and unit labour cost 
growth now appear as less of a risk in the medium term, possibly even facing downward corrections. 
While  pressures  on  capital  flows  and  exchange  rates  were  proved  short-lived  in  2020  so  far,  market 
sentiment might remain volatile. Hence, surveillance needs to focus on countries where risks appear on 
the  rise,  which  mainly  coincide  with  countries  already  identified  with  imbalances.  In  addition, 
developments need to be monitored closely in other Member States, including in a few non-euro area 
economies, where external sustainability concerns have manifested into market pressures during spring 
and well as in Member States with very high debt levels.  

The increase in private and government debt-to-GDP ratios in 2020 calls for careful monitoring 
while not requiring at this stage new IDRs. Risks to macroeconomic imbalances, notably those linked 
to  growing  debt-to-GDP  ratios,  are  aggravating  especially  in  countries  already  identified  with 
imbalances or excessive imbalances. The significant debt-to-GDP ratio increases in 2020 are to a large 
extent  linked  to  the  mechanical  effect  of  temporary  but  large  recessions  reducing  the  denominator  of 
that ratio. These increases in government debt and corporate debt are also linked to the adjustment to the 
large one-off COVID-19 shock and the outcome of deliberate and temporary policy efforts (also linked 
to measures such as bank guarantees and moratoria on repayments) to cushion the impact of the crisis 
and  prevent  an  even  bigger  repercussion  of  the  pandemic  on  economic  activity,  incomes  and 
macroeconomic stability going forward. Preventing the recession from becoming deeper and entrenched 
is  a  necessary  response  to  improve  debt  prospects  going  forward  even  if  implying  temporary  debt 
increases.  

4 

 
 
 
 
 
IDRs  will  be  prepared  for  the  Member  States  already  identified  with  imbalances  or  excessive 
imbalances. In line with the established prudential practice, IDRs will be conducted to assess whether 
existing imbalances are unwinding, persisting or aggravating, while taking stock of corrective policies 
implemented.  The  preparation  of  IDRs  is  thereby  foreseen  for  the  12  Member  States  identified  with 
imbalances and excessive imbalances in light of the findings of the February 2020 IDRs.6 Nine Member 
States are currently identified with imbalances (Croatia, France, Germany, Ireland, the Netherlands, 
Portugal,  Romania,  Spain,  and  Sweden),  while  Cyprus,  Greece,  and  Italy  are  identified  with 
excessive imbalances.  

This  AMR  highlights  potentially  risky  developments  in  a  number  of  Member  States  for  which 
IDRs will not be prepared. Following the COVID-19 outbreak, risks have surfaced in some non-euro 
area  countries  linked  to  external  financing.  Hungary  appears  as  a  case  where  the  interplay  between 
government borrowing and external financing deserves monitoring.7 Government debt is partly financed 
in foreign currency, which reflects the open nature of the economy and the fact that part of the revenues 
of the public sector and of the private sector are in foreign exchange. However, government debt has 
very short maturity and with relevant holdings by the domestic banking sector, while official reserves in 
early 2020 were close to prudential minima. While market pressures have eased since spring and there 
are  currently  no  solid  indications  that  there  are  risks  of  imbalances,  such  risks  may  resurface  in  the 
future  and  therefore  require  careful  monitoring.  The  implications  of  growing  debt-to-GDP  ratios  also 
deserve monitoring in a number of Member States not currently under MIP surveillance. In, both private 
and  government  debt  are  expected  to  further  grow  above  the  MIP  thresholds.  Member  States  where 
private debt is forecast to be on the rise and above threshold are Denmark, Finland, and Luxembourg. 
Government debt is expected to further grow above 60% of GDP in Austria and Slovenia. The extent to 
which  those  developments  entail  additional  risks  for  macroeconomic  stability  is  surrounded  by  large 
uncertainty, given in particular the need to take also into consideration medium and longer-term growth 
prospects,  and  how they  are  affected  by  COVID-19  crisis,. Therefore,  while the  projected increase in 
debt ratios requires careful monitoring, there is at this stage no need to carry out an IDR for additional 
Member States. 

2. 

THE  CHANGING  ECONOMIC  OUTLOOK:  IMPLICATIONS  FOR  EURO  AREA  MACROECONOMIC 
IMBALANCES  

The  COVID-19  pandemic  acted  as  a  one-of-a-kind  shock  to  the  economy.  The  outbreak  of  the 
pandemic  was  followed  by  restrictive  measures  to  limit  the  contagion  starting  in  March  2020,  which 
were gradually eased starting in May in most Member States. The measures put in place were broadly 
proportional to the severity of the health emergency but with relevant differences across countries.8 As a 
result of the COVID-19 pandemic, a massive demand shock affecting consumption was compounded by 
supply  restrictions  during  lockdowns.  Consumption  dynamics  remain  subdued  compared  with  pre-

6  See  ʽ2020  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(2020) 
150  final,  26.2.2020.  Bulgaria  was  also  subject  to  an  IDR  this  February  but  was  found  no  longer  experiencing 
imbalances. 
7 The interaction between public finances and the external sector deserves being analysed also in the IDR foreseen 
for Romania. 
8  See  https://ec.europa.eu/info/files/policy-measures-against-spread-coronavirus_en.  See  also 
Monetary Fund, Fiscal Monitor, October 2020. 

International 

5 

 
 
 
 
 
 
                                                      
 
COVID trends, notably for service activities where human contact is more difficult to avoid. Investment 
remains  hampered  by  substantial  uncertainty.  Reduced  income  and  employment  growth,  as  well  as 
subdued  export  market  dynamics,  will  keep  holding  back  demand  down  the  road.  The  disruption  of 
some  value  chains  and  distancing  measures  on  the  workplace  keep  affecting  supply,  denting  on 
productivity.9  The  EU  and  other  world  areas  are  currently  in  the  middle  of  a  new  outbreak  of  the 
pandemic,  whose  severity  and  duration  is  surrounded  by  major  uncertainty.  Overall,  the  Commission 
autumn 2020 economic forecast expects GDP to fall by -7.8% in the euro area and -7.4% in the EU in 
2020. Despite the recovery expected for 2021, GDP levels are forecast to be below the 2019 pre-crisis 
levels (Graph 1).10 11 

Exceptional  policy  responses  helped  cushion  the  economic  fallout  of  the  COVID-19  crisis. 
Tremendous  policy  action  was  put  in  place  across  the  EU  and  in  major  world  areas  to  prevent  the 
collapse in incomes following restrictive measures and reduce the risk of large job losses and corporate 
bankruptcies.  Governments  provided  fiscal  support  by  means  of  short-term  working  schemes  and 
beefed-up  income  support  to  the  unemployed.  Moratoria  were  provided  for  tax  payments  and  loan 
mortgage repayments. Guarantees for bank loans were provided to prevent credit being squeezed. The 
ECB  took  a  broad  range  of  supportive  measures  to  preserve  financial  stability  and  the  smooth 
functioning  of  financial  markets,  including  additional  liquidity  provision  for  banks,  eased  collateral 
requirements,  as  well  as substantial  additional  purchases of  public  and  private sector assets under  the 
Asset  Purchase  Programme  (APP)  and  the  Pandemic  Emergency  Purchase  Programme  (PEPP).  The 
Single Supervisory Mechanism (SSM) relaxed regulatory requirements on banks in a counter-cyclical 
way.  The  European  Stability  Mechanism  (ESM)  made  available  to  all  euro  area  Member  States  a 
Pandemic  Crisis  Support,  based  on  its  Enhanced  Conditions  Credit  Line  (ECCL).  The  EU  and  its 
Member  States  put  in  place  three  safety  nets  for  workers,  companies  and  sovereigns:  a  facility  for 
temporary  Support  to  mitigate  Unemployment  Risks  in  an  Emergency  (SURE),  the  European 
Investment  Bank’s  Pan-European  Guarantee  Fund  and  the  ESM’s  Pandemic  Crisis  Support.  The 
Commission made proposals for new instruments to foster the recovery (Next Generation EU) that were 
agreed  by  the  European  Council in July,  notably  a  large-scale  Recovery  and  Resilience  Facility. This 
facility  provides  grants  and  loans  to  foster  reforms  and  investment  to  enhance  the  growth  potential, 
strengthen economic and social resilience and facilitate the green and digital transition, consistent with 
the Union objectives in that regard. A range of other policy measures were taken, including speeding up 
and  making  more  flexible  the  use  of  remaining  EU  funds,  putting  in  place  a  temporary  state  aid 
framework and activating the General Escape Clause under the Stability and Growth Pact.  

9 See International Monetary Fund, World Economic Outlook, chapter 2, October 2020. 
10 European Commission, European Economic Forecast, Autumn 2020, Institutional paper 136, November 2020.  
11 The UK is not covered in the graphs in the following sections as they underpin the implementation of the MIP in 
2021, which takes place after the end of the transition period. 

6 

 
 
 
 
 
 
 
                                                      
 
Graph  1:  GDP 
comparison with pre-crisis levels 

in  constant  prices 

in 

Graph  2:  Economic  sentiment  and  stock 
market index, 2013-2020  

Source:  European  Commission  autumn  2020  economic 
forecast 

Source:  European  Commission  and  ECB,  provided  by 
DataStream  

The COVID-19 outbreak was followed by strong initial reactions on financial markets.  Financial 
markets  anticipated  a  major  recession  soon  after  the  outbreak  of  the  COVID  crisis.  Stock  markets 
plunged  against  the  backdrop  of  revised  expectations  on  corporate  profits.  Bond  market  valuations 
reflected flight-to-safety dynamics, with risk premia rising on government bonds perceived more risky 
by  investors  and  corporate  bond  spreads  increasing  notably  for  low  rating  segments.  Exchange  rate 
dynamics  reflected  pressures  on  emerging  markets  amid  capital  outflows  and  major  downward 
corrections in oil and commodity prices. Some downward pressures were felt also on the currencies of a 
few non-euro area Member States. Tensions were particularly noticed also in some of the currencies and 
bond yields of non-euro area Member States adopting flexible exchange rate regimes amidst augmented 
volatility in capital flows. 12 

Financial  market  conditions  have  improved  substantially  following  the  support  measures  by 
public  authorities,  decoupling  from  real  economy  prospects.  Stock  and  bond  markets  recovered 
amid narrowing risk premia. Exchange rate markets stabilised, as well as commodity markets. Losses 
accumulated following the COVID-19 outbreak have been substantially reduced, and market volatility 
has  been  contained.  In  a  context  of  massive,  timely  and  credible  interventions  by  public  authorities, 
financial markets appear to have decoupled from real economy prospects, which are still surrounded by 
substantial downside risks (Graph 2).13  

There  is  an  elevated  degree  of  uncertainty  surrounding  the  economic  outlook  related  to  the 
evolution  of  the  pandemic,  as  well  as  policy  responses  and  behavioural  changes  by  economic 

12  See  also  ECB,  Financial  Stability  Review,  May  2020,  Bank  of  International  Settlements,  Annual  Economic 
Report, June 2020; and, International Monetary Fund, Global Financial Stability Report, April 2020, Update June 
2020, and October 2020. 
13 The  Commission's Economic Sentiment indicator, despite recovering  is currently still below its average since 
the  2013  recovery,  while  the  main  euro  area  stock  price  index  has  recovered  to  values  broadly  in  line  with  its 
average for the same post-2013 period. See also International Monetary Fund, Global Financial Stability, Update 
June 2020, and October 2020. 

7 

707580859095100105ESITBEMTPTELFRNLATSKCYSIDEFIEELVLUIELTHRCZBGHURODKPLSEEuro areaNon euro areaIndex 2019=1002020f2021f150020002500300035004000607080901001101201314151617181920Economic Sentiment Indicator (left axis)Euro Stoxx 50 Price Index (right axis) 
 
 
 
 
 
 
 
 
                                                      
 
agents.  The  effects  of  the  spring  2020  recessions  have  not  fully  unfolded  yet  for  what  concerns 
implications  on  employment,  bankruptcies,  and  banks’  balance  sheets. The  currently  unfolding  of  the 
ongoing second outbreak of the pandemic is impacting the growth outlook through the introduction of 
new  containment  measures.  These  are  expected  to  weigh  on  economic  activity  and  sentiment  in  the 
short  run,  with negative  effects  on  consumption  and investment,  though  to  a  lesser extent than in the 
spring, as the approach so far has been more targeted. Accordingly, after a strong rebound in the third 
quarter, EU GDP growth looks set to stall in the fourth quarter of 2020. In addition, trade tensions and 
geo-political tensions may  re-emerge. The supportive stance of fiscal and monetary authorities has so 
far been judged as credible by financial markets, and a premature withdrawal of policy measures would 
be  a  risk.  A  re-appraisal  of  risks  and  possible  new  episodes  of  financial  stress  cannot  be  ruled  out 
especially  in  countries  that  combine  high  indebtedness,  weak  external  positions,  and  large  financing 
needs  that  cannot  be  fully  financed  domestically.  On  the  upside,  faster  progress  in  controlling  the 
pandemic and the implementation of ambitious and coordinated policies within the EU could enable a 
faster recovery. 

Current  economic  developments  have  implications  for  macroeconomic  imbalances.  Government 
and private debt-to-GDP ratios are on the rise in a majority of Member States. This is due to both the 
mechanic  outcome  of  the  recessions  reducing  the  denominator  of  debt-GDP-ratios  and  increased 
borrowing  by  the  public  and  the  corporate  sector  to  cushion  the  impact  of  the  COVID-19  crisis. 
Ultimately,  worsening  prospects for  government  and private  debt  is  a  risk  that could  impact  financial 
sector  balance  sheets,  which  would  also  be  directly  impacted  by  the  COVID-19  shock  in  terms  of 
reduced profitability. At the same time, the trends that were observed in a number of Member States for 
what  concerns  deteriorating  cost  and  price  competitiveness  and  strong  house  prices  growth  are  now 
likely to come to a halt. However, this raises instead questions about the implications of a reversal in 
those  patterns.  In  particular,  weak  or  negative  developments  in  labour  income  may  imply  reduced 
repayment  capacity  for  households,  while  downward  corrections for  house prices,  especially  if taking 
place in countries with high levels of household debt and unfolding in a disorderly fashion, may affect 
banks' balance sheets by leading to lower collateral values. 

Graph 3: Recessions,  Oxford Stringency Index 
and pre-COVID-19 debt levels 

Graph  4:  Euro  area  output,  domestic 
inflation 
demand,  net  exports  and  core 

Source:  Eurostat,  European  Commission  autumn  2020 
economic  forecast  and  Oxford  COVID-19  Government 
Response Tracker 

Source: AMECO and European Commission autumn 2020 
economic forecast. 
Note:  while  the  difference  between  GDP  and  domestic 
demand  should  equal  the  trade  balance  by  definition,  data 
are  not  fully  aligned  due  to  intra-euro  area  reporting 
discrepancies. 

8 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUNLATPLPTROSISKFI-4-3-2-10127374757GDP, average 2020-21 % changeOxford stringency Index, 2020  H1 averageSum of public and private debt (% of 2019 GDP)-8-6-4-20248500900095001000010500110001150008091011121314151617181920f21f%Billion euro(2015 prices)EA trade balanceminEA core inflation (%, rhs)EA output gap (% GDP, rhs)EA aggregate demandEA Output (GDP) 
 
 
 
 
 
 
 
The COVID-19 shock appears to exacerbate existing imbalances within the euro area.14 While the 
level  of  debt  does  not  appear  to  have  been  a  factor  which  significantly  aggravated  post-COVID 
recessions, a majority of countries that were hit the hardest by the COVID-19 pandemic and had to put 
in  place  containment  measures  happened  to  be  characterised  by  relatively  large  stocks  of  public  or 
private debt (Graph 3). 15 This implies that, because of relatively strong recessions, debt-to-GDP ratios 
are on the rise especially in countries where debt stocks were already comparatively high. 16 Some of the 
net-debtor countries that were hard hit by the pandemic are also characterised by a relatively high share 
of  tourism  revenues  (e.g.,  Cyprus,  Greece,  Portugal,  Spain),  which  are  particularly  exposed  to  the 
COVID crisis, with implications also for their external balances. In a nutshell, the COVID crisis appears 
to be reinforcing existing patterns within the euro area regarding economic divergences, domestic and 
foreign indebtedness. 

In  view  of  the  massive  fall  in  aggregate  demand,  the  gradual  reduction  in  the  euro  area  trade 
balance surplus is projected to come to an end. The euro area trade surplus has been declining since 
2017,  and  is  projected  to  remain  broadly  stable  in  2020  and  2021.  The  fall  of  GDP  in  2020  and  its 
recovery in 2021 is expected to be broadly in line with the evolution of domestic demand. By the same 
token, the dynamics of euro area imports are projected to be closely aligned with those of exports. The 
trade  surplus at euro  area level  is  therefore  not  expected to further  decline, against the backdrop of a 
deterioration of the output gap in 2020 that is forecast to be larger than the one observed in 2009 after 
the financial crisis. In parallel, core inflation is expected to remain subdued (Graph 4).  

14 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." The analysis contained in this 
report accompanies 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. 
15  The  Oxford  Stringency  Index  reported  in  Graph  3  aggregates  eight  containment  measures  and  one  health 
component. See T. Hale et al. (2020), ‘Variation in government responses to COVID-19’. BSG, Working Paper 32 
(Version 8.0), Blavatnik School of Government, University of Oxford, October. 
16  Once  controlling  for  severity  of  lockdown,  quality  of  institutions,  and  tourism  dependency,  government  debt 
does not appear significant in a cross-section of determinants of post-COVID recession magnitudes. This finding 
supports the view that interventions by monetary authorities in support of bond markets were effective in avoiding 
that bond market tensions aggravated recessions. See A. Sapir, “Why has COVID-19 hit different European Union 
economies so differently?”, Policy Contribution Issue no. 18, September 2020. 

9 

 
 
 
 
 
 
 
 
 
                                                      
 
Graph  5:  Euro  area  current  account 
evolution: breakdown by country 

Graph 6: Euro area net lending/borrowing 

Source:  Eurostat  Balance  of  Payments  and  European 
Commission autumn 2020 economic forecast. 
Note: The EA19 CA for years 2020 and 2021 correspond to 
the  European  Commission  autumn  2020  forecast  adjusted 
figure,  which  accounts  for  in  intra-euro  area  reporting 
discrepancies by the different national statistical authorities 
(see footnote 17). 

Source:  AMECO,  Eurostat,  European  Commission  autumn 
2020 economic forecast. 
Note: The EA19 Total Economy figures for 2020 and 2021 
correspond  to  the  European  Commission  autumn  2020 
forecast  adjusted  figures.  For  the  earlier  years,  the  EA19 
Total Economy figures correspond to net lending/borrowing 
in the Eurostat BoP data. Households and the Corporations 
sector  data  for  2020  and  2021  are  computed  as  the  sum  of 
the  EA19  countries  except  Malta,  for  which  no  data  are 
available.   

Graph 7: Nominal effective exchange rates (NEER) 

Source: ECB 

10 

-4-3-2-1012340405060708091011121314151617181920f21fDEESFRITNLOtherEA-19CA normCyclically-adjusted CA% of EA GDP-9-6-3036912040506070809101112131415161718192021fHouseholdsGovernmentsCorporationsTotal economy% of  EA GDP859095100105110115Mar-17Jun-17Sep-17Dec-17Mar-18Jun-18Sep-18Dec-18Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20Index; 2017=100BGNCZKHRKHUFPLNRONDKKSEKEUR 
 
 
 
 
 
 
 
 
 
 
 
 
The current account surplus of the euro area as a share of GDP has been falling since 2017 and is 
projected to further decline in 2020. The euro area current account rose until 2017 amid widespread 
deleveraging, and, since then, it has shown a reduction. In 2019, the euro area current account balance is 
estimated  at  2.3%  of  GDP  (Graph  5).17  While  between  2017  and  2018,  the  reduction  of  the  current 
account surplus was mainly associated with developments in the trade balance for goods, notably linked 
to trade policy tensions and a more expensive energy bill, in 2019, the drop was largely accounted for 
by the services balance. Nevertheless, the 2019 euro area current account surplus remained the largest 
worldwide in nominal terms.  Its value, also when adjusted for the cycle, was slightly above a current 
account norm in line with economic fundamentals estimated at 2% of euro area GDP.18 At unchanged 
policies, the euro area current account surplus is expected to further decrease to 1.8% of GDP in 2020 
and to edge up to 1.9% of GDP in 2021 according to the European Commission autumn 2020 forecast, 
thus falling below the current estimate of the current account norm. The forecast reduction in the euro 
area surplus is partly due to a reduced energy bill; the substantial appreciation of the euro that started in 
early 2020 (Graph 7) would also imply a reduction in the current account going forward. 

The geographical breakdown of the euro area current account surplus remains stable, while the 
major changes are taking place for what concerns the contribution of the different sectors of the 
economy. The euro area surplus still reflects mainly the large, but steadily falling, surpluses recorded in 
Germany and the Netherlands, whose combined external balances accounted for 2.7% of euro area GDP 
in 2019.19 Euro area current account balances are expected to display a certain stability across countries 
also in 2020 and 2021 (Graph 5). The stability of current account figures masks however considerable 
changes  in  the  net  lending  positions  across  sectors  of  the  economy,  as  the  large  increase  in  the  net 
lending position for the private sector is almost fully offset by a deterioration in that of the government 
sector  (Graph  6).  This  pattern,  observed  for  the  euro  area  as  a  whole,  holds  also  within  countries.  In 
2020, the large increase in savings by the households sector is largely linked to lockdown measures and 
subdued  dynamics  in  the  consumption  of  services  allowing  for  little  physical  distancing,  as  well  as 
precautionary savings to deal with heightened uncertainty. The upward jump in the net lending position 
of  corporations  is  partly  associated  with  a  drop  in  investment  and  partly  the  result  of  an  increase  in 
precautionary savings. The falling government revenues and the fiscal measures put in place to cushion 
the impact of the COVID-19 pandemic on incomes translate into a substantial deterioration of the net 
lending position of the government sector. Similar patterns, although less marked, are forecast for 2021.  

Going forward, addressing the growing macroeconomic risks require an effective implementation 
of the EU support measures.  

  The current crisis is fundamentally different than the 2008 financial crisis. While the latter was 
largely the result of the unwinding of unsustainable imbalances (financial sector overleveraging, 
housing bubbles, large and growing external deficits, and government debts rising in good times), 
the  COVID-19  crisis  is  the  result  of  shocks  to  the  economy  originating  from  government 
restrictions and changed behavioural patterns related to health concerns. These shocks take place 

17 The figures for the euro area current account mentioned and used here refer to the euro area "adjusted" current 
account balance reported vis-à-vis the rest of the world (from euro area balance of payments statistics), which is 
consistent with the current accounts Member States report vis-à-vis partners outside of the euro area (under the so-
called  "community  concept").  This  figure  may  differ  from  the  sum  of  Member  State  headline  current  account 
balances, due to asymmetries in the intra-euro area balances reported by the different national statistical institutes. 
18 The IMF (External Sector Report 2020) suggests the euro area current account norm to be around 1.4% of GDP.  
19 The sum of the surpluses recorded in Germany and in the Netherlands are higher than the euro area surplus, as 
some members recorded deficits in 2019; see also footnote 17. 

11 

 
 
 
 
 
                                                      
 
in  a  context  where,  thanks  to  recent  favourable  economic  conditions,  most  external  positions 
moved to balance or surplus, financial sector deleveraging over the past years created solid capital 
buffers  in  the  banking  sector,  private  sector  deleveraging  has  taken  private  debt-GDP  back  to 
levels  well  below  the  peaks  observed  before  the  2008  financial  crisis,  and  public  debt-to-GDP 
ratios embarked into a downward trajectory in most euro area Member States.  

  Going  forward,  debt  repayment  prospects  crucially  depend  on  ensuring  the  economic  recovery 
and  strengthening  the  economic  fundamentals,  which  requires  a  supportive  policy  stance 
throughout  2021.  A  sustainable  recovery  is  crucial  both  for  the  government  sector,  in  terms  of 
dynamics for government revenues, and for the financial and non-financial corporate sector, with 
repayment capacity depending on profitability, and for households, with prospects for mortgage 
debt sustainability depending on employment and income dynamics.  

  An effective use of available instruments put in place at euro area  and EU level, with effective 
implementation of the necessary reforms and investment, would help fostering a durable recovery 
and strengthening resilience. It will be crucial that EU financing is fully absorbed and channelled 
to the  most  productive  uses. This  would  both  strengthen the economic  impact of the funds and 
prevent the risk that such increased spending in a short-time frame fuels an excessive growth of 
non-tradable  activities  and  external  imbalances  in  countries  where  inflows  account  for  a  large 
share of GDP. 

  Going  forward,  it  is important  that  supportive  policy measures,  reforms  and  investments  put  in 
place  across  the  euro  area  are  combined  in  such  a  way  to  address  effectively  macroeconomic 
imbalances, in particular where they are excessive.   

3. 

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 14 indicators with indicative thresholds in the following areas: external positions, 
competitiveness, private and government 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. 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.20 A set of 28 auxiliary indicators complements the reading of the scoreboard.  

In comparison with previous AMRs, the present report makes a greater use of forecasts and high-
frequency  data  to  gauge  also  the  implications  of  the  COVID-19  crisis  amid  large  uncertainty. 
Those implications cannot be captured from the official AMR scoreboard, as it only reflects data up to 
2019. Values of scoreboard variables and other relevant variables for MIP analysis for 2020 and 2021 
have therefore been estimated using Commission forecast data and nowcasts from infra-annual data (see 
Box  1  for  details  per  scoreboard  variable).  While  such  exercise  appears  necessary  to  gauge  ongoing 
developments, it is also necessary to recall the substantial uncertainty underlying those forecasts. In the 

20 On the rationale underlying the construction of the AMR scoreboard and its reading see European Commission 
(2016), "The Macroeconomic Imbalance Procedure. Rationale, Process, Application: A Compendium", European 
Economy, Institutional Paper 039, November 2016. 

12 

 
 
 
 
 
 
                                                      
 
AMR  assessment,  as  in  previous  years,  insights  from  assessment  frameworks,  as  well  as  findings  in 
existing  IDRs  and  relevant  analyses,  are  also  taken  into  consideration.  The  Commission  analysis 
continues to be subject to the principles of transparency about analysis and data used, and prudence on 
the conclusions on account of awareness of caveats with data quality. 

Scoreboard  data  suggest  that  the  recent  correction  of  stock  imbalances  would  come  to  a  halt, 
while  risks  of  overheating  observed  in  recent  years  are  expected  to  cool  with  the  crisis.  The 
counting  of  values beyond  the  thresholds  in  the  AMR  scoreboard  over  the  years  reveals  a  number  of 
patterns as follows (Graph 8).  

  The  economic  expansion  that  started  in  2013  helped  reducing  private  and  government  debt-to-
GDP ratios, thanks to the favourable denominator effects. This is reflected in the falling number 
of countries exhibiting debt ratios beyond thresholds until 2019. The COVID-19 crisis appears to 
put an end to this trend.    

  After the correction of the large current account deficits of the 2000s, the past decade was marked 
by the accumulation of large current account surpluses for some economies, which were reduced 
in latest years. The COVID crisis is not expected to fundamentally change the external adjustment 
as  its  impact  on  the  external  accounts  is  expected  to  be  limited,  with  the  number  of  countries 
exceeding the thresholds for current account balances and NIIPs being only marginally affected. 

 

Fast growing unit labour costs and house prices have led to more readings beyond the relevant 
thresholds  in  the  latest  number  of  years.  Those  overheating  pressures  that  manifested  in  fast-
growing countries are expected to phase out with the COVID crisis. That is most visible at the 
level  of  house  prices,  which  are  expected  to  cool  down  and  fewer  cases  risk  being  beyond  the 
threshold. ULC growth may also recede but only after a temporary but sharp hike in 2020 with 
over half of the Member States risking being beyond the threshold. This reflects the mechanical 
effect of a visibly lower productivity on account of the sharply reduced activity and less affected 
employment. REERs are projected to exceed thresholds largely in light of nominal exchange rate 
developments. 

Graph 8: Number of Member States recording scoreboard variables beyond threshold 

Source: Eurostat and Commission services calculations (see also Box 1) 
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. For the approaches followed for the forecasts of the scoreboard indicators in the years 2020 and 2021, see Box 1. 

13 

515333100121691121613214601215723106126187012145120051110880111231100511441810121630708611028117350246810121416182020162017201820192020 2021  
 
 
 
 
 
 
Forecasts for the following indicators are performed for 2020 only: Private credit flow, Private debt, Financial sector liabilities, 
Long-term unemployment, Youth unemployment.  

Box 1: Nowcasts of the headline scoreboard indicators 

To enhance the forward-looking elements in the scoreboard reading, the AMR analysis builds also, whenever 
possible,  on  forecasts  and  projections  for  2020  and  2021  and  ‘nowcasts’  for  the  current  year.  Whenever 
available,  such  figures  are  based  on  the  Commission  autumn  2020  forecast.  Otherwise,  figures  display 
nowcasts  based  on  proxy  indicators,  prepared  by  Commission  services  specifically  for  the  purpose  of  this 
AMR.  

The  table  below  summarises  the  assumptions  used  for  the  forecasts  and  ‘nowcasts’  figures  of  headline 
scoreboard  indicators.  Note  that  the  GDP  figures  used  as  denominators  in  some  ratios  stem  from  the 
Commission autumn forecast.  

In case of multi-annual rates of change (such as the five-year change of export market shares), only the 2020 
and  2021  component  is  based  on  forecasts,  whereas  components  related  to  2019  or  earlier  years  use  the 
Eurostat data underlying the MIP scoreboard.  

Table: Approaches to forecasts and nowcasts for MIP scoreboard headline indicators 

Indicator 

Approach 

Data sources 

Current account balance, % 
of GDP (3 year average) 

Values from Commission autumn forecast of the current account 
balance (Balance of Payments concept) 

Net international 
investment position (% of 
GDP) 

The Commission autumn forecasts for total economy net 
lending/borrowing provides the NIIP change that reflects transactions; 
other effects (e.g. valuation changes) are taken into account until 
2020Q2, and assumed to remain nil thereafter. 

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) 

Values from the Commission autumn forecast 

Figures are based on the Commission forecast of i) nominal goods and 
services (G&S) exports for EU Member States (national accounts 
concept), and ii) Commission forecast of (G&S) exports in volumes 
for the rest of the world, translated to nominal levels by the 
Commission US import deflator and EUR/USD exchange rate 
forecasts 

Values from the Commission autumn forecast 

Model-based forecasts computed on the basis a housing valuation 
model shared with Member States in the context of the EPC LIME 
working group. The forecasts represent real house price percentage 
changes expected based on economic fundamentals (population, 
disposable income forecast, housing stock, long-term interest rate, and 
the price deflator of private final consumption expenditure), as well as 
the error correction term summarising the adjustment of prices towards 
their long-run relation with fundamentals. 

The figure for 2020 represents a proxy of credit flows 2020Q1-
2020Q3, using consolidated data from ECB quarterly sectoral accounts 
for 2020Q1-Q2, plus proxies for some credit flow components from 
2020Q3. The latter uses ECB BSI MFI loan flows to the private sector 
to project 2020Q3 bank loan components, and ECB SEC nominal debt 

Eurostat, 
Commission 
services 

ECB (QSA, BSI, 
SEC) 

14 

AMECO 

AMECO, 
Eurostat 

AMECO 

AMECO 

AMECO 

 
 
 
 
 
 
 
security issuance to project 2020Q3 bond issuance. 

Private sector debt, 
consolidated (% of GDP) 

The figure for 2020 proxies private sector debt as at end-2020Q3. It 
uses consolidated data from ECB quarterly sectoral accounts for 
2020Q2. This figure is projected forward to 2020Q3 using bank loan 
figures (based on ECB BSI) and bond liability data (based on ECB 
SEC). 

ECB (QSA, BSI, 
SEC) 

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) 

Values from the Commission autumn forecast 

Values from the Commission autumn forecast 

2020 figure represents ECB MFI liabilities growth until September 
2020. 

The 2020 and 2021 rate of changes are based on the Commission 
autumn forecast for the change in the entire labour force (all ages) 
minus the Commission autumn forecast for the population change (15-
64 age group). 

AMECO 

AMECO 

ECB (BSI) 

AMECO 

The nowcast for 2020 is based on latest data (2020 Q1-Q2, assuming 
constant rate for rest of the year) 

Eurostat (LFS) 

The nowcast for 2020 is based on latest data (2020 Jan-Sep, assuming 
constant rate for rest of the year) 

Eurostat (LFS) 

3.1 External sector and competitiveness 

Current account were overall fairly stable in 2019. After a general trend towards weakening current 
account positions in 2018 amid weakening world export demand and rising oil prices, current account 
changes  between  2018  and  2019  did  not  exhibit  a  clear  pattern  and  remained  relatively  contained 
(Graph 10). In 2019, notable improvements were observed in Bulgaria, Denmark and Lithuania, while 
the current account of Cyprus moved more deeply into negative territory. Some large surpluses reduced 
somewhat, including in Germany and the Netherlands.  

  Two  Member  States  record  current  account  deficits  beyond  the  MIP  scoreboard  lower 
threshold in 2019. The large deficit of Cyprus deteriorated further in 2019, and thereby the 3-
year average remained below the MIP threshold, and below the respective current account norm 
and the level required to bring the NIIP to prudential territory over the next 10 years.21 Following 
a small further worsening in the current account of Romania, its 3-year average came at the MIP 
threshold in 2019, and such a reading is also visibly worse than the respective norm.  

 

In  2019,  in  most  Member  States,  current  account  deficits  were  above  country-specific 
benchmarks,  with  some  notable  exceptions  (Graph  9).22  Cyclically-adjusted  current  accounts 

21 For the methodologies for country-specific NIIP prudential thresholds see footnote 25.  
22  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. See L. Coutinho et al. (2018), "Methodologies for the 
assessment of current account benchmarks", European Economy, Discussion Paper 86/2018, for the description of 

15 

 
 
 
 
 
 
 
                                                      
 
 
 
were mostly close to or above the headline balances, reflecting the negative impact of a cooling 
economic  cycle.23  The  current  account  balances  of  Cyprus  and  Romania  are  below  the  current 
account norm justified by fundamentals. The deficits of Cyprus, Greece, and Portugal are below 
the level required to ensure the convergence of the NIIP towards a prudent level.24 

  Three  EU  countries  continue  recording  current  account  surpluses  that  exceeded  the  MIP 
scoreboard  upper  threshold  and  country-specific  benchmarks.  That  has  been  the  case  for 
Denmark,  Germany,  and  the  Netherlands  for  nearly  a  decade.  While  Denmark  expanded  its 
surplus in 2019, the balances of Germany and the Netherlands have continued to gradually move 
down.  In  the  Netherlands,  current  account  balances  are  also  driven  by  the  activities  of 
multinational corporations that affect both the trade and income balances.  

Forecasts point to a certain stability of current account readings also in 2020 and 2021, but with 
major changes for what concerns the contribution of the different sectors of the economy to the 
external position. The COVID-19 crisis is bringing a major drop in exports and in imports, of roughly 
similar proportions. Although the aggregate net lending position of EU countries is not moving much, 
marked changes are taking place for what concerns the net lending position of different sectors of the 
economy.  In  2020,  the  government  positions  experienced  substantial  declines  as  result  of  the  support 
measures  they  took  to  cushion  the  sharp  recession,  which  countervail  the  higher  net  savings  by 
households and corporations (Graph 11). 

  Current  account  figures  of  some  net-debtor  countries  with  strong  reliance  on  export  of 
tourism  services  are  expected  to  deteriorate.  This  is  the  case  notably  of  Croatia,  Cyprus, 
Greece, and Malta.   

  Large surpluses would fall in 2020, with substantial decreases in Germany and the Netherlands 

over 2020 and 2021 together.  

the  methodology  for  the  computation  of  the  fundamentals-based  current  account  used  in  this  AMR;  the 
methodology  is  akin  to  S.  Phillips  et  al.  (2013), "The  External  Balance  Assessment  (EBA)  Methodology",  IMF 
Working Paper, 13/272. 
23  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. 
24  The  large  deficit  recorded  by  Ireland  in  2019  is  due  to  one-off  effects  associated  with  the  activities  of 
multinational firms. The gap between the actual current accounts and those required to stabilise the NIIP crucially 
depends on the time frame considered. For instance, the current account required to stabilise the NIIP of Greece 
above the prudential NIIP threshold within a 20-year horizon would be a surplus of 1.7% of GDP, as opposed to 
one of 7.7% of GDP when computed over a 10-year horizon. 

16 

 
 
 
 
 
                                                                                                                                                                    
 
Graph 9: Current account balances and benchmarks in 2019 

Source: Eurostat and Commission services calculations.  
Note: Countries are ranked by current account balance in 2019. Cyclically-adjusted current account balances: see footnote 23. 
Current  account  norms:  see  footnote  22.  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. 

Graph 10: Evolution of current account balances 

Source: Eurostat, European Commission autumn 2020 economic forecast and Commission services calculations. 
Note: Countries are presented in increasing order of the current account balance in 2019. 

17 

-12-8-404812IECYSKELFRLVFIPTBEEEESATITLTLUMTSIDENLROCZHUPLHRBGSEDKEuro areaNon-euro area% of GDPCurrent account (CA), BoPCyclically-adjusted CACA normNIIP-stabilising CA-12-9-6-3036912IECYROSKELFRLVCZHUFIPTBEPLEEESHRATITBGLTSELUMTSIDEDKNL% of GDP201820192020f2021f 
 
 
 
 
 
 
 
Graph 11: Change in net lending/borrowing by sector, from 2019 to 2020 

Source: AMECO and European Commission autumn 2020 economic forecast 
Note: A part of the change in corporate sector net lending in Ireland is off the scale in the above graph. 

NIIPs have kept improving in most Member States, but large stocks of external liabilities persist 
and the crisis might make some of those burdens heavier. NIIP improvements continued in 2019 in 
most EU countries, driven by current account outturns above NIIP-stabilising thresholds, nominal GDP 
growth,  and  sometimes  large  positive  valuation  effects.  Yet  NIIPs  remain  large  and  negative  in  a 
number of EU countries. In 2019, 11 Member States recorded NIIPs beyond the scoreboard threshold of 
-35% of GDP, one fewer than in 2018. In those countries, values are below those that could be justified 
by fundamentals (NIIP norms), and in most cases also below the respective prudential thresholds (Graph 
12).25 The crisis is halting improvements in the more negative NIIPs-to-GDP ratios.  

 

Some euro area countries continue to have largely negative NIIPs below -100% of GDP, such as 
Cyprus,  Greece,  Ireland,  and  Portugal.  In  these four countries,  NIIPs  are  well below  both  NIIP 
norms and prudential thresholds. In  Ireland, as well as in Cyprus, NIIP levels reflect to a large 
extent  cross-border  financial  relations  of  multinational  corporations  and  the  high  importance  of 
special  purpose  entities.  These  four  countries,  together  with  Spain,  show  a  strong  incidence  of 
debt  liabilities  in  their  NIIPs  as  indicated  by  the  very  negative  NIIP  excluding  non-defaultable 
instruments  (NENDI).26  In  Greece,  the  large  external  public  debt,  often  at  highly  concessional 

25 NIIP in line with fundamentals (NIIP norms) are obtained as the cumulation over time of current account norms 
(see  also  footnote  22).  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 (2019), "Benchmarks for Net International Investment Positions", European Economy, Discussion Paper 
097/2019. 
26  NENDI  is  a  subset  of  the  NIIP  that  abstracts  from  its  pure  equity-related  components,  i.e.  foreign  direct 
investment (FDI) equity and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP 
excluding instruments that cannot be  subject to default.  See  also European Commission, "Envisaged revision of 
selected auxiliary indicators of the MIP scoreboard", Technical note; https://ec.europa.eu/info/business-economy-
euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-
correction/macroeconomic-imbalance-procedure/scoreboard_en. 

18 

-15-10-50510152025HRELCYMTDKFRNLBGSKLUFIHUCZDEPTSIATESITSEROBEEEPLLTLVIE% of GDPHouseholds and NPISHCorporationsGovernmentPrivate sector (HR, MT, BG)Total economy 
 
 
 
 
 
 
                                                      
 
terms, accounts for the bulk of the NIIP.27 In 2020, the expected strong declines in GDP should 
have some negative effect on their NIIP-to-GDP ratio, which are often projected to deteriorate.  

 

In countries with more moderately negative NIIPs beyond the scoreboard threshold, the NIIPs 
are below what is expected from country-specific fundamentals but sometimes close to or better 
than prudential thresholds. These countries, namely  Croatia, Hungary, Latvia, Poland, Romania 
and Slovakia, as well as other central and eastern European and Baltic countries, tend to be large 
net recipients of FDI, so that NENDI figures are more favourable. The changes expected for those 
countries in 2020 are mostly mild to moderate. 

  Most  of  the  large  positive  NIIPs  keep  increasing  in  2019.  Germany,  Denmark,  and  the 
Netherlands record positive NIIPs surpassing 70% of GDP, with their increase in 2019 supported 
also  by  substantial  positive  valuation  effects.  The  NIIPs  of  Belgium,  Malta,  and  Luxembourg 
exceed 50% of GDP. In all those cases, NIIPs readings are visibly above the respective norms, i.e. 
what could be justified by or expected on the basis of country-specific fundamentals.  

The  COVID-19  crisis  outbreak  was  followed  by  external  borrowing  tensions  in  some  non-euro 
area  countries.  At  the  onset  of  the  COVID-19  crisis,  capital  flights  and  depreciations  took  place  in 
most  emerging  economies  with  floating  exchange  rates.  Markets  anticipated  possible  trade-offs  by 
monetary authorities between supporting their economies and stabilising their currencies. Some tensions 
were visible also in some of the currencies of non-euro area Member States adopting flexible exchange 
rate  regimes.  Depreciations  took  place  especially  in  March  and  April,  notably  in  Hungary,  but  the 
pressure  abated  and  the  currencies  stabilised  in  May,  and  in  some  cases  appreciated  in  the  following 
months. While the financial market tensions and, thereby external financing risks seem to have declined 
afterwards, a few non-euro area Member States may remain vulnerable in case heightened risk aversion 
in global financial markets or capital flows volatility re-emerge. A number of conditions, including the 
prospects  for  foreign  financing  needs,  including  of  the  government,  and  the  availability  of  foreign-
exchange reserves may play a role in this respect. 

27 The worsening of the NIIP in Greece in 2019 is largely related to negative valuation effects. 

19 

 
 
 
 
 
 
                                                      
 
Graph 12: Net international investment positions (NIIP) 2018-2021 and benchmarks in 2019 

Source: Eurostat and Commission services calculations (see also Box 1).  
Note:  Countries  are  presented  in  decreasing  order  of  the  NIIP-to-GDP  ratio  in  2019.  NENDI  is  the  NIIP  excluding  non-
defaultable instruments. For the concepts of NIIP norm and NIIP prudential threshold, see footnote 25. NENDI for IE, LU and 
MT are out of the scale.  

Unit labour cost (ULC) continued growing dynamically in various EU countries in 2019 but those 
trends are bending down with the COVID-19 crisis. The scoreboard shows the ULC growth indicator 
beyond  the  threshold  in  eight  countries  in  2019,  the  same  number  as  in  the  previous  year:  Bulgaria, 
Czechia, Estonia, Latvia, Lithuania, Luxembourg, Romania, and Slovakia; apart from Luxembourg, all 
of  them  had  been  beyond  the  threshold  already  in  2018.  Since  2013,  ULC  growth  accelerated  in  the 
Baltic and in various central and eastern European countries in a context of high economic growth, tight 
labour markets and skills shortages.  

Developments after the outburst of the COVID-19 outbreak are expected to be marked by a one-
off  increase  in  ULCs  in  2020  followed  by  more  moderated  dynamics.  With  the  COVID-19  crisis, 
ULC growth is projected to rise markedly further across the EU in 2020 as productivity declines nearly 
everywhere.  However,  that  is  projected  to  partly  be  reversed  in  2021  as  with  the  projected  economic 
recovery, productivity would rebound and lead to a notable drop or stagnation in ULC in a context of 
decelerating wages (Graph 13, upper panel). 

  Wage growth kept being the strongest driver of ULC growth in many countries in 2019 but 
the  crisis  is  now  leading  to  marked  wage  moderation.  The  crisis  is  putting  an  end  to 
overheating  pressures  observed  until  2019.  Wage  and  compensation  are  forecast  to  grow  more 
moderately  in  most  EU  countries  in  2020  and  2021.  In  2020,  that  reflects  mainly  the  effect  of 
reduced  hours,  largely  in  the  context  of  temporary  short-time  work  schemes.28  Under  such 
schemes, workers maintain employment but at reduced hours and pay.29  

28  The  10  EU  Member  States  that  had  frameworks  to  provide  income  support  under  reduced  hours  before  the 
COVID  outbreak  adapted  their  existing  schemes  to  cope  with  the  COVID  shocks.  In  other  countries,  similar 

20 

-180-150-120-90-60-300306090120NLDKDELUMTBESEATFIITSICZEEFRLTBGLVROHUPLHRSKESPTCYELIE% of GDPNIIP 2018NIIP 2019NIIP 2020fNIIP 2021fNENDI 2019Prudential NIIP threshold 2019NIIP norm 2019 
 
 
 
 
 
 
 
                                                      
 
 
 
  Labour  productivity  gains  remained  limited  in  2019  and  the  crisis  is  further  denting 
productivity in 2020. In 2020, productivity is forecast to drop sharply in nearly all EU countries 
when measured in terms of output per person employed. The 2020 recession was matched by a 
drop in labour inputs. However, this was mainly on account of reduced hours, while headcount 
employment  moved  little.30  Hence,  when  productivity  is  measured  in  terms  of  output  per  hour 
worked, the losses appear more moderate (Graph 13, fourth panel). The substantial and pervasive 
labour  hoarding  observed  across  the  EU  has  been  much  favoured  by  the  wide  use  of 
governments-subsidised short-time work schemes.31 In 2021, as the recovery sets in, an upward 
jump  in  productivity  figures  is  expected.  Yet,  level-wise,  productivity  is  forecast  to  remain 
around or below the pre-crisis readings in most cases. 

measures were introduced on an ad-hoc basis (See also Box 2; and, European Commission (2020), Labour Market 
and  Wage  Developments  in  Europe  2020,  forthcoming).  The  financing  of  such  schemes  will  benefit  from  the 
SURE instrument made available by the Commission. 
29  The  falls  in  compensation  per  employee  appear  more  pronounced  in  countries  where  income  support  is 
classified as government transfers rather than labour income.  
30 On average, across the euro area, the reduction in total hours worked in the first half of 2020 is estimated to be 
due to reduced average hours worked by 75%, and the rest by reduced employment.  See ECB (2020), Economic 
Bulletin, Issue 6/2020. 
31 Botelho V, A. Consolo and A. Dias da Silva (2020), A preliminary assessment of the impact of the COVID-19 
pandemic on the euro area labour market, ECB Economic Bulletin, Issue 5/2020, European Central Bank. OECD 
(2020), Policy  Responses to  Coronavirus (COVID-19) - Job retention schemes during the  COVID-19 lockdown 
and  beyond,  3  August  2020,  https://www.oecd.org/coronavirus/policy-responses/job-retention-schemes-during-
the-covid-19-lockdown-and-beyond-0853ba1d/#biblio-d1e2009.  

21 

 
 
 
 
 
                                                                                                                                                                    
 
Graph 13: Unit labour cost growth in recent years, compensation and productivity 

Source: AMECO; 2020 and 2021 data come from the European Commission autumn 2020 economic forecast. The data refer to 
the number of employees and of persons employed. 
Note: In each graph, countries are presented in increasing order of the respective variable in 2019. 

From a euro area perspective, ULC developments are expected to become slightly less supportive 
of rebalancing than in the past. In 2019, ULC growth was slightly higher in a number of net-creditor 
countries,  including  Germany,  Luxembourg  and  the  Netherlands,  than  in  some  net-debtor  countries, 
including  Cyprus,  Greece,  Ireland,  Spain  and  Portugal.  However,  over  2020  and  2021  together,  ULC 
growth is forecast to grow at almost the same rate in both country groups and thereby not contribute to 
further rebalancing in external positions (Graph 14). At the same time, a number of net-debtor countries 
have been among those more affected by the COVID-19 crisis (see also Section 2) and thereby record a 
more  pronounced  slack  in  activity,  so  that  cost  and  wage  pressures  could  be  less  prevalent  in  those 
countries going forward. 

22 

-10-6-2261014FRELIEITCYFIBEPTESATLUNLDEMTSISKEELTLVDKHRHUSEBGPLCZROEuro areaNon euro areaAverage annual % changea: Unit labour cost201820192020f2021f-10-6-2261014FRELITFILUCYBEESATMTNLDEPTIESISKLVEELTDKHRSEHUCZBGPLROEuro areaNon euro areaAverage annual % changeb: Compensation per employee201820192020f2021f-10-6-22610LUMTFIDEESNLITCYBEATFRELSISKPTLVIEEELTHRSEDKCZHUBGROPLEuro areaNon euro areaAverage annual % changec: Labour productivity, per person employed201820192020f2021f-10-6-22610MTLUNLATFIDEITCYESBESIFRPTSKELIELTLVEEHRDKSECZBGHUROPLEuro areaNon euro areaAverage annual % changed: Labour productivity, per hour201820192020f2021f 
 
 
 
 
 
 
  
 
 
 
Graph 14: Unit labour cost growth across the euro area 

Source: AMECO, 2020 and 2021 data come from the European Commission autumn 2020 economic forecast. 
Notes: Countries with NIIP > +35% of GDP are DE, LU, NL, BE, MT. Countries with NIIP between 35% and  -35% of GDP 
are FI, EE, IT, LT, FR, SI, AT. Remaining countries are in the NIIP < -35% of GDP group. The country split is based on NIIP 
average  values  in  the  2017-2019  period.  Net-creditor  countries  recorded  an  average  current  account  surplus  over  the  same 
period. Figures concern GDP-weighted averages for the three groups of countries. 

Real  effective  exchange  rates (REER)  dynamics  are  increasingly  driven  by  volatility  in  nominal 
exchange rates. Between 2016 and 2018, REERs were on the rise in most Member States in light of the 
euro  appreciation  (Graph  15).  Competitiveness  losses  were  most  evident  when  measured  in  terms  of 
unit labour costs. However, in 2019, competitiveness improved in light of a transitory euro depreciation. 
In  light  of  these  developments  in  2019,  only  Estonia  was  beyond  the  thresholds  on  account  of  an 
appreciated  HICP-based  REER,  compared  to  six  countries  in  2018,  reflecting  also  muted  inflation 
dynamics.  Going  forward,  the  appreciation  of  the  euro  in  2020  is  expected  to  imply  global 
competitiveness losses across euro area countries, while the currencies of some non-euro area countries 
have witnessed depreciations.  

  Nominal  depreciations  were  common  in  2019,  while  larger  cross-country  differences  are 
observed  in  currency  developments  in  2020.  Most  EU  countries  recorded  nominal 
depreciations in 2019, which was even stronger for some Member States outside the euro area, 
notably  Hungary,  Romania  and  Sweden.  In  2020,  the  euro  started  to  appreciate  again  after  the 
COVID-19 outbreak. Outside the euro area, currencies have either broadly followed the euro, or 
have been appreciating markedly (Sweden), or depreciating considerably, notably in the case of 
Hungary, and to a lesser extent Czechia and Poland.  

  ULC-based REERs appreciated in a majority of Member States in 2019, but less strongly 
than  in  recent  years  and  the  crisis  is  further  dampening  appreciation  trends.  Notably,  a 
number of central and eastern European countries continued to exhibit stronger real appreciation 
in 2019. This includes some euro area countries, notably the Baltics and Slovakia and non-euro 
area  countries,  notably  Bulgaria,  Czechia  and  Romania.  Among  net-creditor  countries,  only 
Germany and Malta exhibited a notable REER appreciation. After real appreciations forecast for 
2020  in  most  countries  reflecting  the  temporary  jumps  in  ULC,  the  dampened  ULC  growth 
forecast for 2021 is expected to also lead to contained real appreciations in most EU countries.  

  Price-cost margin compression is still observed in a majority of Member States. Dynamics in 
ULC-based REERs above those in the GDP-based REER have been observed in recent years and 
continued  until  2019  although  at  lower  pace,  which  suggests  a  further  compression  of  profit 

23 

-3-2-1012345604050607080910111213141516171819f20f21f% change  Countries NIIP < -35% of GDPCountries NIIP > +35% of GDPCountries -35% < NIIP < +35% 
 
 
 
 
 
 
margins.32  This  trend  continued  in  2020,  most  visibly  for  some  central  and  eastern  European 
countries, Belgium, Greece, Malta and Spain.  

  Going forward,  also  REER  measures  suggest  that  cost  competitiveness  developments may 
be becoming less supportive of rebalancing than in the past. Over 2020 and 2021, large net-
debtor countries or countries that have been more affected by the COVID-19 recession, such as 
Croatia, France, Italy, Portugal or Spain, are forecast to record only limited or no competitiveness 
gains vis-à-vis Germany and the Netherlands.  

  The level of REER indexes appears above benchmark mostly in Member  States that have 
been  characterised  by  more  prolonged  trends  of  strong  relative  price  dynamics.  This  is 
notably the case of central and eastern European countries. 

Graph 15: Nominal and real effective exchange rates (NEER and REER) dynamics 

Source: AMECO, 2020 and 2021 data come from the European Commission autumn 2020 economic forecast. 
Note: Countries are presented in increasing order of the average annual variation of the Real Effective Exchange Rate (REER) 
based on the ULC deflator over the years 2017 to 2019. The REERs and the Nominal Effective Exchange Rate (NEER) are 
computed vis-à-vis 37 trading partners. The GDP-based REER index level is expressed as percentage difference with respect to 
a  benchmark  representing  the  REER  consistent  with  economic  fundamentals.  The  reading  in  the  graph  gives  the  gap  of  the 
observed REER level with respect to the REER benchmark level: positive index values indicate overvaluation, and negative 
index values undervaluation.33  

The  growth  of  export  market  shares  decelerated  in  2019  and  is  expected  to  further  fall  for  a 
majority of Member States. In 2019, no Member State recorded export market share losses below the 
scoreboard threshold (based on cumulated share change over 5 years). The COVID outbreak is shaping 
a much different trade environment, with implications for export market shares. 

  Export market shares in 2020 are expected to fall in about half of the EU Member States. 
The  crisis  is  reducing  more  markedly  intra-EU  trade  as  compared  with  extra-EU  trade.  This  is 

32  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. 
33  The  methodology  to  compute  this  fundamentals-based  benchmarks  is  based  on  the  note  for  the  EPC  LIME 
Working Group “Benchmarks for the assessment of real effective exchange rates”, presented on 15 June 2020. 

24 

-30-20-100102030-8-6-4-2024682017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-1920202017-192020IEFIFRELITATESNLBECYSIPTMTDELUSKLTLVEESEDKHUHRPLROCZBGEuro areaNon euro areaIndex, gap wrt. benchmark% ChangeNEERREER-GDP deflatorREER-ULCREER-GDP index (gap wrt. benchmark, 2019, rhs) 
 
 
 
 
 
 
 
 
                                                      
 
because the COVID crisis has so far impacted more strongly the EU compared with other world 
areas. As EU countries trade mainly among themselves, their major export markets have shrunk 
compared with that of other world areas, which also implies a loss of market shares for a majority 
of EU countries.  

  Export  market  shares  fall  most  markedly  for  countries  that  export  intensively  services, 
notably  tourism.  Trade  is  falling  especially  in  services,  notably  tourism  which  is  strongly 
affected  by  restrictions  on foreign  travel and  changed  behaviour  of  consumers.  In  2020,  export 
market shares are forecast to  decline the most in Croatia, Cyrus, Greece, France, Italy, Portugal 
and  Spain,  all  characterised  by  heavy  dependence  on  the  battered  tourism  sector.  Instead, 
Germany and the Netherlands are forecast to gain export market shares.  

3.2 Private debt and housing markets 

Private sector debt as a share of GDP has been falling in a majority of Member States until 2019 
amid favourable economic developments but debt levels remain elevated in some countries. Eleven 
Member  States  exceeded  the  scoreboard  threshold  for  total  private  debt  in  2019,  compared  to  12  in 
2018: Cyprus, Denmark, Ireland, Luxembourg, the Netherlands and Sweden record private debt-to-GDP 
ratios of over 200%, reflecting also the high importance of multinational enterprises and special purpose 
vehicles in several of those countries. Belgium, Finland, France and Portugal record lower levels but are 
also  beyond  the  threshold.  Debts  differ  widely  across  countries  in  light  of  structural  country-specific 
factors  which  justify  such  differences.  However,  debts  appear  high  in  some  EU  countries  also  when 
compared  with  benchmarks  that  account  for  these  country  specific  economic  fundamentals.  In  some 
countries debts appear high also with respect to prudential thresholds.34  

  Private  sector  deleveraging  continued  in  2019  with  most  EU  countries  recording  lower 
private  debt  ratios.  Reductions in  the  debt-to-GDP  ratio  between  2018  and  2019  were  mainly 
accounted for  by  nominal GDP  growth  (“passive  deleveraging”),  as  borrowing  accelerated  in a 
growing number of countries in recent years.  

 

In  recent  years,  borrowing  was  increasingly  dynamic  especially  for  the  household  sector. 
Despite  mostly  positive  net  credit  flows,  debt-to-GDP  ratios  for  non-financial  corporations 
(NFCs) have been falling in all EU countries between 2018 and 2019 except Denmark, Finland, 
France  Germany,  Luxembourg  and  Sweden.  For  what  concerns  households,  reductions  in  debt 
ratios were observed in only about half of the Member States. Over recent years, the dynamics of 
the debt stock (transactions affecting the stock of credit and outstanding debt securities) has been 
relatively  strong  for  what  concerns  households  (see  Alert  Mechanism  Report  2020).  The  same 
pattern was observed again between 2018 and 2019. 

34 Country-specific debt benchmarks have been 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)  and  J.-C.  Bricongne,  L.  Coutinho,  A.  Turrini  and  S. 
Zeugner,  “Is  Private  Debt  Excessive?”,  Open  Economies  Review,  3,  471-512,  2020.  Fundamentals-based 
benchmarks  allow  assessing  private  debt  against  values  that  can  be  explained  on  the  basis  of  economic 
fundamentals, and are derived from regressions capturing the main determinants of credit growth and taking into 
account a given initial stock of debt. Prudential thresholds represent the debt level beyond which the probability of 
a  banking  crisis  is  relatively  high;  those  levels  are  based  on  the  maximisation  of  the  signal  power  in  predicting 
banking crises by minimising the probability of missed crisis and of false alerts and incorporating country-specific 
information on bank capitalisation, government debt, level of economic development. 

25 

 
 
 
 
 
 
                                                      
 
  NFCs  debt  remained  above  benchmarks  in  a  number  of  countries  in  2019.  In  Belgium, 
Cyprus,  Denmark,  France,  Ireland,  Luxembourg,  the  Netherlands,  Malta,  Portugal,  Spain  and 
Sweden,  NFC  debts  have  been  above  levels  justified  by  both  economic  fundamentals  and 
prudential thresholds. NFC debt is expected  to hoover close to prudential thresholds in Austria, 
Croatia, Greece and Italy and to continue to exceed prudential levels in Finland in 2020 (Graph 
16).  In  a  number  of  countries,  notably  Belgium,  Cyprus,  Ireland,  Luxembourg  and  the 
Netherlands,  NFC  debt  is  significantly  impacted  by  cross-border  intra-company  and  special 
purpose entities’ debt. 

  Household debt remained above benchmarks in several Member States in 2019. In Denmark, 
Finland, France, Greece, the Netherlands, Portugal, Spain and Sweden debt levels are above both 
the  fundamental-based  benchmark  and  the  prudential  thresholds  (Graph  21).  Household  debt 
exceeds prudential levels in Belgium and Cyprus and are close to prudential thresholds in Austria, 
Germany and  Italy.  In some countries, debt ratios for the household sector appear considerably 
higher  when  computed  as  a  share  of  household  gross  disposable  income.  This  is  the  case  of 
Ireland, Luxembourg and Malta.  

In 2020, private debt ratios appear on the rise in most Member States, notably for what concerns 
NFCs.  Estimates  of  debt-GDP  ratios  for  NFCs  and  households  (based  on  available  information  from 
monthly  data  for  what  concerns  debt  stocks)  point  to  non-negligible  increases  in  most  EU  countries. 
Such increase in debt ratios is largely the mechanical result of reduced GDP figures at the denominator 
of the ratio. However, in particular for what concerns NFCs, dynamics in the debt stock also play a role. 
Net  credit  flows  are  indeed  expected  to  be  large  in  2020  in  most  EU  countries,  notably  in  Belgium, 
Finland, France, Ireland, Luxembourg, Spain and Sweden, in some cases markedly larger than in 2019. 

Graph 16: Non-financial corporations debt 

Source:  Eurostat  sectoral  financial  balance  sheet  accounts  –  loans  (F4)  plus  debt  securities  (F3),  AMECO  and  Commission 
services estimates (see Box 1). 
Note: Countries are presented in decreasing order of the NFCs debt-to-GDP ratio in 2019. Numbers below the country codes 
indicate the year when that debt ratio peaked. For the definition of fundamental-based benchmarks and prudential thresholds 
see footnote 34. 

For  what  concerns  NFCs,  sharp  losses  and  liquidity  shortages  explain  the  increased  borrowing 
needs in 2020.  

  Debt  ratios  in  2020  appear  on  the  rise  most  notably  in  countries  where  the  COVID-19 
outbreak is denting more severely NFC profits and cash flows. In general, the countries where 

26 

050100150200250300LUCYIENLBESEDKFRPTFIMTESATBGITEEHRELDECZHUSKLVSIPLLTRO151415141609202012200909090912091012201309201009160911% of GDP201820192020fPeak valueFundamentals-based benchmark 2019, %GDPPrudential benchmark 2019, %GDP 
 
 
 
 
   
 
net  operating  profits  of  corporations  are  expected  to  fall  substantially  in  2020  tended  to  be  the 
same recording the strongest net credit flows (transactions) as a share of 2019 GDP (see  Graph 
20).  

 

Increased borrowing was needed to finance NFC working capital to build liquidity buffers, 
implying that NFC net debt did not raise as much as gross debt. Part of the borrowing was 
used to replenish and beef up cash buffers to cope with the increased uncertainty on the economic 
situation  and  to  profit  from  temporary  special  measures  to  support  credit  flows.  Borrowing  to 
finance investment has played a minor role. In all, despite the substantial borrowing in 2020, the 
saving  position  of  corporations  is  expected  not  to  fall  substantially.  Moreover,  due  to  reduced 
investment, corporate net savings are expected to rise in all EU countries (see Graph 11). 

  Borrowing  was  facilitated  by  a  number  of  policy  measures.  In  addition  to  ample  liquidity 
provision  to  banks  by  monetary  authorities  and  an  adaptation  of  prudential  regulations, 
government  credit  guarantees  helped  maintaining  credit  flows,  notably  for  small  and  medium 
enterprises.  

  Debt  repayment  moratoria  contribute  to  inflate  debt  dynamics  in  2020.  The  delay  in  debt 
repayment by NFCs allowed by the moratoria across the EU, either as a government measure or 
as voluntary initiative by lenders, imply a mechanical increase in the dynamics of the debt stock. 
This is confirmed by a much stronger positive relation in 2020 between the change in NFC debt 
and  the  “pure  new”  MFI  lending  (excluding  renegotiations  and  repayments)  than  the  one 
observed in 2019 (see Graph 17 and Graph 18). In 2020, the dynamics of debt were therefore less 
affected by repayments as compared with the past, arguably as a result of moratoria.  

  Going forward, dynamics in the debt-to-GDP ratio are expected to be more contained for a 
number  of  reasons.  First,  the  mechanical  increase  in  debt  ratios  due  to  a  reduction  in  the 
denominator  is  expected  to  be  short-lived  as  the  debt-GDP  ratio  in  2020  increases  mainly  on 
account of a temporary cyclical downturn (see Graph 19). Second, the exceptional measures put 
in  place  in  2020  will  be  gradually  phased  out.  The  expiration  of  debt  moratoria  will  lead  to 
increased  repayments.  The  phasing  out  of  credit  guarantees  will  imply  reduced  borrowing 
possibilities for firms under dire conditions. Moreover, survey data suggests that going forward, a 
tightening  of  lending  conditions  may  take  place.35  Third,  NFCs  will  have  the  possibility  to  run 
down liquidity buffers as an alternative to new borrowing.  

  Protracted  hardship  for  the  NFC  sector  may  dent  on  investment  and  debt  repayment 
prospects.  Profitability  will  remain  deeply  affected  especially  in service sectors  exposed to the 
pandemic.  This  may  not  only  imply  subdued  investment,  but  also  difficulties  in  paying  back 
existing debt. More generally, the expiration of debt moratoria will imply a higher debt burden 
because of accumulated interests.  

35 ECB (2020): The euro area bank lending survey – Second quarter of 2020, July 2020. 

27 

 
 
 
 
 
                                                      
 
Graph  17:  New  MFI  loans  to  NFCs  vs 
evolution of NFC debt-to-GDP, 2019 

Graph  18:  New  MFI  loans  to  NFCs  vs 
evolution of NFC debt-to-GDP, 2020 

Source:  ECB  MIR  database,  AMECO,  Eurostat  and  Commission  services  calculations  (see  also  Box  1  for  private  debt 
forecasts).  
Note:  New  MFI  loans  refer  to  “pure  new”  credit  by  monetary  financial  institutions  (MFIs)  and  comprises  only  new  loans 
extended  by  MFIs  to  NFCs,  excluding  renegotiations  and  repayments.  It  excludes  Belgium,  Cyprus  and  Luxembourg  as 
outliers, and Bulgaria, Denmark, Ireland and Sweden due to data availability. 

Graph  19:  Decomposition  of  the  change  in 
NFC debt-to-GDP (2019 – 2020) 

Graph 20: Evolution of  gross operating surplus 
in 2020 and net credit (transactions) to NFCs 

Source: AMECO, Eurostat and Commission services estimates (see Box 1) and calculations based on ECB monthly data on 
MFI  loans  and  debt  securities  transactions  (flows)  with  the  private  sector  from  the  BSI  database,  European  Commission 
autumn 2020 economic forecast.  
Note: Net credit flows (debt transactions) correspond to transaction of loans (F4) and debt securities (F3) from the Eurostat 
sectoral financial transactions accounts. NFC gross operating surplus not available for Bulgaria, Croatia and Malta. 

28 

DEEEELESHRITLVLTHUNLATPLPTROSISKFI-3-2-1012345-10-50510New MFI loans to NFCs 2019, y-o-y change, % 2019 GDPNFC debt 2019, y-o-y change, % of 2019 GDPCZDEEEELESFRHRITLVLTHUMTNLATPLPTROSISKFI-4-3-2-1012345-10-50510New MFI loans to NFCs 2020, y-o-y change, % 2019 GDPNFC debt 2020, y-o-y change, % of 2019 GDP-20-16-12-8-404812162024IELTLVROPLEEBGSICZDEHUSKDKHRSENLCYATLUITELMTFIPTESBEFRpps. of GDPNet credit flows (transactions)Other changesReal growth, potentialReal growth, cyclicalInflationD/GDP, changeLUCYIENLBESEDKFRPTFIESATITEEELDECZHUSKLVSIPLLTRO-202468-20-15-10-5051015Net credit flows (transactions) 2020, % 2019 GDPGross operating surplus 2020f, y-o-y % change 
 
 
 
 
 
 
 
 
 
 
Graph 21: Household debt 

Source:  Eurostat  sectoral  financial  balance  sheet  accounts  –  loans  (F4)  plus  debt  securities  (F3),  AMECO  and  Commission 
services estimates (see Box 1).  
Notes: Countries are presented in decreasing order of the households debt-to-GDP ratio in 2019. Numbers below the country 
codes  indicate  the  year  when  that  debt  ratio  peaked.  For  the  definition  of  fundamental-based  benchmarks  and  prudential 
thresholds see footnote 34. 

Regarding households, the COVID-19 outbreak appears to have led to more subdued borrowing 
dynamics in light of reduced income prospects and increased savings.  

  Net  credit  flows  (debt  transactions)  to  households  are  expected  to  be  close  to  zero  or 
moderate in 2020 for most EU countries. As shown in Graph 22, the growing household debt-
to-GDP  ratios  across  the  board  are  largely  driven  by  the  slump  in  GDP  and  not  by  credit  and 
security  transactions,  which  are  rather  limited,  and  appear  to  have  shrunk  in  nearly  all  EU 
countries  compared  with  2019.  Decelerations  in  households  borrowing  appear  justified  by 
worsened  income  prospects  for  households  coupled  by  increased  savings,  partly  precautionary 
and partially because of restrictive measures hampering consumption possibilities. Cross-country 
differences  are  possibly  linked  to  the  severity  of  lock-downs  and  a  halt  in  house  purchases, 
different degrees of government support to household incomes and credit conditions, and also to 
housing market conditions.  

  The deceleration in household borrowing is taking place despite the effect of moratoria. As 
with NFCs, debt moratoria has a positive effect on the evolution of the debt stock on account of 
lower  repayments.  Because  of  this  effect,  the  stock  of  household  debt  appears  to  be  falling  at 
reduced speed.  

  Household  debt  dynamics  are  likely  to  remain  subdued  and  repayment  difficulties  may 
emerge  as  labour  markets  deteriorate.  Despite  continued  supportive  financial  conditions  and 
government measures to cushion the fallout of the crisis on the labour market and on households, 
household  incomes  will  remain  under  pressure.  In  particular,  after  having  declined  until  2020, 
unemployment rates are forecast to increase across the board through 2021. That will reflect also 
job losses following the phasing out of the measures that governments have taken to cushion the 
impact of the pandemic, notably subsidised short-time work schemes, which are supposed to be 
temporary  to  avoid  keeping  jobs  in  unviable  firms.  Increased  debt  repayment  difficulties  for 
households  could  materialise  also  in  countries  already  characterised  by  a  relatively  high 
household debt burden (Graph 23).  

29 

020406080100120140160DKNLCYSEFILUPTFRBEESELDEMTATSKITEEIEHRPLCZSIBGLTLVHURO091014202020092020091306111020200909101620120809091010% of GDP201820192020Peak valueFundamentals-based benchmark 2019, %GDPPrudential benchmark 2019, %GDP 
 
 
 
 
  
 
Graph  22:  Decomposition  of  the  change  in 
household debt-to-GDP (2019 – 2020)  

Graph 23: Household debt and unemployment 

Source:  Net  credit  flows  (debt  transactions)  correspond  to 
transaction  of  loans  (F4)  and  debt  securities  (F3)  from  the 
Eurostat  sectoral  financial 
transactions  accounts.  Other 
sources are AMECO and Commission services estimates (see 
Box 1) and calculations based on ECB monthly data on MFI 
loans and debt securities transactions (flows) with the private 
sector from the BSI database. 

Source:  AMECO,  data  for  2020  and  2021  come  from  the 
European Commission autumn 2020 economic forecast 

House prices kept increasing until early 2020, in some cases accelerating. 

 

In  2019,  eight  Member  States  showed  real  house  price  growth  above  the  scoreboard 
threshold  (Croatia,  Czechia,  Greece,  Hungary,  Luxembourg,  Poland,  Portugal,  and  Slovakia), 
one  more  than  in  2018.  Overall,  that  confirmed  the  continuation  of  the  dynamic  house  price 
growth that has been observed since around the middle of the decade.  

  House prices grew in 2019 in nearly all EU countries, and accelerations between 2018 and 
2019  took  place  in  a  majority  of  Member  States.  Decelerations  were  observed  instead  in 
Bulgaria,  Denmark,  Germany,  Ireland,  Latvia,  Malta,  the  Netherlands,  Romania,  Spain  and 
Slovenia. 

  The  recent  positive  trend  in  house  price  growth  was  mainly  driven  by  economic 
fundamentals. Low interest rates and accelerating labour incomes were the main factors behind 
the recent demand for housing services, in a context of lagged adaptation of housing supply. An 
acceleration  of  mortgage  debt  growth  became  visible  only  after  house  price  accelerations 
consolidated and became more widespread across the EU.  

 

Strong  house  price  growth  is  observed  also  in  Member  States  exhibiting  signs  of 
overvaluation  (Graph  24).  Some  deceleration  in  prices  between  2018 and 2019  was noticed in 

30 

-12-8-404812162024IEPLROLVLTSIHUBGCZEEDEFIATHRSKITCYNLSEDKELMTPTBEESLUFRpps. of GDPNet credit flows (transactions)Other changesReal growth, cyclicalReal growth, potentialInflationD/GDP, changeBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISE012340255075100125Unemployment rate, change 2019-2021, ppsHousehold debt 2019, %GDP 
 
 
 
 
 
 
 
 
 
 
some of the countries with evidence of overvaluation. Yet that was not the case in other notable 
cases, including Luxembourg and Sweden.36  

  A majority of Member States in 2019 exhibit evidence of overvaluation. Comparison of price 
indexes  with  benchmarks  suggest  widespread  evidence  of  overvaluation.  Housing  affordability 
constraints  are  confirmed  by  estimates  of  price  levels.  In  about  half  of  the  EU  countries,  more 
than 10 years of income are needed to purchase a 100 square meter dwelling.37  

Graph 24: Deflated house prices changes and 
valuation gaps in 2019  

Graph  25:  Evolution  of  deflated  house  price 
growth  

Source: Eurostat and Commission services calculations. 
Note: The overvaluation gap is 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  valuation  gaps  obtained  from  a  regression-based  model  of  house  price 
determinants (see footnote 36). House price forecasts are based on the regression-based model of house price determinants (see 
footnote 40). 

Going  forward,  the  COVID-19  crisis  is  expected  to  bend  down  recent  house  price  dynamics, 
mainly in light of falling labour incomes.  

  Quarterly 2020 data reveal that real house price growth starts cooling in several Member 
States. While most EU countries continued recording price growth in the second quarter of this 
year compared with the same quarter of 2019, decelerations or even falls in deflated house prices 
have  already  been  noticed  for  some.  Downward  corrections  on  a  yearly  basis  are  observed  in 

36 House price valuation gaps are computed with respect to benchmarks to capture the  effect of country-specific 
house  price.  Synthetic  valuations  gaps  are  based  on  the  gap  obtained  from  different  benchmarks:  (i)  price-to-
income deviation with respect to its long-term average; (ii) price-to-rent deviation from its long-term average; (iii) 
deviation from regressions-based benchmarks taking into account demand and supply economic fundamentals (see 
N. Philiponnet and A. Turrini (2017), "Assessing House Price Developments in the EU", European Commission 
Discussion Paper 048, May 2017). In the computation of the regression-based benchmarks, cyclical explanatory 
variables are HP filtered to contain their volatility.  
37  Price  level  estimates  are  obtained  on  the  basis  of  national  account  and  census  data  or,  when  not  available, 
information published on real estate agents websites. See J. C. Bricongne et al. (2019),” Assessing House Prices: 
Insights  from  "Houselev",  a  Dataset  of  Price  Level  Estimates”,  European  Economy,  Discussion  Paper  No.  101, 
July 2019.  

31 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISE-2024681012-20-10010203040Deflated HP growth, 2019 (%)Estimated valuation gap, 2019 (%)-6-4-202468101214HUPTHRLUPLELSKCZLVLTNLSIEEDEESATMTBGCYBEFRDKSEFIIEITRO% change20182019Average 2020-2021, forecast 
 
 
 
 
 
  
 
 
                                                      
 
Cyprus and Hungary. Decelerations and stagnations are observed in over half of EU countries. A 
pattern of more widespread downward corrections emerge when looking at the quarter-on-quarter 
dynamics in the first half of 2020, especially in Estonia, Hungary and Romania but also to some 
extent in Latvia, Portugal, Slovenia and Sweden.38  

  Estimates of price levels from quotations  by sellers confirm an incipient weakening of the 
housing market. House price data until mid-2020 may not fully reflect the impact of the COVID 
crisis  because  the  transactions  were  in  many  cases  agreed  before  the  COVID  outbreak. 
Nonetheless,  recent  estimates  of  asked  prices  also  suggest  downward  corrections  in  some 
countries. 39 

  Model-based house price forecasts also point out to softening housing markets through 2021 
and downward corrections in a large majority of EU Member States (Graph 25). The fall in 
labour  incomes  explain  the  large  part  of  the  expected  decelerations.  Strong  decelerations  are 
expected to take place especially in countries currently showing evidence of overvaluation.40  

In a number of Member States, overvalued house prices continue coexisting with high household 
debt. This is  notably  the case in  Belgium,  Denmark,  Luxembourg,  the  Netherlands  and  Sweden. The 
Netherlands is marked also by high price levels with respect to average household income. The growth 
of  the  mortgage  stock  in  2019  was  particularly  rapid  in  Bulgaria  and  Malta  (above  10%  over  the 
previous  year),  and  above  5%  in  14  other  countries.  In  some  cases,  strong  growth  took  place  from 
already  relatively  high  levels,  notably  in  Belgium,  France,  Germany,  Luxembourg  and  Malta.  Apart 
from Greece and Portugal, strong house price growth was associated with strong mortgage growth.41 

3.3 Government sector 

Government  debt  ratios  declined  further  in  most  Member  States  in  2019  amid  continued 
favourable economic conditions but are again on the rise across the EU and  notably in those hit 
more strongly by the COVID-19 crisis. Debt ratios exceeded the scoreboard threshold of 60% of GDP 
in  12  Member  States  in  2019,  down  from  14  in  2018.  Greece,  Italy,  and  Portugal  displayed  debt 

38 Quarter-on-quarter evolution of deflated house prices can be affected by seasonality. This is particularly the case 
in Romania due to the seasonality of the deflator used, the national accounts deflator for private final consumption 
expenditure. More recent evidence, based on the Valueguard Hox house price index, indicates that nominal house 
prices in Sweden increased 8.9% in year-on-year terms in September 2020. 
39  These  estimates  where  obtained  from  a  random  sample  stratified  by  region  for  houses  and  apartments  with 
maximum 600 square meters. Data are Idealista.com realtor website. For each country, the initial sample size was 
around 1700 to 2000 properties. The sample composition is dynamic as some properties cease being available, and 
new  properties  are  included.  The  median  price  per  square  metre  was  tracked  over  time  between  April  and 
September 2020 revealing a clear downward pattern in the three countries analysed. 
40  House  price  forecasts  are  European  Commission  services  forecasts  computed  in  the  framework  of  an  error 
correction model, using as explanatory variables: population, disposable income, housing stock, long-term interest 
rate,  and  the  price  deflator  of  private  final  consumption  expenditure,  as  well  as  the  residual  from  the  estimated 
cointegration relationship. 
41  In  September  2019,  the  European  Systemic  Risk  Board  (ESRB)  issued  country-specific  warnings  and 
recommendations  on  medium-term  vulnerabilities  in  the  residential  real  estate  sector  to  nine  Member  States: 
recommendations  to  Belgium,  Denmark,  Finland,  Luxembourg,  the  Netherlands,  and  Sweden,  and  warnings  to 
Czechia, France, and Germany. Of the former group of countries, all had already received warnings by the ESRB 
in November 2016, and the same held for Austria. The MIP Regulation (Regulation (EU) No 1176/2011) calls on 
the Commission to take into account any warnings or recommendations addressed by the ESRB to Member States 
subject to an IDR. 

32 

 
 
 
 
 
 
                                                      
 
exceeding  100%  of  GDP.  Belgium,  Cyprus,  France,  and  Spain  were  somewhat  just  below  that  mark. 
Other  Member  States  with  debt  beyond  the  60%  of  GDP  include  Austria,  Croatia,  Hungary,  and 
Slovenia.  In  2019,  government  debt  ratios  reductions  were  more  visible  (above  5  pps.  of  GDP)  in 
Cyprus, Greece and Ireland, while government debt remained unchanged in France and Italy. In 2019 
and  some  earlier  years,  in  some  cases,  including  Belgium,  Cyprus,  France  and  Portugal,  government 
debt  in  excess  of  60%  of  GDP  were  observed  together  with  private  sector  debt  in  excess  of  the 
respective scoreboard threshold.   

Government  debt-to-GDP  ratios  are  visibly  on  the  rise  with  the  COVID-19  crisis.  The  loss  in 
output and in revenues associated with the recessions in 2020, as well as the extensive support measures 
put in place by governments to cushion the impact of the crisis are at the origin of increased borrowing 
and growth in debt stocks in all EU Member States. Governments have let automatic stabilisers function 
during the crisis and have provided direct fiscal and liquidity support to mitigate the health crisis and the 
private sector spending retrenchment. In addition, part of the increase in debt-to-GDP ratios in 2020 is 
the mechanical effect of much reduced nominal GDP. 

  By end 2021, government debt ratios are forecast to remain higher than in 2019 in all EU 
countries, sometimes by a wide margin. At the end of 2020, visibly more Member States are 
expected to exceed the 60% of GDP threshold and a few more to go above 100%. In 2021, debt 
ratios are expected to stabilise or mildly decline in around half of the countries with the help of 
the  recovery  and  forecast  lower  deficits  (Graph  26).  However,  in  the  remaining  EU  countries, 
government  debt  is  expected  to  rise  further  in  2021,  notably  in  Romania,  where  the  high 
government  deficit  is  forecast  to  worsen  further  next  year  and  the  debt  ratio  to  hike  markedly 
further even if from relatively low levels.  

  The  increases  of  government  debt  ratios  are  generally  expected  to  be  sharper  where  pre-
crisis  debt  levels  were  already  relatively  high.  That  reflects  the  fact  that  recessions  have 
generally  been  more  severe  in  these  countries,  mainly  because  infections  were  widespread  or 
followed by strong containment  measures and because the economies rely  more on sectors like 
tourism.  Greece,  Italy  and Spain are  forecast  to  record  increases  in  public  debt ratios  above  20 
percentage  points  of  GDP  in  2020.  The  debt  rises  reflect  also  debt-increasing  stock-flow 
adjustments,  which  include  also  forms  of  financial  support  not  recorded  in  government  budget 
balances. These effects are forecast to be the highest in Cyprus, Denmark, Germany and Slovenia.  

  Government  financing  has  not  become  more  costly.  Government  bond  yields  were  stable  or 
declining  along  2019.  After  the  COVID-19-induced  shock  and  subsequent  turmoil  in  financial 
markets  in  March  and  April,  they  spiked  for  some  euro  area  but  also  non-euro  area  countries. 
However, in a context of reduced volatility in financial markets and following extensive action by 
monetary authorities, yields have narrowed again and converged to the levels prevailing earlier in 
2020, in some cases going even lower, inching up only in very few cases.  

The structure of government debt might compound additional risks for some  countries. Maturity 
structures of government debt differ significantly across the Member States, implying also different re-
financing needs in the near future. The gross financing needs in the coming years are forecast to be at or 
above  20%  of  GDP  for  Belgium,  France,  Hungary,  Italy  and  Spain  (Graph  27).  Some  non-euro  area 
countries  outside  ERM  II,  including  Hungary  and  Romania,  face additional  risks  in  face  of  relatively 
large shares of their public debt denominated in foreign currency. 

33 

 
 
 
 
 
 
 
Graph 26: Government debt 

Graph 27: Government gross financing needs 

Source:  AMECO,  2020  and  2021  data  come  from  the 
European Commission autumn 2020 economic forecast 
Note:  Countries  are  ordered 
government debt in 2019 in terms of their GDP. 

in  decreasing  order  of 

Source: Commission services calculations 
Note: Gross financing needs are computed as the sum of the 
fiscal deficit, stock-flow adjustments, and debt amortizations. 
Countries are ordered in decreasing order of the government 
financing needs in 2019 in terms of their GDP.  

3.4 Financial sector 

The EU banking sector strengthened considerably over past years, despite remaining challenges 
linked to low profitability and NPLs in a few Member States.  

  The EU banking sector is in better shape than at outset of the global financial crisis.  Non-
performing loans (NPLs) declined substantially, especially where they were higher. Capital ratios 
stopped growing in 2018 after exceeding TIER 1 regulatory requirements in all Member States. 
Banks have also much stronger liquidity buffers than a decade ago. The growth in financial sector 
liabilities remained limited in 2019, with only Hungary going beyond the scoreboard threshold. 

  The  EU  banking  sector  remains  challenged  by  low  levels  of  profitability,  which  weakened 
further  in  2019,  in  a  low  interest  rate  environment.  Profitability  appears  particularly  low  in 
Cyprus,  Germany,  Greece,  Ireland  and  Portugal.  As  for  capital  ratios,  they  are  comparatively 
lower in Germany, Greece, Hungary, Portugal and Spain. 

  A  few  EU  countries  are  challenged  by  a  combination  of  low  profitability,  capital  ratios 
below  average,  and  high  NPLs  (Graph  28  and  Graph  29).42  In  Greece,  the  NPL  ratio  has 

42 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 in annex. Harmonised data on NPL ratios are available only since 2014. Thus, for the data 
concerning  2008  and  the  "increase  to  peak",  Graph  29  displays  data  for  the  ratio  of  gross  non-performing  debt 
instruments  (NPDs)  over  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, much because the denominator is larger, i.e., total gross debt instruments are larger than total loans. 
The maximum difference between the two ratios currently amounts to 4 percentage points (for Greece), while for 
most countries it is below 1 p.p.. 

34 

050100150200  EL  IT  PT  FR  BE  ES  CY  HR  AT  SI  HU  DE  FI  IE  NL  SK  PL  MT  LV  LT  RO  SE  DK  CZ  LU  BG  EE% of GDP201820192020f2021f05101520253035ITHUFRESBEELCYHRPTDEFIATRONLSISELTIEDKCZMTLVPLSKLUBGEE% of GDP201820192020f2021f 
 
 
 
 
 
  
 
 
                                                      
 
declined but it is still around 35%, while profitability is only marginally positive and capital ratios 
rank  among  the  lowest  in  the  EU.  Cypriot  banks  have  recorded  considerable  improvements  in 
their  very  high  NPL  ratio,  which  fell  below  20%,  and  bank  profitability  has  been  positive  but 
below EU average. In Italy, Bulgaria and Portugal the NPL ratio has declined markedly in the last 
years  with  further,  though  more  moderate,  reductions  in  2019,  to  below  7%.  Capital  ratios  are 
below average in Italy and Portugal, and the profitability is lower especially for the latter.  

The COVID-19 shock is likely to have a significant impact on bank asset quality, profitability and 
capital. These effects are not yet visible, and may take time to unfold also in light of extensive support 
policy measures. The COVID-19 shock has resulted in a major drag on the economic outlook and some 
individual  banks  are  significantly  exposed  to  sectors  disproportionally  affected  by  the  crisis.  Ample 
liquidity provided by central banks helped limiting a credit crunch after the COVID-19 outbreak, and 
the  suspension  of  dividend  payments  and  some  temporary  regulatory  relaxation  are  giving  further 
breathing space to banks. However, a number of challenges which may dent on bank balance sheets and 
capital are looming:43 

  Rising NPLs. Difficulties in debt repayment by NFCs whose profitability is most affected by the 
COVID-19  crisis  will  most  likely  imply  an  increase  of  NPLs.  Bankruptcies  are  expected  to 
increase especially in sectors where room for reducing physical distancing is more limited. The 
fact  that  households’  income  and  employment  prospects  are  challenged  would  imply  that  also 
larger parts of mortgage debt may become non-performing. In addition, in countries with legacy 
issues,  banks  will  find  it  more  difficult  to  sell  existing  NPLs.  Delayed  payments  are  already 
taking  place  due  to  moratoria.  Because  moratoria  are  in  place,  a  share  of  loans  which  would 
normally  be  classified  as  NPLs  may  currently  not  be  classified  as  such.  Data  available  for  a 
sample of systemic EU banks suggest that the stock of NPLs has stopped declining starting from 
the second quarter of 2020.44 Tentative estimates of a possible evolution of NPL ratios point to a 
sizeable increase.45  

  The profitability of the EU banks is expected to further worsen.  Profitability is expected to 
decline  further  as  a  consequence  of  reduced  credit  demand,  compressed  interest  margins,  and 
credit  losses.46  Consistently,  bank  equity  valuations  have  recorded  major  declines  after  the 
COVID-19  outbreak.  Bank  equity  valuations  stagnated  already  over  2019  and suffered a  major 
drop  in  March  2020  right  at  the  COVID-19  outbreak  and  have  only  marginal  recovered 
afterwards, clearly tracking behind overall European stock market indexes.  

  Asset valuations.  Banks are absorbing large shares of government bonds. Financial institutions 
linked  to  sovereign  in  countries  with  more fragile  public  finances  might  be  exposed to  adverse 
feedback  loops.  Moreover,  softening  real  estate  markets,  notably  commercial  real  estate,  may 

43 For a recent ECB stress test estimating the loss of capital for the euro area banking sector under alternative 
scenarios, see 
https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200728~7df9502348.en.html. 
44 Source: EBA risk dashboard, Q2 2020.  
45 The NPL ratio in the euro area could increase between December 2019 and 2021 by 1.7 and 2.3 p.p. –according 
to Allianz Research, European Banks – Could Eur 300 bn of Additional NPLs Crunch the Recovery in Europe?, 
July 2020. 
46  ECB,  Financial  Stability  Review,  May  2020.  EBA,  The  EU  Banking  Sector:  First  Insight  into  the  Covid-19 
Impacts, Thematic Note EBA/REP/2020/17. 

35 

 
 
 
 
 
                                                      
 
reduce the value of mortgage collateral and lead to a feed-back loop between house prices, bank 
balance sheets and availability of mortgages. 

This crisis will further prolong the low interest rate environment with a possible adverse impact 
on  the  non-banking  financial  sector.  As  the  low-yield  environment  affects  especially  low-risk 
financial assets, it strains also the profitability and balance sheet of non-bank financial institutions with 
asset portfolios largely invested in those low-risk assets, such as insurance companies, notably its life-
insurance  subsector,  and  pension  funds.  In  search  for  yield,  many  non-bank  financial  institutions 
increased  their  leverage  and  exposure  to  more  risky  assets  whose  prices  declined  after  the  COVID 
outbreak,  inducing  significant  valuation  losses  to  investment  funds  in  particular.  The  recent 
developments are also expected to have adverse impact on the insurance sector.47  

Graph  28:  Banking  sector  profitability  and 
capital 

Graph 29: Non-performing loans 

Source: ECB, Commission services calculations. 
Note: The average values for the EA on  Graph 28 are unweighted by the economy size. Data on gross non-performing debt 
instruments  (NPDs)  for  2008  are  unavailable  for  Croatia,  Czechia,  Ireland,  Slovenia,  and  Sweden.  On  Graph  29,  data 
concerning 2008 and the "increase to peak" refer to the ratio of gross non-performing debt instruments (NPDs) over total gross 
debt instruments; NPL ratios are reported for 2018Q1 and 2019Q1; numbers below the country codes indicate the year when 
NPDs peaked. 

47 EIOPA (2020): Financial Stability Report, July 2020. 

36 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSE024681012141618121416182022Return on equity (2019)Tier 1 ratio (2020 Q1)EA (2019)EA (2018)05101520253035404550ELCYBGITPTHRPLHULVROIEESSISKMTFRDKATBELTNLEECZFIDESELU171412151614111310141414131515141414141114101614161415% of total gross debt instruments / loansCountry | Peak year2008 (NPDs)Increase to peak (NPDs)2020Q1 (NPLs)2019Q1 (NPLs) 
 
 
 
 
 
 
 
 
 
 
                                                      
 
Box 2: Employment and social developments 

In 2019, before the pandemic, improvements in the EU labour markets continued despite the European 
economy was already slowing down. In 2019, employment grew further in the EU and set a new record in the 
number  of  persons  employed.  In  2019,  the  employment  rate  increased  in  almost  all  Member  States.  Bulgaria 
witnessed the largest increase in the employment rate (2.4 pps), followed by Cyprus (1.9 pps), Greece (1.6 pps) 
and  Croatia  (1.5  pps).  Unemployment  kept  falling  in  nearly  all  Member  States,  reaching  its  lowest  rate  since 
2000 (6.5%) in December 2019 and all countries entered 2020 with the lowest unemployment rates since 2013. 
The  drop was particularly intense in those  countries  with  high  unemployment such as  Greece and Croatia (-2 
pps), Cyprus (-1.3 pps) and Spain (-1.2 pps), while in Sweden the unemployment rate increased by 0.4 pps, and 
in Luxembourg and Lithuania, it hovered around the same level of 2018, albeit from comparatively low levels in 
all  three  cases.  Hence,  cross-country  differences  in  unemployment  rates  markedly  declined  but  remained 
significant before the COVID-19 outbreak. 

Activity  rates  were  also  quite  resilient  to  the  pre-pandemic  slowdown,  while  long-term  and  youth 
unemployment improved more strongly than the rest of the labour market indicators. In 2019, the activity 
rate  (15-64  years  old)  declined  only  in  France  (-0.4  pps),  Latvia  (-0.2  pps)  and  Estonia  (-0.2  pps).  The  gap 
between  the  countries  with  lowest  and  the  highest  activity  rate  remained  mainly  unchanged  at  about  16  pps. 
Long-term unemployment decreased in all Member States in 2019 and all recorded lower rates than three years 
earlier. The highest long-term unemployment rates were observed in Greece (12.2% of the active population), 
Italy (5.6%) and Spain (5.3%). In nearly all EU countries, the youth unemployment rate fell in the three years to 
2019;  yet  it  was  still  above  30%  in  Greece  and  Spain  and  with  Italy  just  below  that  level.  At  the  same  time, 
10.1%  of  young  people  (15-24  years  old)  in  the  EU  in  2019  were  neither  in  employment  nor  in  education  or 
training  (NEET).  Furthermore,  several  Member  States  (including,  Bulgaria,  Croatia,  Cyprus,  France,  Greece, 
Hungary, Ireland, Italy, Romania, Slovakia, and Spain) recorded rates above 10%. 

Poverty  and  social  exclusion  declined  further  in  2019  but  remains  elevated  in  a  number  of  Member 
States. The share of people at risk of poverty or social exclusion (AROPE) decreased further in the EU to 21.4% 
in 2019.48 All countries recorded decreases in the three years to 2019, except Sweden and Luxembourg, which 
recorded increases, albeit from comparatively low levels. Despite a significant drop in the level of the AROPE 
rate from nearly 39% to 32.5%, Bulgaria continues recording the highest level in the EU, followed by Romania 
and Greece, with both cases over 30%, while Spain, Latvia and Lithuania recorded rates above 25%.  

However,  the  COVID-19  outbreak  has  drastically  changed  the  outlook.  In  a  few  weeks,  the  outlook  for 
2020 has taken a dramatic turn for the worse. In the second quarter of 2020, GDP was almost 15% lower than at 
the end of 2019 (18% for the euro area) and employment declined by 3% or 6 million less employed (2.9% for 
the euro area). These are the largest declines ever observed at the early stage of a recession. Moreover, there is a 
great deal of uncertainty associated with the consequences of this unprecedented shock as the economic impact 
may vary significantly by country depending, among other factors, on the intensity of the outbreaks and on their 
different sector specialisations. 

The  extensive  use  of  short-time  work  schemes  have  mitigated  the  impact  of  the  recession  on 
unemployment. While the unemployment rate did increase in all Member States, forming a clear break with the 
developments  in  previous  years,  the  increases  were  relatively  small  in  most  countries.  The  widespread  use  of 

48 Weighted average of the 25 Member States for which the data were available by 23 October 2020. 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  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 of 
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.  

37 

 
 
 
 
 
                                                      
 
short-time  work  schemes  contributed  to  curbing  the  massive  job  destruction  that  many  countries  would  have 
otherwise experienced following the severe output losses of the first two quarters 2020. This is particularly the 
case  for countries with established short-time work schemes; while in  those countries that recently introduced 
such  schemes,  in  part  due  to  the  design  of  their  schemes  or  to  implementation  delays,  they  barely  dampen 
increases  in  unemployment  in  comparison  with  what  could  have  been  expected  on  the  basis  of  historical 
evidence (Figure 1).49  

The drop in the activity rate explains the decline in the unemployment rates observed in some Member 
States. The severity of the recession has brought many unemployed people into inactivity as they gave up job 
search. In nine Member States, accounting for more than one third of the EU population, there was a contraction 
in the activity rate. For the EU as a whole, the activity rate (15-64) dropped from 73.5% in the fourth quarter of 
2019 to 71.8% in the second quarter of 2020. For example, in Italy, the decline in the unemployment rate by 2 
pps  between  January  and  April  reflects  a  stronger  drop  in  the  activity  rate  by  3.5  pps  than  the  one  in  the 
employment rate (-1.7 pps).  

Graph: Actual unemployment rate in the presence of short-time work schemes and Okun’s law prediction 

Source: Labour Markets and Wage Developments in Europe 2020 
Note: Okun's law refers to the observed relationship between unemployment and losses in a country's production.  

The  COVID-19  crisis  is  hitting  the  most  vulnerable  workers  disproportionally  more  and  may  require 
sustained  efforts  to  mitigate  increasing  social  and  economic  inequalities.  The  impact  of  the  pandemic  on 
employment  differs  across  countries,  sectors  and  workers.50  In  particular,  the  most  economically  vulnerable 
workers (low-educated, low-wage workers, non-EU born migrants) and young workers are likely to have a job 
in sectors particularly exposed to the epidemiological risks (i.e. retail trade, accommodation and food services); 
most  of  them  are  in  non-standard  forms  of  employment.  As  a  result,  in  absence  of  corrective  measures,  the 
impact of COVID-19 might take a proportionally greater toll on those with lower income, leading to increased 
poverty rates. Against such a backdrop, Member States have adopted temporary measures to support vulnerable 
groups with very low incomes and people not entitled to unemployment benefits. Going forward, national policy 
responses,  supported  by  EU  initiatives  such  as  SURE,  react  EU,  ESIF  and  RRF,  are  important  to  cushion 
effectively the fallout of the crisis on the social situation. 

49  European  Commission  (2020),  Labour  Markets  and  Wage  Developments  in  Europe  2020  (forthcoming).  Countries  with 
consolidated short-time work schemes: Austria, Belgium, Germany, Spain, Finland, France, Italy, Luxembourg, Portugal, and 
Sweden.  
50 See Basso, G., et al. (2020), "The new hazardous jobs and worker reallocation", OECD Social, Employment and Migration 
Working Papers, No. 247, OECD Publishing, Paris, https://doi.org/10.1787/400cf397-en. 

38 

Unemployment rate in countries with consolidated STW Unemployment rate in countries with new STW02468102019q42020q12020q2%Actual unemployment ratePredicted based on Okun02468102019q42020q12020q2%Actual unemployment ratePredicted based on Okun 
 
 
 
 
 
 
 
 
 
                                                      
 
4. 

SUMMARY OF MAIN CHALLENGES AND SURVEILLANCE IMPLICATIONS 

Macroeconomic  imbalances  have  been  mainly  under  correction  until  2019  amid  favourable 
economic conditions, but new risks are looming after the COVID-19 outbreak.  

  Flow imbalances corrected after the 2008 financial crisis and the economic expansion since 
2013 helped the reduction of stock imbalances mainly thanks to a higher denominator pushing 
down debt-to-GDP ratios. At the same time, over recent years, the expansion has brought some 
overheating risks mainly at the level of house prices and cost competitiveness, especially where 
growth was stronger. These trends continued until 2019. 

  After  the  COVID-19  outbreak  a  number  of  existing  macroeconomic  imbalances  may  be 
aggravating, and new risks may loom. Forecast and infra-annual data suggest in particular that 
government and private debt-to-GDP ratios are now on the rise. Going forward, debt repayment 
prospects  would  be  challenged  by  persisting  subdued  levels  of  economic  activity,  corporate 
bankruptcies,  a  weak  labour  market.  Banks’  balance  sheets  may  be  affected  going  forward  by 
debt distress, as well as impaired profitability. At the same time, excessively buoyant house price 
dynamics that were characterising the recent past may turn into downward corrections. 

Overall,  challenges  are  present  in  a  number  of  Member  States,  for  different  reasons  and  to  a 
different  extent.  The  degree  of  severity  of  the  challenges  for  macroeconomic  stability  varies 
significantly  across  Member  States,  depending  on  the  nature  and  extent  of  vulnerabilities  and 
unsustainable  trends,  and  the  way  they  interact  with  each  other.  The  main  sources  of  potential 
imbalances combine according to a number of typologies summarised as follows: 

  A number of Member States continue to be mainly affected by multiple and interconnected stock 
vulnerabilities.  This  is  typically  the  case  for  those  countries  that  were  hit  by  boom-bust  credit 
cycles coupled with current account reversals following the global financial crisis, which also had 
implications for the banking sector and for government debt. A number of these Member States 
have been badly affected by the COVID-19 recession, reflecting also the relatively high relevance 
of tourism in their economies. 

o  In  the  case  of  Cyprus  and Greece,  elevated  debt  stocks,  and  large  negative  net  international 
investment  positions  are  coupled  with  lasting  challenges  for  the  financial  sector,  although 
improvements on the front of NPLs and profitability were observed for Cypriot banks and the 
decline  in  NPLs  accelerated  in  Greece  in  2019  but  levels  remain  very  high.  In  the  case  of 
Greece, potential output growth has been low in a context of high unemployment.  

o  In Croatia, Ireland, Portugal, and Spain, vulnerabilities stemming from stock legacy issues are 
also  significant,  multiple,  and  interconnected.  In  those  countries,  stock-related  imbalances 
receded  until  now  on  the  back  of  nominal  GDP  growth.  That  was  associated  in  some  cases 
with  the  re-emergence  of  strong  growth  in  house  prices  (in  Ireland,  and  more  recently  in 
Portugal), as well as resuming ULC growth and stalling competitiveness gains in Portugal and 
Spain.  However,  these  trends  seem  to  be  receding  with  the  crisis,  while  instead  debt-GDP 
ratios are growing due to lower nominal GDP growth and increased borrowing. 

o  In Romania and Hungary, vulnerabilities relate to the interplay between government debt and 
external  financing.  In  Romania,  the  current  account  deficit  has  widened  after  years  of  very 
strong growth in unit labour costs and buoyant growth of domestic demand. Government debt 
has  been  rising  fast  and  is  set  to  further  increase,  adding  to  external  financing  needs.  In 
Hungary, government debt generates large financing needs in light of short maturities, and the 

39 

 
 
 
 
 
 
 

 

 

source of such financing is partly external. In both countries, a non-negligible share of debt is 
denominated in foreign currency.  

In a few Member States, vulnerabilities are mainly linked to large stocks of general government 
debt  that  are  being  further  increased  by  the  crisis  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 still large but rapidly declining stock of NPLs  until at 
least  the  crisis  outbreak,  and  in  a  context  of  lasting  weak  labour  market  performance.  Belgium 
and  France  mainly  face  issues  linked  to  a  high  general  government  debt  and  potential  growth 
issues amidst also compressed competitiveness. In France, a relatively high stock of private debt 
was on the rise already before this latest crisis and clearly increased further already this year. In 
Belgium, a relatively high and growing household debt is coupled with possibly overvalued house 
prices;  the  external  position  remains  solid  but  has  weakened  somewhat  recently.  Government 
debts  in  these  countries  are  set  to  grow  in  light  of  the  ongoing  recession  that  is  denting  the 
revenue  basis  and  of  the  measures  taken  to  cushion  the  impact  of  the  crisis.  In  the  case  of 
Belgium, both private debt and government debt are expected to grow starting from levels already 
above MIP scoreboard thresholds. 

Some  Member  States  are  characterised  by  large  but  steadily  falling  current  account  surpluses 
which remain above levels that economic fundamentals would justify. This is the case notably for 
Germany and the Netherlands. In the Netherlands, a large surplus is coupled with a high stock of 
household debt and strong house price growth; house price pressures were noted recently also in 
Germany but debt levels are comparatively low. The large albeit declining surpluses may reflect 
forgone growth and domestic investment opportunities, which bear consequences for the rest of 
the euro area in a context of protracted below-target inflation and weakening foreign demand. 

In  some  Member  States,  developments  in  the  housing  market  have  led  to  risks  linked  to  house 
prices valuations in a context of high household debt. That is notably the case of Sweden, and to a 
lesser  extent  in  Austria,  Denmark,  and  Luxembourg,  where  sustained  house  price  growth  was 
observed  in  recent  years  in  a  context  of  possible  overvaluation  gaps  and  significant  levels  of 
household  debt.  Evidence  of  the  latest  number  of  years  points  towards  some  but  short-lived 
downward  adjustment  in  prices  and  overvaluations  in  Sweden,  and  to  moderate  house  price 
growth in the other cases (except Luxembourg). Finland does not seem marked by strong house 
price growth or possible overvaluation but by high and rising household debt. Developments after 
the COVID-19 outbreak are likely to be characterised by decelerations or downward corrections 
of  house  prices.  Monitoring  should  ascertain  whether  such  adjustment  takes  place  in  orderly 
fashion. 

The  ongoing  aggravation  of  stock  imbalances  should  not  automatically  imply  the  need  of  new 
IDRs.  The  aggravation  of  risks,  notably  those  relating  to  private  and  government  debt,  concerns 
especially countries already identified with imbalances or excessive imbalances. Second, forecasts are 
still  surrounded  by  substantial  uncertainty  notably  in  light  of  the  evolution  of  the  pandemic,  an 
uncertainty which is likely to remain pervasive by the time the IDRs will be prepared. Third, large debt-
GDP  ratio  increases  in  2020  are  partly  the  outcome  of  major  temporary  drops  in  nominal  GDP  and 
deliberate policy choices to cushion the impact of the crisis. 

This AMR concludes that IDRs are warranted for 12 Member States: Croatia, Cyprus, France, 
Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Romania, Spain, and Sweden. Those 
Member  States  were  subject  to  an  IDR  in  the  previous  annual  cycle  of  MIP  surveillance,  and  were 
considered  to  be  experiencing  imbalances  or  excessive  imbalances.  The  new  IDRs  will  help  going 
deeper into the analysis of those challenges and assessing policy needs. In particular, forthcoming IDRs 

40 

 
 
 
 
 
will be prepared to assess if those imbalances are aggravating or are under correction, with the view to 
update existing assessments.  

This AMR points to the need of close monitoring of potentially risky developments in a number of 
Member States for which IDRs will not be conducted. Soon after the COVID-19 outbreak, concerns 
linked  to  external  financing  have  emerged  in  a  number  of  non-euro  area  Member  States.  Market 
pressures  have  eased  since  then,  but  might  resurface  if  conditions  justifying  a  reappraisal  of  risks 
materialise again. In particular where the government partly funds itself in foreign currency and where 
public finances are perceived as more risky, and Hungary appears as a case where the interplay between 
government borrowing and external financing deserves monitoring.51 The implications of growing debt-
to-GDP  ratios  also  require  monitoring  in  a  number  of  Member  States  not  currently  under  MIP 
surveillance.  In  Belgium,  both  private  and  government  debt  are  expected  to  grow  above  the  MIP 
thresholds.  In  Denmark,  Finland,  and  Luxembourg,  private  debt  is  forecast  to  further  grow  above 
threshold.  Government  debt  is  expected  to  further  grow  above  60%  of  GDP  in  Austria  and  Slovenia. 
The  extent  to  which  those  developments  entail  additional  risks  for  macroeconomic  stability  is 
surrounded by large uncertainty, as the outlook for debt crucially depends on medium and longer-term 
growth prospects, which are currently difficult to assess. For this reason, this AMR concludes that there 
is no need to have IDRs for these countries at the current stage. 

51 The interaction between public finances and the external sector deserves being analysed also in the IDR foreseen 
for Romania. 

41 

 
 
 
 
 
 
                                                      
 
5. 

MEMBER STATE SPECIFIC COMMENTARIES 

BELGIUM:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Belgium. In the updated scoreboard including figures until 2019, the private sector debt and government 
debt indicators are beyond the indicative thresholds.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 1.7% in 2019 
to -8.4% in 2020. Real growth is forecast at 4.1% in 2021, leaving the nominal GDP level 1.4% lower 
than in 2019. 

A  number  of 
summarised as follows:  

relevant  developments  can  be 

  External  vulnerabilities  remained  contained. 
The current account recorded a marginal surplus 
in  2019  while  the  NIIP  is  markedly  positive 
limiting  external  sustainability  concerns.  Unit 
labour  costs  have  been  growing  at  a  contained 
pace.  

  Private  sector  indebtedness  remained  well 
above  the  threshold  in  2019  and  is  expected  to 
increase  further  in  2020  to  around  200%  of 
GDP.  The  debt  of  Belgian  non-financial 
corporations  is  high  but  does  to  a  large  extent 
reflect  cross-border  intra-group  lending  which 
reduce  risks.  Household  indebtedness,  which 
mainly  reflects  mortgage  debt,  continued  to 
increase  in  2019  on  the  back  of  a  positive  net 
credit  flow.  After  having  dropped  in  the  first  semester  due  to  the  lockdown  and  confinement 
measures, housing investment is expected to rebound in the second half of 2020. House prices have 
increased in 2019, with indications of potential overvaluation. 

  Bank  balance  sheets  have  been  strengthened  in  recent  years,  and  capital  and  liquidity  ratios 
remain adequate. The already high level of government debt is set to increase substantially with 
the  COVID19  crises  and  it  is  forecast  to  increase  by  20  pps.  reaching  almost  118%  of  GDP  in 
2020.  

  The favourable macroeconomic conditions have supported  job creation and the unemployment 
rate continued to decline in 2019 after peaking in 2015. This declining trend is expected to reverse 
in  2020,  in  particular  unemployment  is  forecast  to  increase  sharply  in  2021.  The  inactivity  rate 
remains high. 

Belgium  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with 
possible vulnerabilities building up linked to indebtedness. With the COVID-19 crisis government and 
private sector indebtedness have increased and warrant monitoring. Overall, the Commission does not 
see it necessary at this stage to carry out further in-depth analysis in the context of the MIP. 

42 

Graph A1: Debt across sectors in the economySource: Eurostat0501001502002501011121314151617181920f% of GDPBelgiumNon-financial corporationsHouseholdsGeneral Government 
 
 
 
 
 
 
 
 
 
BULGARIA: In February 2020, the Commission concluded that Bulgaria was no longer experiencing 
macroeconomic  imbalances.  In  the  updated  scoreboard  including  figures  until  2019,  the  nominal  unit 
labour cost growth indicator is beyond the indicative threshold. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 3.7% in 2019 
to -5.1% in 2020. Real growth is forecast at 2.6% in 2021, leaving the nominal GDP level 1.4% higher 
than in 2019. 

relevant  developments  can  be 

A  number  of 
summarised as follows:  
  The  current  account  surplus  widened  in  2019 
but  is  expected  to  narrow  somewhat  in  2020 
with  the  sharp  drop  in  tourism  revenues.  The 
largely  consisting  of  FDI, 
negative  NIIP, 
continued 
the 
indicative  threshold  in  2019,  and  is  forecast  to 
improve 
forward.  Wage 
going 
moderation  in  the  context  of  the  COVID-19 
crisis  is  likely  to  reduce  cost  competitiveness 
pressures  going 
labour 
hoarding resulted in a temporary increase in unit 
labour cost growth in 2020.  

improve,  moving  within 

forward,  although 

further 

to 

  The corporate sector continued to deleverage 
in  2019,  on  the  back  of  robust  nominal  GDP 
growth.  Corporate  debt  is  below  the  prudential  but  beyond  the  fundamental  benchmark.  Credit 
growth increased in 2019 but is expected to fall back in 2020 while the debt ratio increases with the 
contraction  in  GDP.  Real  house  price  growth  moderated somewhat  in  2019,  amidst  accelerating 
mortgage credit, but further deceleration is likely in 2020 in light of the COVID-19 crisis. 

  Government debt is set to remain well below 30% of GDP in 2020 despite the budgetary impact 
of the COVID-19 crisis. The financial sector is profitable and well capitalised. The stability of the 
financial  system  has  been  supported  by  improved  governance  and  supervision.  In  July  2020, 
Bulgaria  joined  ERMII  and  entered  the  Banking  Union.  The  NPL  ratio  has  been  on  a  declining 
trend and reached 6.5% in 2019. The challenge forward is to avoid significant rises in NPLs once 
government support measures in response to the COVID-19 crisis have been phased out.  

  The  positive  labour  market  developments  continued  further  in  2019,  bringing  down 
unemployment  to  4.2%.  The  declining  trend  is  being  reversed  with  the  Covid-19  crisis  but 
employment  losses  have  not  fully  translated  into  a  sharp  surge  in  unemployment  as  inactivity 
increased.  

Bulgaria  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  non-
performing loans and corporate indebtedness were relatively high, albeit declining. With the COVID-19 
crisis, the corporate debt-to-GDP ratio is set to increase and NPLs may rise. Overall, the Commission 
does not see it necessary at this stage to carry out further in-depth analysis in the context of the MIP. 

43 

Graph A2: Private debt and non-performing loansSource: Eurostat and ECB05101520250204060801001201401011121314151617181920f% of GDPBulgariaHouseholdsNon-financial corporationsNon-performing loans (rhs)% of total loans 
 
 
 
 
 
 
 
CZECHIA:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Czechia. In the updated scoreboard including figures until 2019, the unit labour cost growth and house 
price growth indicators are beyond the indicative threshold.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 2.3% in 2019 
to -6.9% in 2020. Real growth is forecast at 3.1% in 2021, leaving the nominal GDP level 0.8% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
 

remain  high.  The  net 

 The  external  position  is  relatively  sound  with  a 
limited  current  account  deficit  in  2019.  Export 
concentration  and  integration  in  global  value 
chains 
international 
investment  position  (NIIP)  continued  improving 
but  remains  negative  at  around  -20%  of  GDP  in 
2019.  The  NIIP,  excluding  non-defaultable 
instruments,  has  been  improving  too  and  shows  a 
clearly positive net asset position. 

  The  growth  of  unit  labour  costs  moderated  in 
2019,  but  remained  high.  Some  wage  moderation 
due  to  the  COVID-19  crisis  is  likely  going 
forward,  although  labour  hoarding  is  forecast  to 
result  in  a  temporary  increase  in  unit  labour  cost 
growth in 2020. 

  House prices and mortgage dynamics continue to 

require surveillance. During 2019, real house price growth accelerated with increasing indications 
of overvaluation. However, over 2020-2021 house price growth is likely to decelerate. Net credit to 
households  remained  positive  and  mortgage  growth  stable  in  2019.  Credit  has  overall  grown 
moderately  in  the  last  years  with  some  deceleration  in  2019  and  private  sector  indebtedness 
remains low. 

  The government debt ratio decreased further in 2019 but is forecast to increase towards 40% of 
GDP in 2020 as a result of the COVID-19 crisis and it is to remain at about that level in 2021. The 
largely foreign-owned banking sector is well-capitalised and equity levels are among the strongest 
in the EU.  

  The  labour  market  improved  further  in  2019  on  the  back  of  better  macroeconomic  conditions, 
with  the  unemployment  rate  declining  to  2%.  As  a  result  of  the  COVID-19  crisis,  the 
unemployment rate is forecast to slightly increase in 2020 and 2021 although to stay at very low 
levels compared to the EU average.  

Czechia  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although 
competitiveness and pressures in the housing market involved some limited risks. With the COVID-19 
crisis cost pressures have reduced. Overall, the Commission does not see it necessary at this stage to 
carry out further in-depth analysis in the context of the MIP. 

44 

Graph A3: GDP, ULC and house pricesSource: Eurostat-8-6-4-20246810101112131415161718192021Rate of change y-o-y (%)CzechiaULC growthReal GDP growthDeflated house price index 
 
 
 
 
 
 
 
 
DENMARK:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Denmark.  In  the  updated  scoreboard  including  figures  until  2019,  the  current  account  surplus  and 
private sector debt indicators are beyond the indicative threshold.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 2.8% in 2019 
to -3.9% in 2020. Real growth is forecast at 3.5% in 2021, leaving the nominal GDP level 1.5% higher 
than in 2019. 

A number of MIP-relevant developments can be summarised as follows:  
 

 The  current  account  balance  has  continued to 
show  a  large  surplus,  reaching  8.9%  of  GDP  in 
2019  and  forecast  to  narrow  to  around  7%  in 
2020.  Consecutive  surpluses  have  led  to  a 
strongly  positive  net  international  investment 
position  (NIIP),  generating  positive  net  primary 
income,  which  have  in  turn  fuelled  current 
account surpluses.  

  Private  sector  debt  was  broadly  stable  in  2019 
while  credit  growth 
increased.  Despite  a 
continuous  passive  deleveraging  trend  since 
2009, household debt remains the highest in the 
EU  at  around  110%  of  GDP  in  2019,  clearly 
above  fundamental  and  prudential  thresholds, 
and  set  to  increase  in  2020.  However,  risks 
related to household leverage are partly offset by 
substantial  asset  holdings.  Net  credit  to  households  remained  positive  in  2019.  Debt  build  up 
continues  to  be  supported by  low  financing  costs and  a  benign  tax  treatment.  Real  house  prices 
continued  to  increase  at  a  moderate  pace,  with  indications  of  some  overvaluation.  Corporate 
indebtedness, despite the recent rising trend, remains overall moderate. 

  The  unemployment  rate  improved  further  in  2019  to  5%  and  it  is  forecast  to  increase  only 
moderately due to the government support schemes. Only a few sectoral labour shortages remain, 
moderating upward pressures on wages.  

  Risks  associated  to  the  banking  sector  and  government  debt  remain  moderate.  Banks  are 
generally  well  positioned  to  sustain  credit  to  the  economy.  Due  to  the  crisis  and  the  sizeable 
emergency  and  recovery  packages  set  up  by  the  government,  the  government  debt  is  forecast  to 
increase  by  some  10  pps.  in  2020  reaching  45%  of  GDP,  thus  remaining  clearly  below  60%  of 
GDP.  

Denmark  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  high 
household debt and housing involved some limited risks. With the COVID-19 crisis, the household debt 
ratio  is  set  to  increase.  Overall,  the  Commission  does  not  see  it  necessary  at  this  stage  to  carry  out 
further in-depth analysis in the context of the MIP. 

45 

Graph A4: Debt across sectors in the economySource: Eurostat0501001502002501011121314151617181920f% of GDPDenmarkNon-financial corporationsHouseholdsGeneral Government 
 
 
 
 
 
 
 
 
GERMANY:  In  February  2020,  the  Commission  concluded  that  Germany  was  experiencing 
macroeconomic imbalances, in particular involving its large current account surplus reflecting subdued 
investment relative to saving, both in the private and public sector. In the updated scoreboard including 
figures until 2019, the current account surplus indicator is beyond the indicative threshold. 

MIP  relevant  CSRs  issued  in  2019  and  2020  are  broadly  associated  to  investment,  supporting  labour 
income,  the  business  environment  and  pensions.  Beyond  warranted  policies  to  address  the  pandemic, 
measures taken in 2020 to address imbalances relate to enhancing public investment, support for private 
investment and a commitment to avoid labour tax increases.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 0.6% in 2019 
to -5.6% in 2020. Real growth is forecast at 3.5% in 2021, leaving the nominal GDP level 1.7% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  The  current  account  surplus,  at  7.1%  of 
GDP in 2019, has gradually narrowed over 
the  last  years.  In  2020,  the  sharp  fall  in 
government  net  lending  contributes  to  a 
significant reduction in the surplus, even if 
the private sector increased its net lending 
position.  In  2020,  also  the  trade  balance 
surplus  narrows  as  exports  contract  more 
than imports. With the recovery the current 
account surplus is expected to slightly rise 
again. 
In  recent  years,  private  and  public 
increased  while 
investment 
remaining  slightly  below  the  euro  area 
average.  While 
is  a  substantial 
there 
acceleration  of  the  upward  trend in  public 
investment  in  2020,  private  investment  suffered  considerably  in  the  context  of  the  COVID-19 
crisis. 

have 

 

  Government debt edged below the indicative scoreboard threshold of 60% of GDP in 2019, but is 
forecast  to  be  around  71%  of  GDP  in  2020.  The  German  banking  system  remains  adequately 
capitalised  with  a  very  low  level  of  NPLs.  Nevertheless,  profitability  remains low  and  NPLs  are 
likely to increase. 

  The labour market was historically tight before the COVID-19 crisis with low unemployment and 
high  employment.  In  2020,  the  unemployment  rate  is  forecast  to  increase  moderately  and  wage 
growth decelerate. Short-time work schemes have contributed to limit unemployment increases and 
provided partial income relief.  

Germany entered the COVID-19 crisis with a large domestic savings surplus, underpinned primarily by 
net savings of households and the government. With the COVID-19 crisis, the current account surplus 
has  narrowed  significantly  and  government  investment  accelerated  while  private  investment  has 
suffered.  Overall,  the  Commission  finds  it  opportune,  also  taking  into  account  the  identification  of 
imbalances last February, to examine further the persistence of imbalances or their unwinding. 

46 

Graph A5: Net lending/borrowing by sectorSource: Ameco-8-6-4-2024681012141011121314151617181920f21f% of GDPGermanyHouseholds and NPISHGeneral governmentCorporationsTotal economy 
 
 
 
 
 
 
 
 
ESTONIA:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Estonia.  In  the  updated  scoreboard,  including  figures  until  2019,  the  real  effective  exchange  and  the 
nominal unit labour cost growth indicators are beyond the indicative threshold. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 5% in 2019 to 
-4.6%  in  2020.  Real  growth  is forecast  at  3.4% in  2021,  leaving  the  nominal  GDP  level  0.7% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  

  External  vulnerabilities  remain  contained,  as  the 
NIIP,  albeit  negative,  has  improved  gradually  and 
is  projected 
to 
above  -20%  of  GDP.  The  current  account  surplus 
was 2% of GDP in 2019 and is forecast to be close 
to 3% in 2020.  

improve  further 

in  2020 

to 

  Nominal unit labour cost growth remained above 
5%  in  2019,  driven  by  factors  related  to  tight 
labour  supply.  Wage  moderation  due 
the 
COVID-19  crisis  is  forecast  to  soften  unit  labour 
cost  growth  in  2020  and  2021.  The  HICP-based 
real  effective  exchange  rate  kept  appreciating  in 
2019 although at a lower pace.  

to 

  Corporate  and  household  indebtedness  remain 
relatively low. The private sector debt to GDP ratio 
decreased  in  2019  to  98%  of  GDP.  It  is  likely  to 
rise somewhat in 2020 due to the decline in GDP, but to remain relatively low. 
In the  banking sector the NPL ratio remained low in 2019 but may increase going forward as a 
result of the COVID-19 crisis. Government debt is forecast to increase in light of the COVID-9 
crisis and to increase further in 2021 although remaining however at the lowest level in the EU at 
around 20% of GDP.  

 

  The  labour  market  performance  has  been  very  strong,  but  will  be  impacted  by  the  COVID-19 

crisis with the unemployment rate increasing from 4.4% in 2019 to 7.5% in 2020.  

Estonia  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  the 
dynamics of cost competitiveness indicators involved some limited risks. With the COVID-19 crisis, the 
external  position  has  remained  stable  and  has  implied  wage  growth  moderation.  Overall,  the 
Commission does not see it necessary at this stage to carry out further in-depth analysis in the context 
of the MIP. 

47 

Graph A6: Decomposition of unit labour costSource: Commission services-10-505101520080910111213141516171819f20f21fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28Estonia 
 
 
 
 
 
 
 
 
that  Ireland  was  experiencing 
the  Commission  concluded 
IRELAND:  In  February  2020, 
macroeconomic  imbalances,  in  particular  involving  high  private  sector  and  government  debt  and  net 
external  liabilities.  In  the  updated  scoreboard  including  figures  until  2019,  the  net  international 
investment position (NIIP) and the private sector debt indicators are beyond the indicative threshold.  

MIP relevant CSRs issued in 2019 and 2020 are broadly associated to fiscal-structural policies and the 
housing market. Warranted policies taken in 2020 mainly addressed the pandemic. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 5.6% in 2019 
to -2.3% in 2020. Real growth is forecast at 2.9% in 2021, leaving the nominal GDP level 2.7% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  External  vulnerabilities  remain  an  issue.  The 
fluctuations of both the current account and the 
NIIP  figures  are  difficult  to  assess  due  to  the 
impact  of  multinational  enterprises’  activities. 
The  current  account  balance,  which  is  very 
volatile,  was  strongly  negative  in  2019  while  a 
substantial  surplus  is  forecast  for  2020  and  a 
figure  around  balance  for  2021.  The  headline 
NIIP was broadly stable in 2019.   

  Private  sector  debt  remains  high  even  if  the 
debt-to-GDP  ratio  declined  towards  200%  of 
GDP  in  2019.  Household  debt  is  low  as  a 
percentage of GDP but remains high relative to 
disposable  income.  The  risks  associated  to 
corporate  indebtedness  are  difficult  to  assess 
due  to  the  strong  presence  of  multinational 
enterprises. Going forward, corporates, facing lower profits but broadly unchanged financing needs 
may have to issue more debt in light of the COVID-19 crisis. House price  growth slowed down 
markedly in 2019 towards zero growth while housing affordability remains a concern.   

  The government debt-to-GDP ratio fell below the 60% threshold in 2019 but is forecast to rise 
back  to  around  63%  of  GDP  in  2020,  reflecting  the  depth  of  the  recession  and  the  government 
support measures in response to the COVID-19 crisis. The level of government debt appears higher 
when compared to national income measures, i.e. debt-to-GNI* ratio which reached 95% in 2019.  
  The banking sector enhanced its resilience during the past decade. The non-performing loan ratio 
has steadily decreased, but may pick up after government support measures due to the COVID-19 
crisis have been phased out.  

  Labour  market  outcomes  continued  to  improve  in  2019.  The  unemployment  rate  is  forecast  to 

only slightly increase in 2020 to 5.3%, but to increase more strongly in 2021, to 8.9%. 

Ireland  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  external,  government  and  private 
sector  debt.  With  the  COVID-19  crisis  debt  ratios  and  unemployment  will  increase.  Overall,  the 
Commission finds it opportune, also taking into account the identification of imbalances last February, 
to examine further the persistence of imbalances or their unwinding.  

48 

Graph A7: Household debt and house price indexTotalSource: Eurostat and ECB50607080901001101201301400204060801001201400910111213141516171819House price index, 2015=100Household debt, % of GDPIrelandOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
 
GREECE:  In  February  2020,  the  Commission  concluded  that  Greece  was  experiencing  excessive 
macroeconomic  imbalances,  in  particular  involving  high  government  indebtedness,  the  high  share  of 
non-performing loans and incomplete external rebalancing, in a context of high – although declining – 
unemployment and low potential growth. In the updated scoreboard including figures until 2019, the net 
international  investment  position  (NIIP),  house  price  growth,  government  debt  as  well  as  the 
unemployment rate indicators are beyond the indicative threshold.  

MIP  relevant  CSRs  issued  in  2019  and  2020  are  broadly  associated  to  fiscal-structural  policies,  the 
labour  market,  business  environment,  NPLs  and  the  financial  sector.  Beyond  warranted  policies  to 
address  the  pandemic,  measures  taken  in  2020  to  address  imbalances  relate  to  insolvency,  energy 
markets,  labour  market  legislation,  NPLs,  public  investments,  privatisation,  digital  governance, 
education and training, and the business environment. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 1.9% in 2019 
to -9% in 2020. Real growth is forecast at 5% in 2021, leaving the nominal GDP level 5.3% lower than 
in 2019. 

A number of relevant developments can be summarised as follows:  
  External  sustainability  remains  an  issue  with 
the  NIIP  forecast  to  deteriorate  further  as  a 
result of the COVID-19 crisis. A large share of 
the NIIP is accounted for by government debt at 
concessional  terms  and  long  maturities.  The 
current  account  deficit  narrowed in  2019  but  is 
forecast to widen significantly in 2020 and 2021 
reflecting also the impact of weaker tourism.  
  Private  sector  debt  ratios  continued  their 
declining trend in 2019 and remained below the 
MIP threshold. Real house prices accelerated in 
2019  following  a  decade  of  price  declines. 
Looking  forward  prices  may  adjust  downward 
in light of the COVID-19 crisis. 

  Government debt declined to 180% of GDP in 

2019  but  is  expected  to  increase  to  above  200%  of  GDP  in  2020  with  the  fall  in  GDP  and  the 
pandemic  measures.  The  banking  sector  remains  burdened  by  a  large  stock  of  legacy  non-
performing loans.  

  Unemployment remains very high and the slowly declining trend is interrupted by the crisis.  

Greece  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  government  debt,  legacy  non-
performing loans, external rebalancing, unemployment and low potential growth. With the  crisis, debt 
ratios, unemployment as well as non-performing loans are likely to increase. Overall, the Commission 
finds it opportune, also taking into account the identification of an excessive imbalance in February, to 
examine  further  the  persistence  of  macroeconomic risks  and to  monitor progress  in  the  unwinding of 
excessive imbalances. 

49 

Graph A8:NIIP, private debt and government debtSource: Eurostat-200-150-100-5001011121314151617181920050100150200250300350GreecePrivate sector debt (rhs)General government debt (rhs)Net international investment position%of GDP% of GDP 
 
 
 
 
 
 
 
 
SPAIN:  In  February  2020,  the  Commission  concluded  that  Spain  was  experiencing  macroeconomic 
imbalances, in particular involving high external and internal debt, both government and private sector, 
in  a  context  of  high  unemployment.  In  the  updated  scoreboard  including  figures  until  2019,  the  net 
international  investment  position  (NIIP),  the  government  debt,  the  unemployment  rate  as  well  as  the 
activity rate indicators are beyond the indicative threshold.  

MIP  relevant  CSRs  issued  in  2019  and  2020  are  broadly  associated  to  fiscal-structural  policies,  the 
labour  market,  education  and  the  business  environment.  Beyond  warranted  policies  to  address  the 
pandemic,  measures  taken  in  2020  to  address  imbalances  relate  to  training  and  education  and 
innovation. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 2% in 2019 to 
-12.4% in 2020. Real growth is forecast at 5.4% in 2021, leaving the  nominal GDP level 6.1% lower 
than in 2019. 

A number of relevant developments can be summarized as follows:  
  The external position improved in 2019, with the 
negative  NIIP  narrowing  and  continued  current 
account  surplus.  Nevertheless,  the  NIIP  net  of 
non-defaultable  instruments  (NENDI)  remains 
sizeably  negative.  The  NIIP  is  however  forecast 
to  widen  in  2020  while  the  current  account 
surplus  is  forecast  to  remain  relatively  sizeable 
despite weak tourism. 

  Corporate  and  household  debt  have  been  on  a 
declining path up until 2020 and the private sector 
debt  ratio  fell  below  the  MIP  threshold  in  2019. 
Private  credit  flows  remained  weak  in  2019. 
is  above  fundamental  and 
Household  debt 
prudential 
in 
unemployment  could  reduce  future  repayment 
capacity.  Both  corporate  and  household  debt  to 
GDP  ratios  are  forecast  to  increase  in  2020, 
largely due to the COVID-19 induced fall in GDP.  

thresholds.  An 

increase 

  The  already  high  government  debt  to  GDP  ratio  is  forecast  to  rise  by  about  25  pps.  in  2020, 

reaching 120% of GDP and to broadly remain at this level in 2021.  

  The  banking  sector  enhanced its  resilience  during  the  past  decade.  It  has strong  liquidity  and is 
broadly adequately capitalised while profitability is moderate. NPLs have decreased towards 3% in 
2019 but is likely to increase with the COVID-19 crisis. 

  Labour  market  outcomes  continued  to  improve  in  2019,  although  unemployment  and  labour 
market segmentation remained of concern. The unemployment rate is forecast to increase to almost 
17% in 2020 and then to slightly further increase in 2021. The activity rate slightly decreased from 
2016-2019, partly due to more people being in education.  

Spain  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  external,  private  sector  and 
government  debt  and  high  unemployment.  With  the  COVID-19  crises,  debt  ratios  and  unemployment 
have been increasing. Overall, the Commission finds it appropriate, also considering the identification 
of imbalances last February, to examine further the persistence of imbalances or their unwinding. 

50 

Graph A9: NIIP and CA balanceSource: Commission services-10-8-6-4-2024-120-100-80-60-40-200200910111213141516171819% of  GDPSpainNet international investment positionNIIP Ex. Non-Defaultable InstrumentsCurrent account balance (rhs)% of GDP 
 
 
 
 
 
 
 
 
FRANCE: In February 2020, the Commission concluded that France was experiencing macroeconomic 
imbalances,  in  particular  involving  high  government  debt  and  weak  competitiveness  dynamics  in  a 
context  of  low  productivity  growth,  which  carry  cross-border  relevance.  In  the  updated  scoreboard 
including figures until 2019, the private sector and government debt indicators are beyond the indicative 
threshold.  

MIP relevant CSRs issued in 2019 and 2020 are broadly associated to fiscal-structural policies, labour 
productivity  and  the  business  environment.  Beyond  warranted  policies  to  address  the  pandemic, 
measures taken in 2020 to address imbalances relate to the improvement of the business environment 
and R&D. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 1.5% in 2019 
o -9.4% in 2020. Real growth is forecast at 5.8% in 2021, leaving the nominal GDP level 0.9% lower 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  The  external  position  is  stable  with  a  contained 
current  account  deficit  and  a  slightly  more 
negative NIIP in 2019.  

  The  private 

sector  debt  ratio  continued 
increasing in 2019, reaching 153% of GDP and is 
forecast to rise further in 2020. Corporate credit 
was high in 2019 and is expected to increase even 
further  while  companies  also  continued 
to 
the 
accumulating 
background  of  rising  corporate  profits,  lower 
dividends, reduced investment and an overall low 
and decreasing level of NPLs. Household debt is 
high  and  set  to  grow.  House  prices  show  some 
limited  signs  of  overvaluation  while  house  price 
growth has been moderate in 2019 overall.   

reserves 

against 

cash 

  Competitiveness losses incurred in the last decade 

have  not  been  regained.  The  growth  in  unit  labour  costs  remained  contained  although  labour 
productivity slowed down significantly. After some gains in previous years, export market shares 
declined in 2019.  

  Government  debt  remained  stable  at  a level  of  98%  of  GDP in  2019.  The  debt-to-GDP  ratio is 
forecast to increase to about 116% of GDP in 2020 with the GDP contraction and the large fiscal 
package to mitigate the impact of the crisis. The banking sector has shown good and rising equity 
levels,  declining  and  overall  low  NPLs  although  profitability  is  moderate  in  line  with  European 
peers. However, the number of bankruptcies could increase in light of the COVID-19 crisis.  

  Labour  market  outcomes  improved  in  2019  but  unemployment  is  forecast  to  slightly  increase 

looking forward. 

France entered the COVID-19 crisis with vulnerabilities linked to debt, as well as competitiveness. With 
the  COVID-19  crisis and the  measures taken to  support the economy,  the  government  debt increased  
while competitiveness developments have remained relatively stable. Overall, the Commission finds it 
opportune, also taking into account the identification of imbalances last February, to examine further 
the persistence of imbalances or their unwinding. 

51 

Graph A10: Debt across sectors in the economySource: Eurostat0501001502002503001011121314151617181920f% of GDPFranceGovernmentNon financial corporationsHouseholdMIP Threshold for private debt 
 
 
 
 
 
 
 
 
that  Croatia  was  experiencing 
the  Commission  concluded 
CROATIA:  In  February  2020, 
macroeconomic imbalances, in particular involving high government, private sector and external debt in 
a  context  of  low  potential  growth.  In  the  updated  scoreboard  including  figures  until  2019,  the  net 
international investment position (NIIP), house price growth and government debt indicators are beyond 
the indicative threshold. 

MIP  relevant  CSRs  issued  in  2019  and  2020  are  broadly  associated  to  fiscal-structural  policies,  the 
labour  market  and  the  business  environment.  Beyond  warranted  policies  to  address  the  pandemic, 
measures  taken  in  2020  to  address  imbalances  relate  to  enhancing  public  sector  governance  and 
reducing administrative and financial burden on enterprises.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 2.9% in 2019 
to -9.6% in 2020. Real growth is forecast at 5.7% in 2021, leaving the nominal GDP level 2.5% lower 
than in 2019. 

A number of relevant developments can be summarised as follows: 
  External  sustainability  concerns  remain  while 
the  considerably  negative  NIIP  continued 
improving  in  2019  and  the  current  account 
surplus increased  towards 3%  of  GDP.  Risks  to 
the  external  sustainability  are  alleviated  by  the 
relatively  large  share  of  FDI  in  total  foreign 
liabilities.  The  current  account  balance 
is 
expected  to  turn  negative  in  2020,  much  on 
account of the weak tourism.  
  The  private  sector  debt 

ratio  continued 
declining  in  2019.  The  large  share  of  debt 
foreign  currency 
remains  denominated 
generating exchange rate risk.  

in 

  Real house price growth accelerated in 2019 to 
above 8%, supported by the accelerating growth 
in  mortgage  lending,  with  a  closing  valuation 
gap. House price growth is forecast to decelerate 
in light of the COVID-19 crisis.  

  Government debt continued declining to a still relatively high 73% of GDP in 2019. In 2020 it is 
forecast to rise by more than 15 pps. due to the sharp economic downturn and measures to support 
the economy in light of the COVID-19 pandemic.  

  The banking sector is characterized by moderate profitability and relatively strong capitalisation, 
but  also  relatively  high,  though  declining,  NPLs.  NPLs  are  likely  to  increase  once  government 
support measures in response to the COVID-19 crisis have been phased out. 

  The  unemployment  rate  reached  an  all-time  low  of  6.6%  in  2019,  accompanied  with  strong 
decreases  in  both  long-term  and  youth  unemployment.  However,  unemployment  is  forecast  to 
increase with the current crisis.  

Croatia  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  government,  private  sector  and 
external  debt  in  a  context  of  low  potential  growth.  With  the  COVID-19  crisis,  debt  ratios  and 
unemployment  are  expected  to  increase.  Overall,  the  Commission  finds it  opportune,  also  taking  into 

52 

Graph A11: NIIP, private debt and government debtSource: Eurostat-100-80-60-40-2001011121314151617181920f050100150200CroatiaPrivate sector debt (rhs)General government debt (rhs)Net international investment position%of GDP% of GDP 
 
 
 
 
 
 
 
account  the  identification  of  an  imbalance  in  February,  to  examine  further  the  persistence  of 
imbalances or their unwinding. 

53 

 
 
 
 
 
 
ITALY:  In  February  2020,  the  Commission  concluded  that  Italy  was  experiencing  excessive 
macroeconomic  imbalances,  in  particular  involving  high  government  debt  and  protracted  weak 
productivity growth in a context of still high nonperforming loans (NPLs) and high unemployment.  In 
the updated scoreboard including figures until 2019,  the government debt and the unemployment rate 
indicators are beyond the indicative threshold.  

MIP  relevant  CSRs  issued  in  2019  and  2020  are  broadly  associated  to  fiscal-structural  policies,  the 
labour market, the business environment and the financial sector. Beyond warranted policies to address 
the  pandemic,  measures  taken  in  2020  to  address  imbalances  relate  to  the  effectiveness  of  the  public 
administration and supporting the digital and green transition. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 0.3% in 2019 
to -9.9% in 2020. Real growth is forecast at 4.1% in 2021, leaving the nominal GDP level 4.1% lower 
than in 2019. 

A number of relevant developments can be summarised as follows:  
 

 The  external  position  is  stable  with  a  net 
international  investment  position  close  to  balance 
and  a  stable  sizeable  current  account  surplus  also 
in 2020 despite weak tourism.   

  Aggregate productivity growth remains sluggish, 
and  is  set  to  improve  only  marginally  over  the 
medium term. Unit labour cost growth remained 
low in 2019 and wage growth is forecast decelerate 
in 2020.  

  Government  debt  remained  stable  in  2019  at 
about  135  %  of  GDP  but  is  expected  to  increase 
substantially  in  2020,  by  some  25  pps.,  reflecting 
the  response  to  the  pandemic  and  the  drop  in 
economic  activity.  The  primary  balance 
is 
expected to turn negative in 2020 for the first time 
since 2009. 

  Regarding the banking sector, the significant reduction of non-performing loans (NPL) has further 
progressed,  but  the  level  remains  comparatively  high  at  just  below  7%.  The  liquidity  measures 
granted in response to the pandemic improved the comparatively weak lending observed in 2019. 
NPL are likely to increase  if some of the COVID-19 related measures are  phased out too early.  
  The  pandemic  shock  started  to  reverse  recent  improvements  in  the  labour  market  which  could 
further worsen once emergency measures will be phased-out. The unemployment rate is forecast to 
remain at about 10% in 2020. 

Italy entered the COVID-19 crisis with vulnerabilities linked to the high level of government debt and 
weak productivity growth, in a context of still high though decreasing NPLs and unemployment. With 
the COVID-19 crisis, debt ratios have  increased, while the impact on the labour market and banking 
sector may become visible with some delay depending on the length of the crisis and the timing of the 
phasing out of support measures. Overall, the Commission finds it opportune, also taking into account 
the  identification  of  an  excessive  imbalance  in  February,  to  examine  further  the  persistence  of 
macroeconomic risks and to monitor progress in the unwinding of excessive imbalances. 

54 

Graph A12: Potential growth and public debtSource: Commission services050100150-1.5-1.0-0.50.00.51.01.52.00608101214161820Rate of change y-o-y (%)ItalyCapital accumulation contributionTFP contributionTotal labour  contributionFactor productivity potential growthGeneral government debt (rhs)% of GDP 
 
 
 
 
 
 
 
 
CYPRUS:  In  February  2020,  the  Commission  concluded  that  Cyprus  was  experiencing  excessive 
macroeconomic  imbalances,  in  particular  involving  a  very  high  share  of  non-performing  loans  that 
burdens  the  financial  sector  and  high  private  sector,  government,  and  external  debt,  in  a  context  of 
moderate potential growth. In the updated scoreboard including figures until 2019, the current account 
deficit,  the  net  international  investment  position  (NIIP),  private  sector  debt  and  the  government  debt 
ratio indicators are beyond the indicative threshold.  

MIP relevant CSRs issued in 2019 and 2020 are broadly associated to fiscal-structural policies, private 
sector debt, NPLs and the business environment. Beyond warranted policies to address the pandemic, 
actions  taken  in  2020  to  address  imbalances  relate  to  the  justice  system,  public  administration,  local 
government and access to finance. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 3.1% in 2019 
to -6.2% in 2020. Real growth is forecast at 3.7% in 2021, leaving the nominal GDP level 0.7% lower 
than in 2019. 

A number of relevant developments can be summarised 
as follows:  
  External  vulnerabilities  remain  a  concern,  as  the 
NIIP is significantly negative, despite improvement 
in  2019  and  that  a  large  part  reflects  activities  of 
special  purpose  entities.  The  current  account 
showed  a  large  deficit  of  6.3  %  of  GDP  in  2019, 
and  it  is  expected  to  deteriorate  sharply  in  2020 
with the strong drop in tourism. 

  The  corporate  debt  ratio  continued  to  decrease  in 
2019  although  remaining  elevated.  The  non-
than 
financial  corporations  deleveraged 
households  did.  Household  debt  stood  at  about 
90%  of  GDP  in  2019,  above  prudential thresholds. 
In  2020,  private  sector  debt  ratios  are  expected  to 
increase due to the decline in nominal GDP and the 
loan moratoria. The downward trend is expected to resume in 2021. 

faster 

  While the government debt to GDP ratio declined in 2019, it is forecast to rise by broadly 20 pps. 
in  2020,  reaching  close  to  113%  of  GDP  given  the  fiscal  support  measures,  additional  bond 
issuance and GDP contraction. The stability of the banking sector improved in recent years with 
marked  declines  in  NPLs  over  2018-2019.  In  2020,  increases  in  the  NPL  ratio  has  been  limited 
given asset sales and write-offs but it may increase more in 2021 with the lifting of the moratoria 
on debt repayments. 

Cyprus  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  external,  private  sector  and 
government debt and to still high non-performing loans, in a context of moderate potential growth. With 
the COVID-19 crisis, the current account deficit has deteriorated, the debt ratios have increased while 
banks’  non-performing  loans  deleveraging  has  slowed  down.  Overall,  the  Commission  finds  it 
opportune,  also  taking  into  account  the  identification  of  an  excessive  imbalance  in  February,  to 
examine  further  the  persistence  of  macroeconomic risks  and to  monitor progress  in  the  unwinding of 
excessive imbalances. 

55 

Graph A13: Debt and non-performing loansSource: Eurostat and ECB01020304001002003004005001011121314151617181920f% of GDPCyprusGeneral GovernmentHouseholdsNon-financial corporationsNon-performing loans (rhs)% of total loans 
 
 
 
 
 
 
 
 
LATVIA: In the previous round of the MIP, no macroeconomic imbalances were identified for Latvia. 
In the updated scoreboard including figures until 2019, net international investment position (NIIP) and 
unit labour cost growth indicators are beyond the indicative threshold.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 2.1% in 2019 
to -5.6% in 2020. Real growth is forecast at 4.9% in 2021, leaving the nominal GDP level 1.3% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  External  vulnerabilities  remain  but  there  have 
been  improvements.  The  current  account  was 
mildly  negative  in  2019  but  the  NIIP,  mainly 
reflecting  FDI  and  government  debt,  continued  to 
improve rapidly. The NIIP is forecast to continue to 
improve and the current account to record a surplus.  
  Unit  labour  costs  continued  to  grow  relatively 
strongly  in  2019  driven  by  marked  wage  growth. 
However, wage growth is forecast to cool down in 
2020  given  the  impact  of  the  COVID-19  crisis.  In 
parallel,  the  real  effective  exchange  rate  remained 
broadly  unchanged,  after  a  strong  appreciation  the 
year  before.  Export  market  shares  declined  for  the 
first time in 4 years.  

  Corporate  and  household  sector  debt  remain 
moderate,  although  they  are  forecast  to  increase 
with fall in GDP with the COVID-19 crisis. While 
lending  to  non-financial  firms  increased  in  2019,  it  is  forecast  to  weaken  substantially  in  2020. 
House  prices  growth  remained  elevated  in  2019,  just  below  the  threshold,  but  are  expected  to 
decelerate as a result of the COVID-19 crisis. 

  The banking sector entered the crisis in a financially sound state with both capital and liquidity 
ratios above EU average. However, NPLs, albeit still low, are likely to increase once government 
support  measures  in  response  to  the  COVID-19  crisis  will  be  phased  out.  Government  debt 
decreased  further  in  2019,  to  about  37%  of  GDP  but  is  forecast  to  increase  in  2020  with  the 
measures to address the pandemic and the GDP contraction. 

Latvia entered the COVID-19 crisis with no identified macroeconomic imbalances, although dynamics 
related  to  labour  supply  and  cost  competitiveness  involved  some  limited  risks.  With  the  COVID-19 
crisis, the labour market and wage pressures reduce temporarily. Overall, the Commission does not see 
it necessary at this stage to carry out further in-depth analysis in the context of the MIP. 

56 

Graph A14: Decomposition of unit labour costSource: Commission services-15-10-5051015202508091011121314151617181920f21fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28Latvia 
 
 
 
 
 
 
 
LITHUANIA:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Lithuania. In the updated scoreboard including figures until 2019, the unit labour cost growth indicator 
is beyond the indicative threshold. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 4.3% in 2019 
to -2.2% in 2020. Real growth is forecast at 3% in 2021, leaving the nominal GDP level 4.8% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  External vulnerabilities remain contained, as the 
NIIP,  albeit  negative,  improved  gradually  until 
2019. It mainly consists of the accumulated stock 
of FDI. The NIIP is forecast to improve further in 
2020  and  2021.  Increasing  exports  of  transport 
services  have  considerably  improved  the  trade 
balance,  and, 
the  current  account 
surplus  increased  to  above  3%  in  2019  and  is 
expected  to  remain  sizeable  in  2020  and  2021. 
Gains in export market shares have continued at a 
solid pace. 

therefore, 

  Nominal  unit  labour  cost  has  been  increasing 
rapidly since 2016, reflecting a tight labour market 
and  some 
including  a 
regulatory  changes, 
relatively fast increase in the minimum wages and 
wages  in  the  public  sector.  COVID-19  pandemic 
is expected to have a negative impact on wages in 
the private sector in 2020 and slow down growth of nominal unit labour cost. 

  The  banking  sector  is  highly  profitable  and  the  capital  ratio  is  slightly  above  the  euro  area 
average. Non-performing loans have been on a downward trend and are overall low. Government 
debt decreased further in 2019, but is forecast to increase to about 47% of GDP in 2020 in light of 
the COVID-19 crisis and continue increasing in 2021. 

  Before the COVID-19 pandemic, labour market performance was strong with unemployment rate 
at 6.3%. However, the unemployment rate is forecast to increase to 8.9% in 2020 before decreasing 
again in 2021.  

Lithuania entered the COVID-19 crisis with no identified macroeconomic imbalances, although the cost 
competitiveness dynamics involved some limited risks. With the COVID-19 crises the external position 
has remained stable and wage pressures reduced. Overall, the Commission does not see it necessary at 
this stage to carry out further in-depth analysis in the context of the MIP. 

57 

Graph A15: Decomposition of unit labour costSource: Commission services-15-10-505101508091011121314151617181920f21fRate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costULC in EU28Lithuania 
 
 
 
 
 
 
 
 
LUXEMBOURG: In the previous round of the MIP, no macroeconomic imbalances were identified for 
Luxembourg. In the updated scoreboard including figures until 2019, the unit labour cost growth, house 
price growth and private sector debt indicators are beyond the indicative threshold.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 2.3% in 2019 
to -4.5% in 2020. Real growth is forecast at 3.9% in 2021, leaving the nominal GDP level 0.3% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  External sustainability concerns are limited. The 
current  account  shows  a  stable  surplus  and  net 
international 
is  markedly 
investment  position 
positive.  Unit  labour  cost  continued  to  grow  at  a 
fairly  high  rate  in  2019  in  the  context  of  a  tight 
labour  market.  In  2020  unit  labour  cost  growth  is 
expected  to  be  contained  amidst  wage  moderation 
due to the COVID-19 crisis.  

  The  private  sector  debt-to-GDP  ratio  is  very 
high,  at  319%,  and  mainly  reflects  high  corporate 
debt,  above  250%  of  GDP  in  2019.  However,  the 
high figure mainly reflects Luxembourg’s role as a 
global financial centre and cross-border intra-group 
lending. Household debt stabilised in 2019 at 66% 
of GDP and is well below both the fundamental and 
prudential benchmarks although higher if compared 
to  disposable  income.  Mortgage  credit  grew  by  8%  in  2019,  with  half  of  the  outstanding  credit 
being at variable rates, although this share has been rapidly declining. In 2020, the household debt-
to-GDP ratio is expected to increase, particularly due to the drop in GDP. 

  House  prices  continued  to  grow  markedly  in  2019  and  there  are  indications  of  overvaluation. 
Looking forward over 2020-2021, house price growth is not forecast to moderate strongly. On the 
supply side, residential construction contracted in 2019 adding to the mismatch between supply and 
demand that is driving house prices up.  

  The banking sector is well capitalised and liquid and has remained profitable, albeit profitability is 
below the EA average. Non-performing loans are very low. However, housing price developments, 
linked to the level of banks' exposure to mortgage credit and high household indebtedness, require 
continued monitoring.  Government debt is low  and is expected to rise to about 25% of GDP in 
2021. 

Luxembourg entered the COVID-19 crisis with no identified macroeconomic imbalances although with 
some  risks  related to increasing housing  prices and household  debt.  With  the COVID-19  crises  price 
and cost pressures reduce temporarily. Overall, the Commission does not see it necessary at this stage 
to carry out further in-depth analysis in the context of the MIP. 

58 

Graph A16: Household debt and house price indexSource: Eurostat and ECB5060708090100110120130010203040506070080910111213141516171819House price index, 2015=100Household debt, % of GDPLuxembourgOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
 
HUNGARY:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Hungary.  In  the  updated  scoreboard,  including  figures  until  2019,  the  net  international  investment 
position (NIIP), house price growth, government debt and growth of financial liabilities  indicators are 
beyond the indicative threshold.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 4.6% in 2019 
to -6.4% in 2020. Real growth is forecast at 4% in 2021, leaving the nominal GDP level 6.2% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  External 

vulnerabilities 

the 

remain, 

in  2019,  beyond 

despite 
sustained improvements in the NIIP, which was at 
-44% 
fundamental 
benchmark.  The  NIIP  is  forecast  to  continue 
improving  in  2020  and  2021.  Official  reserves  in 
early  2020  were  close  to  levels  considered  as 
prudential  minima.  The  current  account  balance 
turned to a mild deficit in 2019 and is expected to 
remain mildly negative until 2022. The growth of 
export  market 
shares  picked  up,  despite 
deteriorating  cost  competitiveness.  In  2020  the 
forint  underwent  a  considerable  depreciation 
which  bodes  well  for  competitiveness  going 
forward  but  also  reflects  the  vulnerability  to 
changes in sentiment in global financial markets.   
  House  prices  and  credit  flows  grew  strongly  in 

2019 with emerging concerns of overvaluation. The COVID-19 crises is expected to lead to some 
correction in prices.  

  Government debt was on a downward path in 2019, falling to about 65% of GDP. It is set to rise 
in  2020  by  almost  13  pps.  reflecting  the  depth  of  the  recession  and  the  government  support 
measures in response to the COVID-19 crisis. Gross financing needs are particularly high due to 
the combination of high debt and a relatively low duration. In addition, both government debt, as 
well  as  corporate  debt,  has  a  foreign  currency  exposure.  At  the  same  time,  the  openness  of  the 
economy  makes  domestic  income  and  the  budget  balance  sensitive  to  currency  movements.  A 
certain level of foreign currency denominated debt can help to hedge this exposure.  

  The banking sector is highly profitable, but the tier 1 capital ratio is lower than in most other EU 
countries. A comprehensive payment moratorium for borrowers temporarily shelters banks against 
potential defaults. Still, the ratio of non-performing loans remains relatively high, at 4.3% in 2019 
and  it  could  rise  after  the  moratorium  expires.  Commercial  banks  hold  a  significant  amount  of 
government debt (around 20% of GDP). 

Overall,  the  economic  reading  highlights  issues  relating  to  cost  pressures,  the  export  structure, 
government debt and the housing market. With the COVID-19 crisis, issues relating to cost pressures 
are  likely  to  ease  going  forward,  while  risks  associated  with  the  interplay  between  government 
financing  needs  and  external  financing  appear  to  have  risen.  That  being  said,  the  sheer  size  of  stock 
imbalances is not particularly high. Overall, the Commission does not see it necessary at this stage to 
carry out further in-depth analysis in the context of the MIP. 

59 

Graph A17: NIIP, private debt and government debtSource: Eurostat-120-100-80-60-40-2001011121314151617181920f050100150200250HungaryPrivate sector debt (rhs)General government debt (rhs)Net international investment position%of GDP% of GDP 
 
 
 
 
 
 
 
 
MALTA: In the previous round of the MIP, no macroeconomic imbalances were identified for Malta. 
In the updated scoreboard including figures until 2019, no indicator is beyond the indicative threshold.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 4.9% in 2019 
to -7.3% in 2020. Real growth is forecast at 3% in 2021, leaving the nominal GDP level 2.6% lower 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  The  current  account  surplus  is  elevated,  but  is 
expected  to  narrow  to  close  to  balance  by  2021, 
partly  due  to  the  weak  tourism.  The  strongly 
positive  net 
investment  position 
reflects  the  position  as  an  international  financial 
centre.  Unit  labour  costs  have  been  growing  at  a 
relatively fast pace in recent years. 

international 

  Private  sector  debt 

increased  slightly  and 
approached  the  scoreboard  threshold  in  2019, 
driven  by  an  ongoing  strong  expansion  of  credit 
that  sustained  elevated  investments  in  residential 
construction. The trends in the construction sector 
are expected to continue supported by a temporary 
reduction  of  real  estate  transaction  taxes  in  2020 
and  2021.  Favourable  labour  market  conditions 
accompanied  by  low  interest  rates  supported 
household  indebtedness  that  warrant  surveillance.  Sustained  house  price  growth  continued  in 
2019, with some signs of overvaluation. House price growth is forecast to temporarily moderate in 
2020 due to the COVID-19 crisis.  

  Government debt was on a declining path until 2019 and is set to increase to 60% of GDP in 2020 
as a result of the COVID-19 outbreak. In the banking sector liabilities were declining in 2019 and 
the  level  of  non-performing  loans  remained  stable  and  the  ongoing  review  of  the  insolvency 
framework is expected to strengthen resilience of the sector. Nevertheless, increasing concentration 
of banks’ portfolios in the real estate sector warrants close monitoring.  

  The  unemployment  rate  fell  in  2019  and  the  activity  rate  continued  increasing.  However,  the 

unemployment rate is forecast to increase with the COVID-19 crisis.  

Malta  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances  although  with  an 
elevated  current  account  balance  and  relatively  dynamic  house  price  growth  involving  limited  risks. 
With  the  COVID-19  crisis  domestic  pressures  have  eased  somewhat  and  the  external  position  has 
remained stable. Overall, the Commission does not see it necessary at this stage to carry out further in-
depth analysis in the context of the MIP. 

60 

Graph A18: Household debt and house price indexSource: Eurostat and ECB5060708090100110120130010203040506070080910111213141516171819House price index, 2015=100Household debt, % of GDPMaltaOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
 
THE  NETHERLANDS:  In  February  2020,  the  Commission  concluded  that  the  Netherlands  was 
experiencing macroeconomic imbalances, in particular involving high private sector debt and the large 
current account surplus. In the updated scoreboard, the current account surplus and private sector debt 
indicators are beyond the indicative threshold.  

MIP relevant CSRs issued in 2019 and 2020 are broadly associated to investment, household income, 
pensions, private sector indebtedness and the housing market. Beyond warranted policies to address the 
pandemic,  measures  taken  in  2020  to  address  imbalances  relate  to  the  pension  system,  housing 
investment, reducing the household debt bias and setting up invest-NL.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 1.7% in 2019 
to -5.3% in 2020. Real growth is forecast at 2.2% in 2021, leaving the nominal GDP level 0.1% lower 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  The current account surplus narrowed from 
10.8% of GDP in 2018 to 9.9% in 2019 and is 
expected  to  also  moderately  decline  in  2020. 
With  the  COVID-19  crisis  the  government 
sector  has  shifted  to  a  strongly  negative  net 
saving  position  but  this  will  likely  be  largely 
offset  by  further  rises  in  the  household  and 
corporate savings surplus. Overall, the current 
account  surplus  is  expected  to  remain  high 
well above fundamental benchmarks.  

  Private sector indebtedness, at around 230% 
of GDP in 2019, has been on a declining trend 
prior to the COVID-19 crisis. Corporate debt 
is principally driven by the intra-group debt of 
multinational enterprises. Household debt, at 
100% of GDP in 2019, is mainly linked to the 
generous tax treatment of mortgages and a sub-optimally functioning rental market. The household 
debt ratio is expected to increase again from 2020. An increase in unemployment can reduce future 
repayment  capacity  of  households.  House  prices  increased  by  4.8%  in  2019  with  indications  of 
overvaluation.  

  The banking system is well capitalised with a low level of NPLs and is profitable. Government 
debt is projected to increase to about 64% of GDP in 2020 and might further increase in the years 
after.  

  The labour market was historically tight before the crisis. However, labour market conditions are 
set  to  deteriorate  markedly  as  a  result  of  the  crisis,  affecting  those  in  a  less  favourable  labour 
market position in particular.  

The  Netherlands  entered  the  COVID-19  crisis  with  a  long-standing  large  domestic  savings  surplus 
accompanied by high private sector debt levels. Following the crisis, the savings surplus is expected to 
decline somewhat but to remain elevated, while private sector debt ratios are set to rise.  Overall, the 
Commission finds it opportune, also taking into account the identification of imbalances last February, 
to examine further the persistence of imbalances or their unwinding. 

61 

Graph A19: Net lending/borrowing by sectorSource: Eurostat-5051015201011121314151617181920f21f% of GDPThe NetherlandsCorporationsHouseholds and NPISHGeneral governmentTotal economy 
 
 
 
 
 
 
 
 
AUSTRIA:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Austria. In the updated scoreboard including figures until 2019, the government debt indicator is beyond 
the indicative threshold.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 1.4% in 2019 
to -7.1% in 2020. Real growth is forecast at 4.1% in 2021, leaving the nominal GDP level 0.6% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  External  vulnerabilities  remain  contained. 
The current account surplus increased in 2019, 
towards  3%  of  GDP,  but  is  forecast  narrow 
somewhat  in  2020.  Unit  labour  cost  growth 
increased  moderately  in  2019,  but  remain 
relatively  contained.  Limited  wage  moderation 
is  forecast  for  2020  also  because  wage 
negotiations  for  important  economic  sectors 
took place before the outburst of the crisis.  
  Private  sector  indebtedness  continued  its 
declining  path  as  the  debt  ratio  of  households 
remained  stable  and  non-financial  companies 
deleveraged  moderately  in  2019.  However, 
both are expected to rise in 2020, mainly due to 
the COVID-19 induced decline in GDP. This is 
in  2021, 
to  be  partly  reversed 
projected 
reflecting the assumed economic recovery.  

  Real  house  prices  continued  their  upward  trend  and  accelerated  again  somewhat  in  2019  with 
some increasing signs of overvaluation. However, some correction in prices is expected  in 2021. 
While warranting monitoring, the price increases do not appear to be credit-driven.  

  Overall, the  banking sector  is well positioned to help mitigate the crisis impact. The NPL ratio 
dropped further in 2019 to slightly above 2%. Government debt continued also its downward path 
on  the  back  of  strong  economic  growth  and  the  ongoing  asset  wind-down  from  nationalised 
financial institutions. However, due to the crisis, it is expected to increase to about 84% of GDP in 
2020, almost 14 pps. above its 2019 level.  

  The 

improved  macroeconomic  conditions  have  contributed 

to  further 

labour  market 

improvements although unemployment is forecast to increase in 2020 as a result of the crisis.  

Austria entered the COVID-19 crisis with no identified macroeconomic imbalances, although with some 
vulnerabilities  linked  to  the  housing  market.  With  the  COVID-19  crisis  house  price  growth  is 
moderating while government debt is increasing. Overall, the Commission does not see it necessary at 
this stage to carry out further in-depth analysis in the context of the MIP.  

62 

Graph A20: Household debt and house price indexSource: Eurostat and ECB50607080901001101201300102030405060080910111213141516171819House price index, 2015=100Household debt, % of GDPAustriaOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
 
POLAND: In the previous round of the MIP, no macroeconomic imbalances were identified for Poland. 
In the updated scoreboard including figures until 2019, the net international investment position (NIIP) 
and house price growth indicators are beyond the indicative threshold. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 4.5% in 2019 
to -3.6% in 2020. Real growth is forecast at 3.3% in 2021, leaving the nominal GDP level 5% higher 
than in 2019. 

A number of relevant developments can be summarized as follows:  
  External vulnerabilities remain contained, as the 
NIIP,  albeit  negative,  improved  gradually  until 
2019.  In  addition,  it  consists  mainly  of  the 
accumulated  stock  of  FDI  and  a  sizeable  part  of 
the FDI inflows comes from reinvested earnings. 
The  NIIP  is  forecast to improve  slightly,  to  49% 
of  GDP  in  2020  and  to  continue  improving  in 
2021,  albeit  at  a  decelerated  pace.  The  current 
account turned positive in 2019 and surpluses are 
expected also in 2020 and 2021.  

  Private  sector 

indebtedness  remains  below 
prudential thresholds and decreased in 2019. It is 
expected to remain stable in 2020.  

  Growth  in  house  prices  accelerated  in  2019  as 
did  mortgage  credit  growth.  House  price  growth 
reached  almost  7%  in  2019,  but  is  expected  to 
decelerate over 2020-2021. Risks remain contained and there are few signs of overvaluation.  
  The banking sector is generally well positioned to help mitigate the crisis impact. Moreover, the 
NPL ratio dropped in 2019 to a still relatively elevated level of about 6% and may increase going 
forward  as  a  result  of  the COVID-19  crisis.  Government  debt  decreased further  in  2019,  but is 
forecast  to  increase by  11  pps.  approaching  60%  of GDP  in  2020  given  measures to  address the 
pandemic and the GDP contraction.  

  Favourable macroeconomic developments throughout 2019 contributed to further  labour market 
improvements with unemployment at record low levels. However, the COVID-19 crisis will likely 
lead to an increase in 2020-2021.  

Poland  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances,  although  with  a 
negative  net  international  investment  position  involving  limited  risks.  With  the  COVID-19  crisis,  the 
external position has remained stable. Overall, the Commission does not see it necessary at this stage to 
carry out further in-depth analysis in the context of the MIP. 

63 

Graph A21: NIIP and CA balanceSource: Commission services-8-6-4-202-80-60-40-200201011121314151617181920f% of GDP% of GDP PolandNet international investment positionNIIP Ex. Non-Defaultable InstrumentsCurrent account balance (rhs) 
 
 
 
 
 
 
 
 
PORTUGAL:  In  February  2020,  the  Commission  concluded  that  Portugal  was  experiencing 
macroeconomic  imbalances,  in  particular  involving  the  large  stocks  of  net  external  liabilities,  private 
sector  and  government  debt  as  well  as  a  high  share  of  non-performing  loans  in  a  context  of  low 
productivity  growth.  In  the  updated  scoreboard  including  figures  until  2019,  the  net  international 
investment position (NIIP), house price growth, private sector debt and government debt indicators are 
beyond the indicative threshold. 

MIP  relevant  CSRs  issued  in  2019  and  2020  are  broadly  associated  to  fiscal-structural  policies,  the 
business environment and NPLs. Beyond warranted policies to address the pandemic, measures taken in 
2020 to address imbalances relate to education and skills, digitalisation and administrative justice.  

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 2.2% in 2019 
to -9.3% in 2020. Real growth is forecast at 5.4% in 2021, leaving the nominal GDP level 1.1% lower 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  External sustainability remains vulnerable due 
to  the  country’s  large  stock  of  net  external 
liabilities and the negative impact of COVID-19 
on  foreign  tourism.  The  current  account  which 
was  broadly  balanced  in  2019  is  set  to  slightly 
deteriorate  in  2020.  The  negative  NIIP  is 
projected to widen in 2020 though at a relatively 
slow rate. 

  Private  sector  debt  continued  its  downward 
trend reaching almost 150% of GDP in 2019 but 
is  set  to  increase  again  with  the  COVID-19 
crises.  In  the  corporate  sector  liquidity  strains 
are  pressing  and  credit  guarantees  schemes  are 
put in place. Despite continuously falling, NPLs 
entered the COVID-19 crisis at a relatively high 
level  and  solvency  risks  are  likely  to  increase 
once  the  loan  repayment  moratoria  expire.  The  household  debt  to-GDP-ratio,  which  is  already 
high,  is  set  to  increase  in  2020  with  the  contraction  of  GDP  while  the  household  savings  rate 
substantially increases.   

  Real growth in house prices has exceeded the indicative threshold for four years in a row until 
2019  showing  increasing  signs  of  overvaluation.  However,  a  sharp  decline  in  growth  rates  is 
expected over 2020-2021 amid reduced market demand and increased construction volumes. 

  Government  debt  is  high  and  although  on  a  steady  downward  path  reaching  117%  of  GDP  in 
2019.  However,  an  increase  by  18  pps.  is  forecast  for  2020  given  the  measures  to  address  the 
pandemic and the GDP contraction.  

Portugal entered the COVID-19 crisis with vulnerabilities linked to large stocks of debt in a context of 
low productivity growth. With the COVID-19 crisis, debt ratios have increased across sectors. Overall, 
the  Commission  finds  it  opportune,  also  taking  into  account  the  identification  of  imbalances  last 
February, to examine further the persistence of imbalances or their unwinding. 

64 

Graph A22: NIIP, Private debt and government debtSource: Eurostat-140-120-100-80-60-40-2001011121314151617181920f050100150200250300350% of GDP% of GDPPortugalPrivate sector debt (rhs)General government debt (rhs)Net international investment position 
 
 
 
 
 
 
 
 
ROMANIA:  In  February  2020,  the  Commission  concluded  that  Romania  was  experiencing 
macroeconomic imbalances, in particular involving cost competitiveness losses, a deteriorating external 
position  and  a  widening  current  account  deficit,  in  a  context  of  expansionary  fiscal  policy  and  an 
unpredictable business environment. In the updated scoreboard including figures until 2019, the current 
account deficit, the net international investment position (NIIP) and unit labour cost growth indicators 
are beyond the indicative threshold.  

MIP relevant CSRs issued in 2019 and 2020 are broadly associated to fiscal policies, financial stability, 
cost  competitiveness  and  business  environment.  Beyond  warranted  policies  to  address  the  pandemic, 
measures taken in 2020 to address imbalances relate mainly to the banking sector and, to a lesser extent, 
to the minimum-wage-setting mechanism. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 4.2% in 2019 
to -5.2% in 2020. Real growth is forecast at 3.3% in 2021, leaving the nominal GDP level 3.6% higher 
than in 2019. 

A number of relevant developments can be summarised 
as follows: 
  External  sustainability  remains  a  vulnerability, 
where the negative NIIP did not improve further in 
2019  but  stabilised,  at  around  -44%  of  GDP.  The 
NIIP  is  forecast  to  remain  at  about  this  level  in 
2020.  The  current  account  deficit  deteriorated  to 
almost 5% of GDP in 2019 and is forecast to stay 
sizeable in 2020 and 2021. 

the 

tight 

  Nominal unit labour cost growth remained high in 
2019  with 
labour  market.  Wage 
moderation due to the COVID-19 crisis is likely to 
reduce  cost  competitiveness  pressures,  although 
labour  hoarding  resulted  in  an  additional  increase 
in unit labour cost growth in 2020.  

  The  government  debt  to  GDP  ratio  is  forecast  to 
rise by more than 11 pps. in 2020, to about 47% of 
GDP, reflecting the impact of the crisis but also previously enacted permanent increases in current 
spending.  Government  debt  is  set  to  further  increase  markedly  in  2021.  In  addition,  a  relatively 
large  share  is  denominated  in  foreign  currency  and  therefore  subject  to  currency  risks.  Policy 
unpredictability  remained  a  concern  throughout  2019  and  2020,  in  particular  associated  to 
legislation affecting fiscal sustainability. 

  The banking sector profitability, although significantly above the EU average, is declining since 
2019.  Although  the  NPL  ratio  declined  below  4%  at  the  beginning  of  2020  and  is  expected  to 
remain  moderate  in  2020,  it  could  increase  in  light  of  the  COVID-19  crisis.  Private  sector  debt 
remained low but is forecast to increase moderately in 2020. 

Romania entered the COVID-19 crisis with vulnerabilities linked to external and government debt, cost 
competitiveness  and  an  unpredictable  business  environment.  With  the  COVID-19  crisis,  debt  ratios 
have  increased  markedly  and  the  fiscal  position  has  deteriorated.  Overall,  the  Commission  finds  it 
opportune, also taking into account the identification of imbalances last February, to examine further 
the persistence of imbalances or their unwinding. 

65 

Graph A23: Net lending/borrowing by sectorSource: Ameco-20-15-10-50510151011121314151617181920f21f% of GDPRomaniaCorporationsHouseholds and NPISHGeneral governmentTotal economy 
 
 
 
 
 
 
 
 
SLOVENIA:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Slovenia.  In  the  updated  scoreboard  including  figures  until  2019,  the  government  debt  indicator  is 
beyond the indicative threshold. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 3.2% in 2019 
to -7.1% in 2020. Real growth is forecast at 5.1% in 2021, leaving the nominal GDP level 1.3% higher 
than in 2019. 

A number of relevant developments can be summarised 
as follows:  
  The current account surplus remained high in in 
2019  at  almost  6%  of  GDP.  The  surplus  reflects 
strong  household  saving.  In  2020  and  2021,  the 
surplus  is  expected  to  decline  gradually.  In  2019 
investment  remained  broadly  on  the  level  of  the 
previous  year  and  remains  low  compared  to  the 
historical  averages.  The  NIIP 
is  moderately 
negative.  Unit  labour  costs  growth  increased  in 
2019.  

  Government  debt  continued  to  decrease  in  2019 
reaching  about  66%  of  GDP  but  is  expected  to 
increase to about 82% of GDP in 2020 as the result 
of  crisis  response  measures  and  the  downturn.  In 
addition, projected ageing costs continue to weigh 
on fiscal medium and long-term sustainability.  

  Private  sector  debt  decreased  further  in  2019,  while  credit  flow  to  the  private  sector  remained 
positive.  House  price  growth  declined  in  2019,  to  below  the  threshold,  and  is  expected  to  ease 
further in 2020-2021 with the COVID-19 crisis. The banking sector entered the crisis in relatively 
strong  position,  with  low non-performing  loans and reduced leverage,  which  is  expected to limit 
the crisis impact in the sector.  

  The  labour  market  improved  further  in  2019,  with  activity  rate  at  an  all-time  high  and 

unemployment at very low level. It is expected that the situation will worsen in 2020. 

Slovenia entered the COVID-19 crisis in strong position with no macroeconomic imbalances, although 
fiscal sustainability and house price developments implied limited risks. With the COVID-19 crisis, the 
government  debt  level  is  projected  to  increase  but  the  strong  current  account  surplus  to  remain. 
Overall, the Commission does not see it necessary at this stage to carry out further in-depth analysis in 
the context of the MIP. 

66 

Graph A24: Net lending/borrowing by sectorSource: Ameco-20-15-10-5051015201011121314151617181920f21f% of GDPSloveniaCorporationsHouseholds and NPISHGeneral governmentTotal economy 
 
 
 
 
 
 
 
 
SLOVAKIA:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were  identified  for 
Slovakia.  In  the  updated  scoreboard  including  figures  until  2019,  the  net  international  investment 
position  (NIIP),  the  unit  labour  cost  growth  and  the  house  price  growth  indicators  are  beyond  the 
indicative threshold. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 2.3% in 2019 
to -7.5% in 2020. Real growth is forecast at 4.7% in 2021, leaving the nominal GDP level 0.6% higher 
than in 2019. 

A number of relevant developments can be summarised as follows:  
  External  vulnerabilities  remain  a  concern, 
despite  improvements.  Export  concentration  and 
integration  in  global  value  chains  remain  high. 
The  NIIP,  albeit  strongly  negative  at  -66%  in 
2019,  improved  gradually  in  2019.  The  NIIP  is 
forecast  to  worsen  in  2020  and  2021.  Risks  are 
limited as much of the foreign liabilities relate to 
foreign  direct  investment.  The  current  account 
deficit widened in 2019 and  is forecast to widen 
further in 2020.  

  Cost 

competitiveness  developments  merit 
attention  as  unit 
labour  costs  have  grown 
persistently  since  2017,  driven  by  strong  wage 
growth  in  the  context  of  a  tightening  labour 
market and wider convergence dynamics towards 
the  EU  average.  Real  effective  exchange  rates 
have  appreciated  slightly  over  the  years.  Cost  competitiveness  pressures  may  abate  in  2020  and 
2021 amid the COVID-19 crisis and suppressed wage growth. 

  Private  sector  indebtedness,  and  in  particular  household  debt,  has  been  increasing  for  several 
years, but its growth rate is decelerating. Household debt remains below prudential levels but is in 
excess of the level implied by fundamentals and high compared to other EU countries in the region.  
  Growth  in  house  prices  has  been  swift,  at  above  6%  in  2019.  The  housing  market  shows  some 
indications of overvaluation and contributes to increasing household indebtedness. However, house 
price growth is expected to decelerate over 2020-2021. This is also supported by macroprudential 
measures taken by the National Bank and a decline of real incomes in 2020.  

  The banking sector is well capitalised with a profitability around the EA average. The NPL ratio 
dropped markedly in recent years and is below EU average, but difficulties in servicing loans could 
increase in view of the crisis. With the impact of the crisis, the government debt ratio will increase 
in 2020, to above 60% of GDP. 

Slovakia entered the COVID-19 crisis with no identified macroeconomic imbalances, although external 
sustainability,  domestic  price  pressures  and  dependence  on  the  automotive  industry  involved  limited 
risks. With the COVID-19 crises, domestic price pressures have eased while the external position has 
slightly deteriorated. Overall, the Commission does not see it necessary at this stage to carry out further 
in-depth analysis in the context of the MIP. 

67 

Graph A25: Household debt and house price indexSource: Eurostat and ECB5060708090100110120130051015202530354045500910111213141516171819House 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 imbalance was identified for Finland. 
In the updated scoreboard including figures until 2019, the private sector debt indicator is beyond the 
indicative threshold. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 1.1% in 2019 
to -4.3% in 2020. Real growth is forecast at 2.9% in 2021, leaving the nominal GDP level 1.7% higher 
than in 2019. 

A number of relevant developments can be summarized as follows:  
  On  the  external  side,  the  current  account 
deficit  narrowed,  while  the  net  international 
investment position turned positive. The current 
account deficit is however expected to widen in 
2020  with  the  fall  in  external  demand.  Export 
market  shares  recovered  for  a  fourth  year  in  a 
row,  further  offsetting  past  cumulated  losses. 
Unit  labour  costs  rose,  but  the  real  effective 
exchange rate depreciated, attenuating risks for 
cost-competitiveness.  

  The  ratios  of  both  non-financial  corporation 
and  household  debt  to  GDP  remained  high, 
slightly  increasing  to  about  82%  and  66% 
respectively.  Favourable  credit  conditions  and 
low  interest  rates  accelerated  credit  growth  in 
2019. While household debt is above prudential 
and fundamental levels, debt service is very low, but almost all new mortgages are at variable rates. 
The debt levels are expected to increase further in 2020, given COVID-19 measures and the GDP 
contraction. 

  The  financial  sector  remains  well  capitalised,  and  risks  to  financial  stability  limited,  despite 
significant cross-border exposures especially with other Nordic countries, due to a relatively large 
reliance on wholesale funding and the relocation to Finland of the headquarters of a major regional 
bank. The crisis might lead to an increase in the NPL ratio, but the latter is expected to remain very 
low.  

  Government debt came further down below threshold in 2019, as GDP growth still outpaced debt 
growth. However, the government debt is forecast to rise by more than 10 pps. in 2020, to about 
70% of GDP reflecting the depth of the recession and the government’s fiscal response to the crisis. 
It is forecast to increase moderately in 2021. 

  Labour  market  outcomes  continued  to  improve  in  2019,  with  the  unemployment  and  long-term 
unemployment  rates  coming  down.  In  the  present  context,  the  unemployment  rate  is  forecast  to 
increase to 7.9% in 2020 and to slightly decrease in 2021. 

Finland  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  private  sector  debt.  With  the 
COVID-19  crisis,  the  private  sector  debt  ratio  is  increasing,  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.  

68 

Graph A26: Household debt and house price indexSource: Eurostat and ECB5060708090100110010203040506070800910111213141516171819House price index, 2015=100household debt, % of GDPFinlandOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
 
that  Sweden  was  experiencing 
the  Commission  concluded 
SWEDEN:  In  February  2020, 
macroeconomic  imbalances,  in  particular  involving  overvalued  house  price  levels  coupled  with  a 
continued  rise  in  household  debt.  In  the  updated  scoreboard  including  figures  until  2019,  the  private 
sector debt indicator is beyond the indicative threshold.  

MIP relevant CSRs issued in 2019 are broadly associated to the functioning of the housing market and 
private sector indebtedness. Beyond warranted policies to address the pandemic, measures taken in 2020 
to address imbalances relate to the rental housing market. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 1.3% in 2019 
to -3.4% in 2020. Real growth is forecast at 3.3% in 2021, leaving the nominal GDP level 2.8% higher 
than in 2019. 

A number of relevant developments can be summarized as follows:  
  The external position remains solid. The current 
account surplus increased in 2019 to above 4% of 
GDP  while  the  already  positive  NIIP  increased 
markedly.  In  2020  the  current  account  surplus  is 
expected to remain at a similar level.  

  Consolidated  private  sector  debt reached  a new 
high of 204% of GDP in 2019 with both the debt 
of non-financial corporations and household debt 
being  beyond  prudential  thresholds.  Household 
debt  increased  to  a  high  of  89%  of  GDP. 
Mortgage loans to households continued to grow 
in  the  first  half  of  2020,  despite  the  strong 
contraction  in  economic  activity.  An  increase  in 
unemployment  can  reduce  future  repayment 
capacity of households.  

  After a decline at the end of 2017,  house prices have started to grow again from 2018 onwards, 
almost  uninterrupted  by  the  COVID-19  crisis.  House  prices  remain  overall  high  with  risks  from 
overvaluation. House prices and household indebtedness are being pushed up by the favourable tax 
treatment  of  home  ownership,  very  low  mortgage  interest  rates  and  specific  features  in  the 
mortgage market as well as supply side restrictions.  
In 2020, the government debt ratio is thus set to increase substantially before stabilising in 2021, 
still well below the 60% of GDP threshold. The  financial sector entered the crisis from a sound 
initial  position  and  benefited  from  frontloaded  support  measures  of,  in  particular,  monetary 
authorities. In response to the crisis, macro-prudential regulation has been temporarily loosened. 
  Policy support measures like temporary unemployment facilities helped cushion the impact on the 

 

labour market. Still, unemployment is expected to increase to 8.8% in 2020. 

Sweden  entered  the  COVID-19  crisis  with  vulnerabilities  linked  to  the  housing  market  and  private 
sector  debt.  With  the  COVID-19  crises  vulnerabilities  associated  to  household  debt,  mortgage  credit 
and house price levels remain. Overall, the Commission finds it opportune, also taking into account the 
identification  of  imbalances  in  February,  to  examine  further  the  persistence  of  imbalances  or  their 
unwinding. 

69 

Graph A27: Household debt and house price indexSource: Eurostat and ECB506070809010011012001020304050607080901000910111213141516171819House price index, 2015=100household debt, % of GDPSwedenOther loans to householdsOther domestic loans to householdsDomestic loans for house purchaseReal house price (rhs) 
 
 
 
 
 
 
 
 
UNITED  KINGDOM:  In  the  previous  round  of  the  MIP,  no  macroeconomic  imbalances  were 
identified for the United Kingdom.  In the updated scoreboard including figures until 2019, the private 
sector debt and government debt indicators are beyond the indicative threshold. 

Real GDP growth is forecast to fall substantially as a result of the COVID-19 crisis, from 1.3% in 2019 
to -10.3% in 2020. Real growth is forecast at 3.3% in 2021, leaving the nominal GDP level 3.9% lower 
than in 2019. 

and 

deficit 

current 

relevant  developments  can  be 

A  number  of 
summarized as follows:  
  External  vulnerabilities  increased  in  light  of  a 
sizeable 
a 
account 
deteriorating net international investment position 
(NIIP).  The  current  account  deficit  widened  to 
above  4%  of  GDP  in  2019,  exposing  the  UK  to 
external  financing  needs.  The  current  account 
balance  is  forecast  to  narrow  somewhat  in  the 
coming  years. The NIIP deteriorated further, to  -
26%  of  GDP  in  2019  and  is  now  significantly 
below  the  level  expected  given  the  underlying 
fundamentals, but still above the prudential level. 
Going forward, the NIIP is forecast to stabilise at 
around that level. 

  Private sector debt decreased slightly in 2019. In 
particular  household  debt  is  high  and  remains 
above prudential thresholds and warrants monitoring, especially in view of the expected negative 
effect of the pandemic on household income. Real house prices declined by 0.3% in 2019. While 
government policies have supported house prices in 2020, further adjustments can be expected.  
  Government debt remains above the threshold and is projected to increase above 100% of GDP in 
2020 as a consequence of government measures to deal with the impact of the pandemic and the 
contraction of GDP.  

  The banking sector remains profitable and well capitalised and NPLs are very low. However, the 
exposure of the financial sector to commercial real estate and the impact of the UK leaving the EU 
Single Market and Customs Union at the end of 2020 pose risks. 

  The  labour  market  remained  strong  in  2019,  with  high  employment  and  record  low 
unemployment. However, the pandemic is expected to strongly negatively affect the labour market 
starting in 2020.  

The  United  Kingdom  entered  the  COVID-19  crisis  with  no  identified  macroeconomic  imbalances, 
although with issues on the external side and with private sector debt involving limited risks.  With the 
COVID-19  crisis  debt  ratios  are  set  to  increase  and  the  external  vulnerabilities  remain.  Overall,  the 
Commission will not carry out further in-depth analysis in the context of the MIP. 

70 

Graph A28: NIIP and CA balanceSource: Commission services-10-8-6-4-20-40-30-20-10010201011121314151617181920f% of GDP United KingdomNet international investment positionNIIP Ex. Non-Defaultable InstrumentsCurrent account balance (rhs)% of GDP 
 
 
 
 
 
 
 
 
71 

Table 1.1: MIP scoreboard 2019Current account balance - % of GDP (3 year average)Net international investment position (% of GDP)Real effective exchange rate - 42 trading partners, HICP deflator (3 years % change)Export market share - % of world exports(5 years % change)Nominal unit labour cost index (2010=100)(3 years % change)House price index (2010=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 years change in p.p.)Long-term unemployment rate - % of active population aged 15-74(3 years change in p.p.)Youth unemployment rate - % of active population aged 15-24(3 years change in p.p)Thresholds-4/6%-35%±5% (EA)±11% (Non-EA)-6%9% (EA) 12% (Non-EA)6%14%133%60%10%16.5%-0.2%0.5%2%BE0.1   50.6   2.6   -3.1   5.3   2.5   3.8   179.1   98.1   6.2  b4.6   1.4   -1.7   -5.9   BG2.5   -31.2   4.5   15.4   19.5  p4.0  p5.6   91.8   20.2   5.2   5.8   4.5   -2.1   -8.3   CZ0.6   -20.3   8.7   5.1   14.4   6.2   3.1   80.8   30.2   2.4   5.6   1.7   -1.1   -4.9   DK8.0   76.9   -0.2   2.6   1.4   1.5   11.4   221.2   33.3   5.3  b13.1   1.6  b-0.4   -2.1   DE7.4   71.7   2.1   -1.1   7.9   4.3   5.4   105.4   59.6   3.4   7.3   1.3   -0.5   -1.3   EE1.7   -21.4   6.2   2.0   19.9   4.4   3.8   97.8   8.4   5.2   12.5   1.4   -1.2   -2.3   IE-1.6  c-174.0   -1.4  c71.0   -4.4   0.0   -9.1   202.4   57.4   5.8   15.5   0.6   -2.6   -4.3   EL-2.1   -155.9   0.3   3.7   1.7  p6.5  f0.8  p109.9  p180.5   19.4   11.5   0.2   -4.8   -12.1   ES2.3   -73.9   1.7   2.6   4.0  p4.1   1.3  p129.4  p95.5   15.5   0.9   -0.4   -4.2   -11.9   FR-0.7   -22.9   1.6   -0.5   1.3  p2.3  r8.0  p153.3  p98.1   9.0   7.5   0.3   -1.2   -4.9   HR2.6   -50.3   1.5   22.5   4.7  p8.1   1.7  p91.2  p72.8   8.8   6.8   0.9   -4.2   -14.7   IT2.7   -1.5   0.2   -2.6   3.2   -0.6   0.2   106.6   134.7   10.6   3.8   0.8   -1.1   -8.6   CY-5.2   -122.3   -0.1   13.7   5.2  p2.6   2.7  p259.1  p94.0   8.9   3.9   2.6   -3.7   -12.5   LV0.1   -41.7   3.7   3.6   17.0   5.8   1.5   67.1   36.9   7.5   4.6   1.0   -1.6   -4.9   LT1.4   -24.1   3.7   16.8   16.4   4.9  c3.0   55.1   35.9   6.5   4.1   2.5   -1.1   -2.6   LU4.7   56.2   2.0   10.3   11.9   8.0   3.8   318.7   22.0   5.6   3.3   2.0   -0.9   -1.9   HU0.7   -43.7   0.3   5.9   10.0  p12.8  p3.2  p66.6  p65.4   3.8   17.8   2.5   -1.3   -1.5   MT5.1   54.6   1.3   18.1   8.5   4.0  p8.5   123.7   42.6   3.8   4.4   5.3   -1.5   -1.4   NL10.5   90.0   2.4   0.7   5.9  p4.8   0.0  p234.0  p48.7   4.0   6.1  p1.2   -1.5   -4.1   AT1.8   12.1   2.1   1.4   5.5   3.9   4.5   120.1   70.5   5.0   4.3   0.9   -0.8   -2.7   PL-0.4   -49.4   2.8   25.1   9.2  p6.7  c3.3   74.0   45.7   4.0   4.2   1.8   -1.5   -7.8   PT0.5   -100.3   -0.4   8.5   7.6  p8.7   2.2  p149.2  p117.2   7.5   0.0   1.8   -3.4   -9.7   RO-4.0   -43.5   0.2   17.9   24.5  p-1.7   2.0  p46.7  p35.3   4.3   10.4   3.0   -1.3   -3.8   SI5.9   -15.4   1.0   16.0   8.4   4.8  c0.8   68.7   65.6   5.4   9.9   3.6   -2.4   -7.1   SK-2.3   -66.3   2.6   1.9   14.5   6.2   5.0   91.6   48.5   6.8   4.9  f0.8   -2.4   -6.1   FI-0.9   3.6   0.2   4.6   0.8   0.0   7.6   147.5   59.3   7.6   7.6   2.4   -1.1   -2.9   SE3.3   18.2   -8.3   -5.1   8.2   0.5   9.8   203.9   35.1   6.6  b10.6   0.8   -0.4   1.2   P.M.: UK-3.9   -26.2   -2.9   -1.4   8.8   -0.3   2.8   154.7   85.4   4.0   3.3   0.8   -0.4   -1.8   1) For the employment indicators, see page 2 of the AMR 2016. 2) House price index e = estimate by NCB for EL. 3) For Nominal unit labour cost HR, d: employment data use national concept instead of domestic concept. 4) Unemployment rate for BE: revision in the survey methodology. (NOTE: This footnote was taken from the 2018 table in 23/10/2019 provisional annex. Footnotes in the annex provided by ESTAT for other years can be different.)Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective Exchange Rate), and International Monetary Fund data, W EO (for world volume exports of goods and services)Year 2019External imbalances and competitivenessInternal imbalancesEmployment indicators1Figures highlighted are the ones at or beyond the threshold. Flags:b:Break in series. d:Definition differs. e:Estimated. p:Provisional. NEXT IS ONLY FOR INTERNAL ECFIN INFO AND NOT INCLUDED IN ESTAT FINAL SA empty: not available. c: Confidential. ECFIN flags: f: Forecast. k: Backcast. j: Note. o: Outdated. u: Unreliable 
 
 
 
 
 
 
 
 
72 

Table 2.1: Auxiliary indicators, 2019Year 2019Real GDP (1 year % change) Gross fixed capitalformation (% of GDP)Gross domestic expenditureon R&D (% of GDP)Current plus capital account (Net lending-borrowing)(% of GDP)NENDI: NIIP excludingnon-defaultableInstruments(% of GDP) Foreign direct investment in the reporting economy - flows(% of GDP) Foreign direct investment in the reporting economy - stocks(% of GDP)Net trade balance of energy products(% of GDP)Real effective exchange rate - Euro Area trading partners(3 years % change)Export market share - % of OECD exports(5 years % change)Terms of trade(5 years % change)Export market share in volume(1 year % change)Labour productivity(1 year % change)Gross non-performing loans of domestic and foreign entities(% of gross loans)Unit labour cost performance relative to EA(10 years % change)House price index (2015=100) - nominal (3 years % change)Residential construction (% of GDP)Household debt,consolidated (incl. NPISH, % of GDP)Consolidated banking leverage,domestic and foreign entities(total assets/total equity)BE1.7 24.2  0.5 40.2 -5.3 168.1 -2.6 1.1 -4.8 1.2 -0.1 c0.2 2.1 p0.3 10.9 6.2 61.2 13.4 pBG3.7 18.7 0.8 p4.5 39.9 2.4 81.7 -2.9 c1.7 13.4 c8.9 2.8 c3.3 6.5 p42.5 22.8 p2.8 23.3 c8.2 pCZ2.3 26.2 1.9 p0.2 29.7 3.7 78.1 -2.4 c7.5 3.2 c0.9 0.2 2.1 1.7 p9.0 32.4 4.5 31.8 12.1 pDK2.8 22.0 3.0 p8.9 27.2 -2.0 54.3 -0.4 c-2.5 0.8 -1.3 3.9 c1.6 1.9 p-6.6 11.7 4.9 109.5 16.7 pDE0.6 21.7 3.2 f7.1 51.3 1.9 46.6 -1.8 0.3 -2.9 3.3 -0.1 -0.3 1.2 p10.4 19.7 6.6 54.4 13.7 pEE5.0 26.2 1.6 p3.2 31.2 9.3 96.7 -1.2 4.4 c0.2 0.6 5.1 3.7 1.6 p22.2 19.6 4.9 37.6 7.5 pIE5.6 45.6 0.8 -21.2 -285.4 -11.4 436.7 -1.2 -2.9 68.0 c4.3 9.4 2.6 3.4 p-35.4 25.1 2.3 37.2 7.4 pEL1.9 p10.1 p1.2 p-1.1 -135.3 2.4 23.8 -2.4 p-2.0 1.8 1.9 p3.7 p0.6 p35.5 p-17.8 8.0 f0.7 p54.3 c10.9 pES2.0 p19.9 p1.1 p2.5 -46.8 1.0 67.7 -1.9 p0.0 0.8 -1.0 p1.2 p-0.3 p3.1 p-11.8 19.2 5.7 p56.9 13.5 pFR1.5 p23.6 p -0.6 -35.6 1.9 48.0 -1.8 p-0.1 -2.2 2.5 p0.8 p0.4 p2.5 p-1.4 9.7 r6.4 p61.7 15.1 pHR2.9 p21.0 p 4.7 -5.5 2.4 49.4 -2.9 p0.5 20.4 c3.7 p5.7 p-0.2 p5.2 p-17.6 20.0 34.6 7.5 pIT0.3 18.1 1.5 p2.9 0.0 1.6 29.0 -2.0 -1.7 -4.3 4.2 -0.1 -0.2 6.7 p-2.4 -1.8 4.2 41.2 12.9 pCY3.1 p19.4 p -6.2 -159.5 103.5 1827.5 -4.0 p-2.5 c11.7 c0.7 p-1.5 p-0.1 p18.1 p-11.5 7.9 7.9 p89.5 12.8 pLV2.1 22.2 0.6 p0.8 4.5 3.1 56.0 -2.7 2.8 1.8 c6.7 1.0 c2.1 3.9 p17.3 29.9 2.4 20.3 9.8 pLT4.3 21.4 1.0 p5.2 4.8 2.9 44.0 -3.6 3.4 14.7 c4.5 8.4 3.9 1.7 p16.8 24.9 2.9 23.0 14.5 pLU2.3 16.9  4.5 -3893.6 -446.6 6742.5 -3.2 1.0 8.3 c-0.7 -0.3 -1.3 0.6 p8.5 24.5 3.4 65.9 15.0 pHU4.6 p27.2 p1.5 1.6 -2.5 19.7 169.6 -3.8 p-0.6 4.0 c0.0 p4.7 p3.3 p4.1 p15.3 50.0 p3.2 p18.4 9.6 pMT4.9 21.6 p0.6 p5.6 246.3 27.5 1497.1 -6.4 -0.1 16.0 c3.3 5.0 -0.8 3.2 p4.5 18.2 p4.9 p49.7 11.2 pNL1.7 p21.0 p 9.9 -0.5 3.9 581.2 -0.8 p0.9 -1.1 1.9 p1.6 p-0.2 p1.8 p-1.7 26.3 5.0 p100.3 p16.1 pAT1.4 24.7 3.2 p2.8 -1.1 -1.9 59.7 -2.2 1.1 -0.4 c0.7 1.8 0.3 2.2 p5.5 16.6 4.7 49.5 11.2 pPL4.5 18.5 1.3 p2.5 -12.5 2.4 46.4 -2.4 c1.6 22.9 c3.7 4.0 c4.8 p6.1 p4.1 20.3 2.0 34.4 9.7 pPT2.2 p18.2 p1.4 p0.9 -47.1 3.5 80.6 -2.5 p-1.6 6.6 c4.1 p2.4 p1.4 p6.1 p-7.1 32.1 3.2 p63.6 10.8 pRO4.2 p23.6 p -3.4 -4.1 2.9 44.2 -1.7 p-1.2 15.8 4.7 p2.9 p4.2 p4.3 p30.7 15.8 2.4 p15.4 9.1 pSI3.2 19.6  5.2 1.6 3.1 39.7 -3.5 0.4 13.9 c2.0 3.0 c0.7 3.4 p-1.4 25.6 2.2 26.9 8.2 pSK2.3 21.4 0.8 -2.0 -14.1 2.2 69.6 -3.1 1.9 0.1 -2.0 -0.3 c1.3 2.9 p6.3 24.1 3.4 43.7 9.6 pFI1.1 23.9 2.8 p-0.1 6.3 5.9 50.9 -1.7 -1.7 2.7 2.5 6.6 c-0.5 1.4 p-3.1 3.7 7.2 66.0 16.6 pSE1.3 24.5 3.4 pf4.2 -5.0 4.6 86.1 -1.1 c-9.7 -6.7 -0.5 2.2 c0.7 1.1 p5.8 8.3 4.6 88.6 17.9 pP.M.: UK1.3 18.0  -4.3 -15.1 0.8 80.5 -0.5 -4.4 -3.1 2.3 1.7 c0.2 1.2 p9.2 9.1 4.0 84.1 16.0 pFigures highlighted are the ones at or beyond the threshold. Flags:b:Break in series. d:Definition differs. e:Estimated. p:Provisional. NEXT IS ONLY FOR INTERNAL ECFIN INFO AND NOT INCLUDED IN ESTAT FINAL SA empty: not available. c: Confidential. ECFIN flags: f: Forecast. k: Backcast. j: Note. o: Outdated. u: Unreliable1) For the employment indicators, see page 2 of the AMR 2016. 2) House price index e = estimate by NCB for EL. 3) For Nominal unit labour cost HR, d: employment data use national concept instead of domestic concept. 4) Unemployment rate for BE: revision in the survey methodology. (NOTE: This footnote was taken from the 2018 table in 23/10/2019 provisional annex. Footnotes in the annex provided by ESTAT for other years can be different.)Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective Exchange Rate), and International Monetary Fund data, W EO (for world volume exports of goods and services) 
 
 
 
 
 
 
 
73 

Table 2.1 (continued): Auxiliary indicators, 2019%3 years change in p.p%3 years change in p.p%3 years change in p.p%3 years change in p.p%3 years change in p.pBE1.6 69.0 2.3 14.2 9.3 -0.6 19.5 b-1.4 b14.8 b-0.7 b4.4 b-1.1 b12.4 b-2.5 bBG0.3 73.2 2.4 8.9 13.7 -4.5 32.5 -7.9 b22.6 -0.3 b19.9 -12.0 b9.3 -2.6 bCZ0.2 76.7 0.6 5.6 5.7 -1.3 12.5 -0.8 10.1 0.4 2.7 -2.1 4.2 -2.5 DK1.2 79.1 0.8 10.1 7.7 1.0 b16.3 -0.5 12.5 0.6 2.6 0.0 9.3 -1.4 DE0.9 79.2 1.2 5.8 5.7 -1.0 17.4 -2.3 14.8 -1.7 2.6 -1.1 7.6 -2.0 EE1.3 78.9 0.9 11.1 6.9 -2.2 24.3 -0.1 21.7 0.0 3.3 -1.4 5.4 -0.4 IE2.9 73.3 1.6 12.5 10.1 -2.5         EL1.2 p68.4 12.2 35.2 12.5 -3.3 30.0 -5.6 17.9 -3.3 16.2 -6.2 13.8 -3.4 ES2.2 p73.8 5.3 32.5 12.1 -2.5 25.3 -2.6 20.7 -1.6 4.7 -1.1 10.8 -4.1 FR1.1 p71.7 3.4 19.6 10.6 -1.3 17.9 -0.3 13.6 0.0 4.7 0.3 7.9 -0.5 HR3.1 p66.5 2.4 16.6 11.8 -5.1 23.3 -4.6 18.3 -1.2 7.2 -5.3 9.2 -3.8 IT0.5 65.7 5.6 29.2 18.1 -1.8         CY3.1 p76.0 2.1 16.6 13.7 -2.3 22.3 -5.4 14.7 -1.4 9.1 -4.5 6.8 -3.8 LV-0.1 77.3 2.4 12.4 7.9 -3.3 27.3 -1.2 22.9 1.1 7.8 -5.0 7.6 0.4 LT0.5 78.0 1.9 11.9 8.6 -0.8 26.3 -3.8 20.6 -1.3 9.4 -4.1 7.5 -2.7 LU3.6 72.0 1.3 17.0 5.6 0.2 20.6 1.5 b17.5 1.7 b1.3 -0.3 b7.5 0.9 bHU1.3 72.6 1.1 11.4 11.0 0.0 18.9 -7.4 12.3 -2.2 8.7 -7.5 5.0 -3.2 MT5.8 75.9 0.9 9.3 8.6 -0.2 20.1 -0.2 17.1 0.6 3.6 -0.8 4.9 -2.4 NL1.9 p80.9 1.0 6.7 4.3 -0.3 16.5 -0.2 b13.2 0.5 b2.5 -0.1 b9.2 -0.5 bAT1.1 77.1 1.1 8.5 7.1 -0.6 16.9 -1.1 13.3 -0.8 2.6 -0.4 7.8 -0.3 PL-0.2 p70.6 0.7 9.9 8.1 -2.4 18.2 -3.7 15.4 -1.9 3.6 -3.1 4.7 -1.7 PT0.8 p75.5 2.8 18.3 8.0 -2.6 21.6 -3.5 17.2 -1.8 5.6 -2.8 6.2 -2.9 RO0.0 p68.6 1.7 16.8 14.7 -2.7 31.2 -7.6 23.8 -1.5 14.5 -9.3 6.0 -2.2 SI2.5 75.2 1.9 8.1 7.0 -1.0 14.4 -4.0 12.0 -1.9 2.6 -2.8 5.2 -2.2 SK1.0 72.7 3.4 16.1 10.3 -2.0 16.4 -1.7 11.9 -0.8 7.9 -0.3 6.2 -0.3 FI1.7 78.3 1.2 17.2 8.2 -1.7 15.6 -1.0 11.6 0.0 2.4 0.2 9.7 -1.7 SE0.6 82.9 0.9 20.1 5.5 -1.0 18.8 0.5 17.1 0.9 1.8 1.0 8.6 0.1 P.M.: UK1.1 78.1 0.9 11.2 10.5 -0.4         Year 2019Employment rate(1 year % change)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 0-59Figures highlighted are the ones at or beyond the threshold. Flags:b:Break in series. d:Definition differs. e:Estimated. p:Provisional. NEXT IS ONLY FOR INTERNAL ECFIN INFO AND NOT INCLUDED IN ESTAT FINAL SA empty: not available. c: Confidential. ECFIN flags: f: Forecast. k: Backcast. j: Note. o: Outdated. u: Unreliable1) For the employment indicators, see page 2 of the AMR 2016. 2) House price index e = estimate by NCB for EL. 3) For Nominal unit labour cost HR, d: employment data use national concept instead of domestic concept. 4) Unemployment rate for BE: revision in the survey methodology. (NOTE: This footnote was taken from the 2018 table in 23/10/2019 provisional annex. Footnotes in the annex provided by ESTAT for other years can be different.)Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective Exchange Rate), and International Monetary Fund data, W EO (for world volume exports of goods and services)