REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2023 Prepared in accordance with Article 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances
Date: 2022-11-22
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: economic disparity, economic growth, economic recovery, economic statistics, energy crisis, euro area, inflation, macroeconomics, national accounts, public debt

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 22.11.2022  COM(2022) 781 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2023                     Prepared in accordance with Article 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances               {SWD(2022) 381 final}  
 
 
Alert Mechanism Report 2023 

 
 
 
 
 
 
 
 
CONTENTS 

Executive summary 

1. Macroeconomic context 

2. Imbalances, risks and adjustment: main developments 

2.1. External sector 

2.2. Competitiveness 

2.3. Non-financial corporations 

2.4. Housing markets and household debt 

2.5. Government sector 

2.6. Financial sector 

3. Country section 

Annex 1: Note to the tables of the Country section 

Annex 2: Forecasts and nowcasts of scoreboard indicators 

Annex 3: MIP scoreboard 

1 

7 

14 

14 

21 

27 

32 

38 

43 

48 

106 

107 

108 

 
 
 
 
 
 
This  Alert  Mechanism  Report  (AMR)  initiates  the  twelfth  annual  round  of  the  Macroeconomic 
Imbalance Procedure (MIP). The procedure aims at detecting, preventing and correcting imbalances 
that are adversely affecting, or have the potential to adversely 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, 
and  at  eliciting  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).  

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  2023  and  will  provide  the  basis  for  the 
Commission assessment regarding the existence and severity of macroeconomic imbalances, and 
for  the  identification  of  policy  gaps.  The  AMR  also  includes  an  analysis  of  the  euro  area-wide 
implications of the Member States macroeconomic imbalances. 

The AMR analysis is based on the economic reading of a scoreboard of selected indicators, which 
provides a filtering device for detecting prima facie evidence of possible risks and vulnerabilities. In 
accordance  with  Regulation  (EU)  No  1176/2011,  the  role  of  the  Commission  is  to  undertake  an 
economic  reading  of  the  scoreboard  values  that  enables  a  deeper  understanding  of  the  overall 
economic context and taking into account country-specific considerations. (1)  The AMR builds also 
on  analytical  tools  and  assessment  frameworks,  and  additional  published  data,  notably  in-year 
data. (2)  

Building on the approach taken in previous years, the first screening for imbalances in the AMR is 
forward looking with a view of detecting risks of emerging imbalances early on. This could entail 
opening IDRs when adverse trends indicate high risks of a build-up of imbalances. To that end, this 
report uses forecasts, nowcasts and projections to better gauge the possible evolution of risks for 
macroeconomic stability. Values of scoreboard variables for 2022 and subsequent years have been 
estimated using Commission forecast data and nowcasts are based on in-year data (see Annex 2 
for details). There is substantial uncertainty underlying those forecasts and it is necessary to bear 
this  in mind in  order  to  uphold  the  principles  of  transparency  about  analysis and  data  used,  and 
prudence on the conclusions. 

The current approach to the AMR is consistent with the Commission’s proposal on the future of the 
surveillance of macroeconomic imbalances put forward in the context of the economic governance 
review.  (3)  In  particular,  it  aims  at  a  stronger  preventive  role  of  the  MIP  in  an  environment 
characterised  by  new  risks.  The  assessment  of imbalances  would  be  based more  on  evolution  of 
risks and policy action. The reformed MIP would focus on macroeconomic issues affecting Member 
States  and  at  the  same  time,  give  more  visibility  to  the  EU  and  euro  area  dimensions  of 
imbalances.   

(1)  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. 

(2)  The cut-off date for the scoreboard data, i.e. the date on which data were extracted from the Eurostat database for 
the preparation of this report, was 21 October 2022. For any other data, the cut-off date was 3 November 2022. 

(3)  “Communication on orientations for a reform of the EU economic governance framework”, Communication from the 
Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social 
Committee and the Committee of the Regions, COM(2022) 583 final.  

 
 
                                                 
EXECUTIVE SUMMARY 

This  Alert  Mechanism  Report  (AMR)  considers  the  evolution  of  imbalances  at  a  time 
when  the  EU  economy  is  moving  from  a  recovery  from  the  COVID-19  pandemic  to  a 
strong  slowdown  in  growth  amid  inflationary  pressures.  By  early  2022,  nearly  all  EU 
economies  had  made  up  for  the  GDP  decline  experienced  in  2020  due  to  the  outbreak  of  the 
pandemic  and  were  growing  strongly,  despite  some  remaining  supply  side  bottlenecks  and  rising 
labour shortages. Since the launch of Russia’s war of aggression against Ukraine in February 2022, 
sharp  increases  in  energy  costs  have  resulted  in  a  strong  deterioration  in  the  outlook  for  the  EU 
economy. The current outlook is marked by a combination of high inflation, and declining consumer 
and producer confidence. Uncertainty, linked to the possible depth and duration of the energy crisis 
is high. Economic activity is declining, and growth is forecast to turn negative in the final quarter of 
2022. Financing conditions have visibly tightened, even more so outside the euro area, as monetary 
authorities take measures to address the inflationary pressures. Outside the EU, global conditions 
are marked by a slowdown in China and jitters in emerging markets. 

Prior  to  the  deterioration  in  economic  conditions,  the  deleveraging  of  some  long-
standing  imbalances  which  had  increased  during  the  pandemic  resumed,  while  house 
prices accelerated. With the recovery, the deleveraging of high private and public debt levels that 
had been underway for the last decade in a number of countries resumed in many cases, but from 
higher  starting  levels.  External  rebalancing  was  slowly  returning.  It  had  paused  during  the 
pandemic,  as  the  current  accounts  deteriorated  in  a  number  of  large  net-debtor  countries  with 
substantial  tourism  sectors,  while  large  current  account  surpluses  persisted.  Government  debt, 
which had increased substantially with the COVID-19 crisis given the strong recession and the need 
to support the economy, was beginning to moderate as of 2021. House price growth accelerated 
during  the  pandemic  and  strong  growth  continued  during  the  recovery.  In  some  countries  robust 
wage  growth  has  added  to  concerns  about  cost  competitiveness  that  had  in  some  cases  been 
building up in the pre-pandemic period.  

The economic reading of the scoreboard, which reflects outcomes for 2021, is based on 
the  central  scenario  of  the  Commission  autumn  2022  forecast  and  in-year  economic 
developments. In addition to the central scenario, there are increased risks and vulnerabilities that 
relate the heightened uncertainty about economic developments at the present juncture, which are 
discussed below. The economic reading leads to the following thematic conclusions: 

  In  2021,  the  current  accounts  of  most  Member  States  reverted  to  close  to  their  2019  pre-
COVID  crisis positions,  despite  a  residual  impact in  some  countries  with  large tourism  sectors. 
The current accounts of most net-debtor countries remained below the levels conducive for their 
swift correction, while some large current account surpluses ticked up. The large external stock 
positions  mainly  narrowed,  thanks  to  higher  GDP  growth,  but  remain  substantial.  Throughout 
2022 there has been a strong reduction in current account balances, both deficits and 
surpluses,  driven  by  much  higher  energy  prices.  In  some  cases,  these  are  accompanied  by  a 
reduction  in  non-energy  trade  balances,  with  exchange  rate  effects  playing  a  role.  Fiscal 
measures  to  alleviate  the  impact  of  the  energy  crisis  shift  the  relative  contribution  of  the 
government  and  private  sectors’  net  lending  and  borrowing  positions,  and  contribute  to 
increased current account deficits and reduced surpluses. 

1 

 
 
Executive summary 

  The evolution of unit labour costs has been difficult to interpret in recent years due to serious 
disruptions in the measurement of productivity, but they have been growing overall. Wages have 
increased  strongly  in  some  countries  in  2021,  which  points  to  a  risk  of  loss  of  cost 
competitiveness within the euro area, in particular in countries displaying sustained pressure 
already  before  the  pandemic  years.  In  some  countries  labour  markets  are  particularly  tight, 
which may be partly due to the specific impact of the pandemic. In 2022, wage increases have 
accelerated,  unmatched  by  productivity,  leading  to  further  pressure  on  competitiveness; 
however, due to high inflation household real disposable income is falling. Inflation-based real 
effective exchange rates have so far not appreciated overall in the euro area, due to the 
depreciation  of  the  single  currency,  but  there  is  considerable  variation  across  countries.  The 
different impact of the energy price shock on price dynamics plays a role, driven by differences 
in the energy mix, structure of energy markets and government support. There is also marked 
variation in effective exchange rates based on core inflation, with countries with greater price 
pressures showing appreciation relative to the euro area in the course of the current year. For 
countries  outside  the  euro  area,  there  are  both  substantial  depreciations  and  appreciations 
underway, partly reflecting different nominal exchange rate dynamics which in some, but not all, 
cases are driven by the monetary policy stance.  

  In  2021,  the  euro  area  current  account  surplus  increased  to  pre-pandemic  levels.  In-year 
data  show  a  sharp  decline  underway  in  2022,  mostly  driven  by  increased  imports  with 
energy imports being the most significant factor on account of marked price effects. As a result, 
the  euro  area  current  account  is  forecast  to  fall  considerably  in  2022,  and  to  remain  largely 
unchanged  in  2023,  despite  real  demand  holding  up.  Changes  in  unit  labour  costs  over  the 
pandemic  have  resulted  in  a  temporary  stalling  in  the  symmetric  adjustment  of  external 
positions  within  the  euro  area  cumulatively  over  2020  and  2021.  Increases  have,  on  the 
whole,  been  broadly  similar  for  countries  with  high  positive  and  high  net  negative  Net 
International  Investment  Positions.  Starting  in  2022,  the  symmetric  adjustment  should  restart 
and  continue  over  the  forecast  horizon,  with  unit  labour  costs  growing  most  strongly  in  some 
surplus countries.   

  Corporate indebtedness ratios decreased in 2021 as economic growth resumed. Corporates 
are marked by increased liquidity partly mitigating immediate risks associated to corporate debt 
stocks.  Nevertheless,  debt  stocks  remain  sizeable  in  many  Member  States,  and  above  pre-
pandemic levels in some cases. A continuation of the reduction in corporate debt as a share of 
GDP is underway in 2022, as economic growth remains positive amid continued financing flows, 
but  this  is  likely  to  be  hampered  by  the  difficult  macroeconomic  context.  In  some  countries, 
increases in non-performing loans and business bankruptcies have begun in 2022.  

  House prices accelerated in most Member States in 2021 following years of sustained growth. 
Price increased further in the first half of 2022, but are forecast to moderate. Household debt 
ratios resumed their downward trend in 2021, but remain high and above pre-pandemic levels 
in some countries. While it is forecast to continue to fall as a share of GDP in 2022, the interest 
burden on households is likely to increase. Outside the euro area, mortgage interest rates have 
increased significantly over the course of 2022, while in the euro area the increase of interest 
rates is more limited but expected to continue.  

  Government  debt-to-GDP  ratios  decreased  in  nearly  all  Member  States  in  2021,  but  remain 
considerably  above  their  2019  level  in  nearly  all  cases.  Deficits  remained  high,  but  strong 
economic growth exerted a downward effect on the debt ratios. Government debt ratios overall 
declined  in  2022  as  a  result  of  continued  economic  growth  alongside  a  further  reduction  of 
deficits  despite  sizeable  support  packages  for  households  and  firms  related  to  high  energy 
prices.  The  outlook  for  2023  is  varied  across  countries,  although  with  further  declines  in 
government debt ratios among the highest debt countries. New policy measures to alleviate the 

2 

 
Executive summary 

impact  of  the  energy  crisis  may  increase  debt  levels.  Debt  service  costs  have  started  to  rise 
since 2021 amid a tightening of financial conditions after years of very supportive conditions. 
This has been most pronounced in the non-euro area countries, which have seen stronger rises 
in their sovereign bond yield spreads.  

  The  banking  sector  is  well  capitalised  and  proved  to  be  resilient  over  the  pandemic.  The 
reduction  of  the  legacy  non-performing loans  continued  in  2021  and  in-year  in  2022,  but  the 
possibility  of  the  development  of  feedback  loops  cannot  be  excluded.  While  bank  profitability 
has recovered, it remains structurally weak and is expected to decline again despite increases in 
interest  rate  margins  as  the  worsening  economic  outlook  affects  assets  and  credit  risks.  In 
2021,  credit  provision  continued  even  after  expiry  of  public  guarantees  and  some 
macroprudential  tightening.  Some  increase  of  non-performing  loans  is  expected  amid  some 
delayed impact of the withdrawal of support measures taken over the pandemic and the current 
worsening economic outlook.  

Given  the  economic  environment,  there  are  specific  risks  that  could  lead  to  more 
accentuated imbalances.  More adverse scenarios than the one described above could emerge, 
resulting  in  either  more  acute  or  longer  lasting  developments  that  may  hamper  macroeconomic 
stability and the functioning of the economies more generally:   

  A protracted energy crisis, with continued high energy costs, could lead to a larger and longer 
downturn, increasing debt stocks both directly and indirectly and leading to a series of knock-on 
effects through the impact on consumers, workers, firms and the banking sector. Continued high 
energy costs could result in persistent larger current account deficits for some countries, putting 
pressure on their external sustainability.  

  The prospect of a stronger structural transformation away from high energy dependency on 
fossil  energy,  in  particular  from  Russia,  is  positive  but  entails  risks  and  adjustment  costs.  A 
shifting of value chains away  from more affected European firms facing globally higher input 
prices,  could  dampen  profitability  and  lead  to  increased  bankruptcies  of  firms,  clustered  in 
affected sectors and regions, and a fall in export shares and potential growth in more exposed 
countries.  

  The repricing of risk across the world could reverberate through financial markets, leading to 
instability  and  driving  up  borrowing  costs  for  sovereigns  and  private  borrowers,  possibly  in 
idiosyncratic ways. 

The worse economic conditions have increased vulnerabilities and risks associated with 
pre-existing imbalances. Despite the strong slowdown in activity underway, nominal GDP growth 
is  forecast  to  help  reducing  debt  ratios  in  both  2022  and  2023,  mainly  due  to  the  impact  of 
inflation.  However,  weaker  economic  activity  and  tighter  financing  conditions  increase  the  risks 
associated with high debt levels. A rise in non-performing loans and bankruptcies is a risk for both 
the corporate and the household side. Firms face increases in production costs and may be limited 
in their ability to pass these on, with more vulnerable firms clustered sectorally and geographically. 
Households  face  reduced  real  disposable  income  in  most  countries,  with  wage  increases  being 
lower  than  inflation  but  higher  than  productivity  growth.  House  price  growth  is  undergoing  a 
correction  in  many  Member  States,  amid  increasing  mortgage  interest  rates  and  pressure  on 
disposable income. Continued strong house price growth in some countries would pose a risk of a 
disorderly  reversal,  particularly  where  accompanied  by  mortgage  loans  at  variable  interest  rates. 
Corporate and household stress could compound each other and spread throughout the economy, 
with  consequences  for  the  financial  sector  too.  Additional  measures  to  support  vulnerable 
households  and  more  exposed  firms  would  shift  part  of  the  cost  of  the  energy  crisis  on  the 
government sector and add to government debt, which for those countries with high starting debt 

3 

 
Executive summary 

and deficit levels may be a particular challenge, calling for measures to be targeted and temporary 
and  common  European  solutions.  Concretely,  the  Commission  will  reassess  the  needs  for 
RePowerEU.  Moreover,  higher  interest  rates  and  weaker  or  negative  GDP  growth  hamper 
government debt deleveraging, especially for high debt countries. This can have a knock-on effect 
on other sectors, with a negative impact on growth. 

As the strong post-pandemic growth stalls, new imbalances may emerge, with a risk of 
divergent  price  effects  resulting  from  the  common  supply  shock.  Despite  the  commodity 
price  increases  and  gas  supply  risks  being  a  common  shock  to  the  EU,  there  is  considerable 
divergence  in  its  impact. Although  inflation  is  expected  to  gradually  start  falling,  there may be  a 
step change in the relative price and cost levels of different countries when it recedes. This could 
result in cost competitiveness losses that may be costly to unwind. This is particularly for euro area 
countries  and  where  external  deficits  have  emerged,  although  higher  inflation  in  large  current 
account surplus countries could facilitate euro area rebalancing. In some non-euro area countries, 
currency depreciations may preserve cost competitiveness by offsetting some strongly rising labour 
costs  but  could  further  fuel  inflation.  In  turn  it  may  lead  to  tighter  financing  conditions  whereas 
depreciations also increase the costs of external borrowing and debt services.  

The  euro  area  is  showing  some  signs  of  rebalancing  in  the  short  term,  but  its  overall 
performance  going  forward  requires  continued  close  coordination  of  policy  responses 
Some rebalancing within the euro area is supported  by stronger unit labour cost developments in 
some net-creditor countries. Recent current account dynamics, resulting from the adverse external 
shock,  are  also  broadly  supportive  of  a  rebalancing,  with  net-creditor  countries  showing  greater 
reductions in  their  large  surpluses.  Differences in  the  magnitude  of policy  interventions  aimed  at 
mitigating  the  impact  of  high  energy  prices,  and  which  shift  the  burden  of  the  energy  crisis 
between  the  corporate,  household,  and  public  sectors,  and  the  prevalence  of  untargeted  price 
measures are a concern. The type and composition of these measures, in terms of how they affect 
energy demand and energy prices, as well as of their effects on companies and households, may 
entail  spillovers for the rest  of the euro area and jeopardise the level playing field. This calls for 
those  measures  to  be  targeted  and  temporary.  Uncoordinated  policy  measures  can  result  in 
increased  divergence, impeding  monetary  transmission  and  amplifying  the  heterogeneous  impact 
of the energy crisis. 

The analysis presented in this AMR points to the need to closely monitor developments 
and risks related to common trends, which affect both Member States with pre-existing 
imbalances and those with newly emerging vulnerabilities. The fallout from Russia’s war in 
Ukraine  along  with  global  supply  side  constraints  and  inflationary  pressures  constitute  common 
shocks that may imply risks for macroeconomic stability and the functioning of the EU economy as 
a whole and the euro area in particular. Given their common nature, these need to be considered 
within a common framework to provide context to any differentiated country-specific analysis.  

As  part  of  the  analytical  underpinning  of  the  upcoming  country-specific  IDRs,  the 
Commission  services  will  carry  out  in-depth  thematic  assessments  on  three  issues  of 
key relevance at the current juncture. These assessments will cover issues that are common 
to a number of Member States. They will identify common factors relevant for the country-specific 
analysis and focus in more detail on the countries assessed in this AMR as the most affected by 
those  issues.  The  assessments  will  also  be  presented  to  the  Economic  Policy  Committee  in  early 
2023, and the relevant Member States will be invited to provide input to inform a discussion. This 
will inform the country-specific IDRs in the spring package of the European Semester. The following 
thematic notes will be prepared:     

  An in-depth thematic note on housing market developments will look at the risks and drivers 
associated with house price developments and mortgage markets and household debt. The note 

4 

 
Executive summary 

will  focus  on  Czechia,  Estonia,  Germany,  Hungary,  Latvia,  Lithuania,  Luxembourg,  the 
Netherlands, Portugal, Slovakia and Sweden. 

  An in-depth thematic note on competitiveness dynamics will assess the extent and impact of 
the pass-through of energy costs to inflation, and the evolution of wages. This note will focus on 
Czechia, Estonia, Hungary, Latvia, Lithuania, Romania and Slovakia. 

  An in-depth thematic note on external sustainability and balances will look at the reduction 
in trade balances within a horizontal approach. This note will focus on Cyprus, Greece, Germany, 
Hungary, Latvia, Lithuania, the Netherlands, Portugal, Romania and Slovakia. 

Building on the assessment in the AMR, the IDRs will also cover additional concerns and 
country-specific  issues.  That  will  include  the  impact  of  current  developments  on  imbalances 
identified  in  the  2022  IDRs  (Cyprus,  France,  Germany,  Greece,  Italy,  the  Netherlands, 
Portugal, Romania, Spain, and Sweden). 

This  AMR  concludes  that  IDRs  are  warranted  for  those  Member  States  with  existing 
excessive  imbalances  or  imbalances.  For Member  States  that  have previously  been identified 
as experiencing imbalances or excessive imbalances, the 2023 IDRs will assess if those imbalances 
are aggravating, under correction, or corrected, with the view to update existing assessments and 
assessing  possible  remaining  policy  needs.  That  will  be  case  for  Cyprus,  France,  Germany, 
Greece, Italy, the Netherlands, Portugal, Romania, Spain, and Sweden.  

In  addition,  IDRs  will  be  undertaken  for  Member  States  with  particular  risks  of  newly 
emerging  imbalances.  The  IDRs  will  be  informed  by  the  in-depth  thematic  assessment  notes, 
which will form the background for the analysis. The AMR concludes that IDRs are also warranted 
for Czechia, Estonia, Hungary, Latvia, Lithuania, Luxembourg and Slovakia, which have not 
been subject to IDRs in the previous cycle, but which could potentially be subject to particular risks 
of macroeconomic imbalances. 

5 

 
 
Graph 1:  Number of Member States recording scoreboard variables beyond threshold 

Executive summary 

The number of Member States recording scoreboard variables beyond relevant thresholds in a certain year 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  thresholds  computed  using  the  latest  figures  for  the  scoreboard  variables 
compared with the number reported in the graph above; for instance, the increase in the number of Member States with 
current account readings outside the thresholds between 2019 and 2020 data vintages observed in the graph above is 
mostly  due  to  data  revisions.  Forecasts  for  financial  sector  liabilities  are  performed  for  2022  only;  no  forecasts  are 
performed for long-term unemployment and youth unemployment. 
Source: Eurostat and Commission services calculations (see Annex 2) 

6 

 
 
 
 
 
 
 
1. MACROECONOMIC CONTEXT 

In  the  aftermath  of  Russia’s  invasion  of  Ukraine,  the  EU  economy  finds  itself  at  a 
turning  point,  moving  from  a  recovery  from  the  COVID-19  pandemic  to  a  slowdown  in 
growth amid inflationary pressures. By early 2022, nearly all EU economies had made up for 
the GDP decline experienced with the pandemic in 2020 and were growing strongly. With Russia’s 
invasion  of  Ukraine  in  February  2022,  the  outlook  for  the  EU  economy  changed  significantly. 
According to the Commission autumn 2022 forecasts, real growth in the EU is set to fall from 5.4% 
in  2021,  to  3.3%  in  2022  and  0.3%  in  2023,  with  solid  output  growth  in  the  first  half  of  2022 
masking  the  in-year  deterioration  that  is  underway  (Graph  1.1). (4)  By  September  2022,  inflation 
reached  a  new  record  high  of  10.9%  on  a  year-on-year  basis  in  the  EU,  compared  to  a  pre-
pandemic  inflation  rate  below  2%.  In  the  euro  area  alone,  inflation  reached  an  all-time  high  of 
10.7% in October. EU countries relying more on gas as a source of energy are expected to be more 
impacted  by  the  recent  shock  (Graph  1.2  b).  Consumer  and  producer  confidence  has  fallen  amid 
high  uncertainty.  Financing  conditions  have  visibly  become  more  challenging,  as  monetary 
authorities  have  started  to  tighten  policy  to  address  the  high  inflationary  pressures,  which  are 
expected to remain relatively elevated in 2023.  

Graph 1.1: GDP slowdown 

Source: Eurostat and Ameco. Countries ordered by real GDP growth forecast for 2023. 

Soaring  energy  prices  have  been  the  main  driver  of  inflation,  but  a  number  of  other 
factors have broadened overall price pressures. The rapid global recovery following the first 
wave of the pandemic drove up demand for and prices of energy and other commodities. This was 
the first stage of the energy-inflation surge. (5) In the EU, this was combined with demand pressure, 

(4)  European Commission (2022), European Economic Forecast, Autumn 2022, Institutional Paper 187, November 2022. 

Starting in 2022, annual figures correspond to European Commission Forecasts. 

(5)  See C. Buelens and V. Zdarek, (2022), "Euro area inflation shaped by two years of COVID-19 pandemic," Quarterly Report on 
the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 21(1), 
pages 7-20, for an analysis of inflation in the euro area prior to the military aggression of Russia against Ukraine. 

7 

-2381318IEMTROBGCYHRELESLUSIPTPLEENLSKLTFRITATEU27EA19FIBEHUCZDKLVSEDE% of GDPa) Nominal GDP growth decompositionDeflator, 2021Deflator, 2022(f)Deflator, 2023(f)Real GDP, 2021Real GDP, 2022(f)Real GDP, 2023(f) 
     
                                                 
 
1. Macroeconomic context 

stemming  from  pent-up  consumption  and  the  unwinding  of  the  high  household  savings 
accumulated during the acute phase of the pandemic, which led to a rapid expansion of domestic 
demand  when  restrictions  eased. (6)  Fiscal  stimulus  also  continued  to  support  demand  in  the  EU, 
beyond  the  acute  early  pandemic  period.  This  demand  pressure  was  accompanied  by  effective 
supply  bottlenecks,  which  put  upward  pressure  on  the  prices  of  manufacturing  products.  After 
Russia’s  invasion  of  Ukraine  in  February  2022,  the  disruption  of  the  supply  of  Russian  gas  to 
Europe sent energy prices soaring, making energy prices the main drivers of HICP inflation (Graph 
1.2 a).  

Household income developments over the pandemic paved the way for a strong rebound 
once  restrictions  were  lifted,  and  labour  market  conditions  started  to  tighten  in  some 
countries  and  sectors.  A  range  of  policy  measures  including  employment  support  measures 
protected  household  incomes  in  2020  and  2021.  As  a  result,  real  household  disposable  income 
grew between 2019 and 2021 in most EU countries, although with significant variation. In parallel, 
in  many  countries,  households  accumulated  net  savings  over  the  pandemic  with  curtailed 
consumption  opportunities  playing  a  role.  Higher  increases  in  disposable  income  over  2021  have 
enabled  households  to  withstand  more  broad-based  increases  in  prices  without  a  reduction  in 
demand,  which  in  turn  has  allowed  some  non-financial  corporations  to  preserve  or  even  boost 
profits in this period. (7) This effect is likely to recede as real gross disposable income is forecast to 
decline  in  most  EU  countries  in  2022  (see  Section  2.4).    While  unemployment  was  stabilised  by 
policy measures,  overall  labour market  slack  increased  over  2020.  Since then,  it has been  falling 
with the recovery in demand and the steep increase in vacancies in 2021. (8) The longer-term trend 
reduction in working-age populations due to ageing and changes in migration trends may also have 
contributed  to  tighter  labour  markets  in  various  EU  countries.  Labour  market  slack  in  the  second 
quarter of 2022 was low in a number of EU countries reporting high core inflation (Graph 1.2 d). 

Despite extensive policy measures to contain energy prices, they are the source of major 
economic pressure and uncertainty. The rise in energy prices represents a terms of trade shock 
that imposes costs on the EU economy. Throughout the EU, governments have sought to limit the 
burden  of  higher  energy  prices  to  firms  and  households  by  redistributing  the  burden,  but  they 
cannot  eliminate  the  overall  economic  impact.  Measures  vary  significantly  across  countries,  from 
price  freezes  and  tax  cuts  to  income  support  schemes,  and  further  support  is  being  considered. 
These  measures  cannot  fully  compensate  for  the  full  impact  of  the  energy  price  increases  on 
households and firms, which face much increased costs, although with large variation depending on 
their  energy  use  and  exposure  to  higher  retail  prices.  Electricity  price  inflation  itself  has  varied 
across the EU, not just due to government policies, but also as a result of the countries’ energy mix 
and contractual arrangements and the related pass-through of wholesale electricity prices to retail 
prices. It represents a major change in costs and relative prices that could result in significant and 
lasting structural shifts across sectors and countries, depending on its duration and intensity. 

High inflationary pressures have broadened beyond energy, bringing a risk that inflation 
divergences  become  entrenched.  Core  inflation  has  increased  significantly  in  all  EU  and  euro 
area countries in 2022, with some of the broadening reflecting the indirect effect of higher energy 
prices. There are large cross-country differences in 2022 core inflation, which ranges from 2.8% to 

(6)  See also R. Reis (2022), “The Burst of High Inflation in 2021-22: How and Why Did We Get Here?”, CEPR discussion paper 

SP17514, for a discussion of the role of the fast recovery in driving inflation. 

(7)  See also Czech National Bank (2022), Monetary Policy Report Summer 2022, Box 1. 

(8)  According to Eurostat, labour market slack refers to the sum of all unmet employment demands and includes four groups: 

(1) unemployed people as defined by the International Labour Organisation (ILO), (2) underemployed part-time workers (i.e. 
part-time workers who want to work more), (3) people who are available to work but are not looking for work, and (4) 
people who are looking for work but are not available for work. 

8 

                                                 
1. Macroeconomic context 

11.5% across EU countries, and from 2.8% to 9.8% within the euro area. The heterogeneity in the 
policy  response  to  the  energy  price  shock  is  reflected  in  various  measures  of  inflation,  including 
trade deflators and the GDP deflator. While the pass-through of energy inflation plays a role, other 
factors  such  as  supply  bottlenecks  and  residual  pent-up  demand  are  likely  to  be  significant. 
Second-round  effects  stemming  from  an  increase  in  wage  costs  are  not  yet  visible,  but  may  be 
developing  in  some  EU  countries.  House  prices  have  risen  to  very  high  levels,  fuelled  by 
longstanding supply constraints, and their continued rise, despite increasing financing costs, could 
be a further push on inflation over time.  

Supply chain bottlenecks may be easing but continue to constrain supply in a number of 
sectors.  There  are  continuing  pressures  resulting  from  supply  chain  disruptions  still  in  2022, 
although these pressures may be easing in some sectors. (9) The January/February 2022 data for 
the  Purchasing  Managers’  Indices  (PMIs)  for  suppliers’  delivery  times  (SDT)  and  dynamic  factor 
analysis including other indicators (backlogs of work, the orders-to-inventories ratio, intermediate 
input  prices  and  shipping  costs)  suggest  that  supply  chain  pressures,  while  still  historically  high, 
have peaked and started to ease in the EU.  The October 2022 PMI continues to indicate a drop in 
delivery  times  and  the  falling  in  demand  easing  supply  bottlenecks. (10)  However,  possible 
disruptions linked to the war in Ukraine might lead to a setback. Increasing energy prices combined 
with wider geopolitical  tensions are causing significant disruptions in key sectors, such as energy 
intensive industries, and limiting their access to critical  raw materials. Depending on supply chain 
participation, these developments can also lead to different core inflation developments across the 
EU. 

Despite increasing unit labour costs in a number of countries, nominal wages are overall 
not  keeping  up  with  inflation  resulting  in  a  reduction  in  purchasing  power.  In  2022 
compensation  per  employee  is  expected  to  grow  at  4.2% (11)  in  the  euro  area  and  labour 
productivity  at  1.2%  leading  to  an  increase  in  unit  labour  costs  of  3%.  Unit  labour  costs 
developments  have,  however,  varied  across  countries  (Graph  1.2  e).  Nominal  wages  are  not 
expected  to  keep  up  with  inflation.  While  this  helps  to  protect  firms  from  a  further  increase  in 
production  costs  and  preserves  employment,  it  brings  with  it  a  loss  of  purchasing  power  for 
households.  The  loss  of  purchasing  power  affects  demand  and  raises  the  risk  of  balance  sheet 
stress for vulnerable households. 

Monetary policy has started to normalise, driving funding costs up and prompting asset 
price  corrections.  This  July,  the  ECB  followed  its  reduction  in  asset  purchase  volumes  with  a 
further step on its policy normalisation path, raising the three key policy rates by 50 basis points, 
signalling further normalisation and approving the Transmission Protection Instrument (TPI). Further 
rises in policy rates were effected in September and October. Higher funding costs for banks have 
passed  partially  through  to  higher  bank  lending  rates,  in  particular  for  households,  while  asset 
prices in some cases have adjusted down. In the euro area, credit standards have tightened for all 
loan categories in the second quarter of 2022 and continued tightening in the third quarter, due to 
concerns regarding the risks faced by borrowers in an uncertain macroeconomic environment. Euro 
area  government  yields  have  been  volatile  and increased markedly  in  2022, although  the  risk  of 
significant  nominal  interest  rate  differentials  between  euro  area  countries  is  expected  to  be 
mitigated by the introduction of the TPI. Monetary conditions have also tightened in non-euro area 

(9)  https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/html/ecb.ebbox202202_01~272e32f7f4.en.html 

(10)  https://ihsmarkit.com/research-analysis/flash-pmi-data-to-highlight-recession-risks-and-varying-inflation-trends-at-start-

of-fourth-quarter-October2022.html 

(11)  Workers returning to work following job retention schemes, who were in receipt of direct transfers rather than wages, raise 

the estimated unit labour costs due to the shift in their compensation.  

9 

                                                 
1. Macroeconomic context 

Member  States,  as  non-euro  area  EU  central  banks  have  tightened  their  policy  stance  amid  high 
inflation, leading to an increase in financing costs for the government and the private sector.  

The  euro  nominal  effective  exchange  rate  has  weakened  and  changes  in  EU  non-euro 
area currencies have been mixed. The euro has experienced considerable volatility against the 
dollar  in  2022  but  the  pressure  has  been  for  euro  depreciation  as  the  US  central  bank  has 
tightened  monetary  policy  faster  than  the  ECB.  The  euro  is  also  exposed  to  geopolitical  and 
economic  risks  related  to  the  war  in  Ukraine  that  are  specific  to  the  EU,  while  the  dollar  is 
benefiting  from  safe-haven  flows,  as  it  usually  does  in  times  of  uncertainty.  Given  the  different 
exposures of euro area Members States to extra-EU trade and financial flows, movements of the 
euro  by  itself  represent  asymmetric  shocks  possibly  leading  to  different  movements  in  nominal 
effective exchange rates (NEER), a fact that has been documented in the literature. (12) Among EU 
non-euro area currencies, the Czech koruna has experienced significant appreciation amid marked 
tightening  of  monetary  policy  coupled  with  exchange  rate  intervention  (Graph  1.2  c).  The  Polish 
złoty  and,  especially,  the  Hungarian  forint  have  been  on  a  continued  depreciating  trend  despite 
domestic monetary tightening. In March 2022, the currencies of both countries depreciated strongly 
amid increased  uncertainty  following  the  Russian  aggression  on  Ukraine  and  tightening  of  global 
financial conditions. Croatia has acted to continue stabilising its currency relative to the euro, while 
Denmark  has  maintained  its  long-standing  euro  peg  and  Bulgaria  operates  a  euro-anchored 
currency  board.  After more  than  two  years  of the  kuna’s  participation in  ERM  II  without  frictions, 
Croatia is set to join the euro area in January 2023. (13) The Swedish krona depreciated over last 
year despite ongoing monetary policy tightening. 

(12)  See P. Honohan and P.R. Lane (2003), “Divergent inflation rates in EMU”, Economic Policy, 18(37), 357-394; and, I. Angeloni 

and M. Ehrmann (2007), “Euro area inflation differentials”, The BE Journal of Macroeconomics, 7(1). 

(13)  The conversion rate set by the Council is 7,53450 HKR/EUR. COUNCIL REGULATION amending Regulation (EC) No 2866/98 

as regards the conversion rate to the euro for Croatia, July 2022. 

10 

                                                 
Graph 1.2: Macroeconomic context 

1. Macroeconomic context 

(1) Pre-pandemic inflation corresponds to the average annual rate of change observed over 2017-2019 for the HICP 
index. Core inflation for 2022 M09 is calculated as the average of the HICP index excluding energy, food, alcohol and 
tobacco over the first nine months of 2022, compared with the average for the same period in 2021. 
Source: Eurostat and Ameco 

11 

7580859095100105110115Sep-18Dec-18Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20Dec-20Mar-21Jun-21Sep-21Dec-21Mar-22Jun-22NEER (2018=100)c) Nominal Effective Exchange Rate indexBGNCZKHRKHUFPLNRONDKKSEKEURBEDEEEIEELESFRITCYLVLTLUMTNLATPTSISKFICZDKHUPLROHRBGSE01234567891005101520Core HICP inflation 22M09, difference from pre-pandemicLabour market slack 2022Q2, or last availabled) Core HICP inflation vs labour market slackEA19EU27BEDEEEIEELESFRHRITCYLVLTLUMTNLATPTSISKFIBGCZDKHUPLROSE012345678910-20-10010203040Core HICP inflation 22M09, difference from pre-pandemicNominal ULC, % change 2019Q2 to 22Q2e) Core HICP inflation vs change in nominal ULCEA19EU27-6-303691215EELTLVPLCZELHRBGCYIENLDKSKESPTITBEEU27HUSIFIEA19DELUROATSEMTFRIn pps.a) HICP inflation relative to pre-pandemic, by period and components contributions21-pre-pandemic: Energy21-pre-pandemic: Food21-pre-pandemic: OtherSep22 -21: EnergySep22 -21: FoodSep22 -21: OtherSep22 -pre-pandemic: total HICP-150050025004500650085001050012500BGPLHUCZSKEEHRLTROLVSIFIELBEPTCYESFRSENLITATDEMTLUDKIEKJ per GDP in EURb) Energy gross inland consumptionGas imports from RUGas imports excl. RUOther fossil fuelsRenewables  
1. Macroeconomic context 

Box 1.1: Employment and social developments  

Before  Russia’s  military  aggression  against  Ukraine,  a  robust  labour  market  recovery 
took place in the EU. The strong economic recovery that followed the COVID-19 recession was 
accompanied  by  strong  job  creation  and  a  decline  in  unemployment  (Graph  1.3  a).  The  EU 
unemployment rate (15-74 years old) reached 6.4% in end 2021 and continued to decline in 2022 
reaching  6%  in  August  and  September,  the  lowest  rates  for  more  than  two  decades.  The  overall 
labour  market  conditions  continued  to  improve  into  2022  driven  by  the  full  opening  of  the 
economies, improvements of the epidemiological situation, the effect of pent-up demand, and the 
good  tourism  season  following  eased  mobility.  Yet  employment  in  manufacturing  continued  to 
stagnate.  On  the  back  of  a  rapid  increase  in  demand,  labour  shortages  reached  new  highs  and 
although  shortages  emerged  in  various  sectors,  they  increased  more  in  services  than  in 
manufacturing. Employment growth was close to 1½% with the EU employment rate (20-64 years 
old) reaching 74.1% in the fourth quarter of 2021, although it remained 2 percentage points (pps.) 
below its pre-pandemic levels in manufacturing. In contrast,  job creation was quite robust in less 
contact intensive services (such as health, public administration, and ICT) and construction (Graph 
1.3 b).  

The  labour  market  is  expected  to  slow  down  in  view  of  the  deteriorating  economic 
outlook.  In  2022,  the  labour  market  has  remained  resilient  due  to  still  positive  effect  of  the 
recovery  that  followed  the  reopening  of  the  economy  after  the  lockdown.  Yet  the  rise  in  energy 
prices represents a major risk also for the labour market going forward. While the higher cost of 
energy is strongly felt by the more energy-dependent sectors, it has knock-on effects on almost all 
sectors. The employment impact of a gas price shock might differ across countries depending on 
their  competitiveness.  Econometric  estimates  suggest  that  a  10%  increase  in  natural  gas  prices 
may  reduce  output  by  0.6%  after  two  years,  while  employment  would  decline  by  0.3%  and  real 
wages  by  0.2%. (14)  The  impact  on  employment  might  be  softened  by  a  reduction  of  the  hours 
worked per person employed. The contribution to the increase in unemployment might be larger for 
services  than  for  manufacturing  since  labour  hoarding  is  more  common  in  the  latter,  while 
employment  is  more  responsive  over  the  business  cycle  in  the  former,  which  is  has  a  relatively 
higher share of temporary workers. (15)   

  Compared  to  the  2021  yearly  figure,  in  the  second  quarter  of  2022  the  unemployment  rate 
declined in  all  countries,  notably  in  Greece  (-2.5 pp),  Spain  (-2.3),  Ireland  (-1.9),  Austria (-1.8), 
and Lithuania (-1.6 pp). The gap between the highest unemployment rate in Spain (12.5%) and 
the lowest in Czechia (2.4%) dropped to 10.1 pp, the lowest gap since October 2008. 

  In  2021,  in  almost  all  Member  States  employment  rates  (20-64)  swiftly  rebounded  and 
surpassed  their  pre-pandemic  levels.  Between  2020  and  2021,  the  largest  increases  were 
observed in Greece  (4.3  pp),  Ireland (2.8),  Poland (2.7),  Spain (2),  and Luxembourg  (2  pp).  The 
employment rate declined only in Latvia (-1.6 pp). In the first half of 2022, the employment rate 
continued to increase in all countries, notably in Ireland (+3.6 pp on average in the first half of 
2022 relative to the annual figure of 2021) and Greece (+3.8 pp on average in the first half of 
2022 relative to the annual figure of 2021).   

(14)  For a more in-depth discussion, see European Commission, 2022 Labour Market and Wage Developments in Europe report 

(forthcoming). 

(15)  During the COVID-19 recession, the decline in total hours worked by temporary workers occurred mainly through job losses, 

while for permanent workers it resulted from a drop in hours per worker. 

12 

                                                 
  In the second quarter of  2022, employment in manufacturing remained largely below its pre-
pandemic levels in few Member States, including Bulgaria, Romania, Spain, Poland, Slovakia, and 
Germany. 

Graph 1.3: Employment, unemployment, and labour shortages 

1. Macroeconomic context 

Notes: (1) High-contact, affected sectors: wholesale and retail; transports, accommodation, arts, households’ activities. 
High-contact, less affected sectors: construction, public administration, health, education. Low-contact, services: 
information and communication, financial, professional activities, real estate. Low-contact, other: manufacturing, mining, 
water and agriculture. 
Source: European Commission services 

13 

02468101214048121620242809Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q222Q2a) Labour shortages and unemployment, EULabour shortages, industry (lhs)Labour shortages, services (lhs)Unemployment rate (rhs)%%94969810010210419Q420Q120Q220Q320Q421Q121Q221Q321Q422Q122Q2Employment (19Q4=100)b) Employment, EUHigh-contact, AffectedHigh-contact, Less affectedLow-contact, ServicesLow-contact, OtherTotal  
 
 
 
2. IMBALANCES, RISKS AND ADJUSTMENT: MAIN 
DEVELOPMENTS 

2.1. EXTERNAL SECTOR 

The  current  accounts  of  most  Member  States  displayed  small  or  moderate  changes  in 
2021, often only partially reversing the changes from a year ago. In particular, recovering 
travel balances contributed to a partial improvement of current accounts in some large net-debtor 
countries. Despite the improvement, in 2021 the current accounts of some of these EU countries 
remained  in  large  deficit  and  with  their  net  international  investment  positions  (NIIPs)  still  deeply 
negative.  At  the  same  time,  some  large  current  account  surpluses  increased,  coming  in  close  to 
their 2019 levels after a small decline in 2020. Overall, the high current account surpluses of some 
countries continued to significantly exceed what can be explained by fundamentals. (16) Some other 
countries  saw  small  reductions  and  in  a  few  cases  balances  came  in  considerably  below  those 
recorded in 2019 (Graph 2.1.1 a).  

Current account balances are declining strongly in 2022, driven primarily by high energy 
prices  (Graph  2.1.1  a).  The  two  most  important  driving  forces  behind  the  changes  in  current 
accounts  in  2021  and  year  to  date  in  2022  have  been  the  lower  energy  trade  balance (17)  and, 
working  in  the  opposite  direction,  the  recovery  in  international  travel.  The  recovery  in  tourism  is 
mostly benefiting net-debtor countries, but remains partial; most countries with a strong reliance 
on tourism exports still display travel balances below their pre-pandemic level, although the data 
for  the  main  tourist  season  are  still  to  come  for  the  third  quarter  of  2022.  Moreover,  the 
improvement in travel balances is often surpassed by the impact of high energy prices which affect 
nearly all countries (Graphs 2.1.3 d and e). For a number of countries, a noticeable deterioration of 
non-energy  trade  balances  is  also  underway  in  2022.  In  some  cases,  this  is  driven  by  resilient 
domestic demand. The overall effect is a strong decline in current accounts in 2022, with a number 
of  countries  with  surpluses  in  previous  years  going  into  deficit.  The  forecast  for  2023  indicates 
some  mild  increases  in  current  accounts  for  many,  but  not  all,  EU  countries,  but  often  clearly 
smaller than the deteriorations recorded in 2022.  

Strong  nominal  GDP  growth  in  2021  helped  to  narrow  both  negative  and  positive  net 
international investment positions. In 2021, the strong denominator effect thanks to a marked 
recovery  in  economic  growth  reduced,  but  did  not  always  fully  undo,  the  dispersion  in  NIIPs  that 
had occurred in 2020 (Graph 2.1.1 b and Graph 2.1.3 a). That pattern has continued into 2022 with 

(16)  Current accounts in line with fundamentals ("current account norms") are derived from reduced-form regressions capturing 
the main determinants of the saving-investment balance, including fundamental determinants, policy factors and global 
financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessment of current account benchmarks", 
European Economy, Discussion Paper 86/2018, for the description of the methodology for the computation of the 
fundamentals-based current account used in this AMR; the methodology is akin to S. Phillips et al. (2013), "The External 
Balance Assessment (EBA) Methodology", IMF Working Paper, 13/272. 

(17)  Energy balance corresponds to balance of trade in goods under item “3 Mineral fuels, lubricants and related materials” in 

the Standard International Trade Classification (SITC).  

14 

 
 
                                                 
 
 
2.1. External sector 

NIIPs-to-GDP  ratios  of  large  net-debtor  countries  often  recording  further  sizeable  improvements, 
although most of them remain below the NIIP prudential levels. (18)  For most of these net-debtor 
countries,  the  recent  current  account  outturns  are  below  the  levels  conducive  for  the  swift 
correction of their negative stocks, as captured by the current account required to reach a specific 
NIIP target, even if only slightly in case of Spain and Portugal (Graph 2.1.1 a and b). Conversely, the 
NIIPs  of  several  net-creditor  countries  have  remained  considerably  higher  than  suggested  by 
economic fundamentals.   

From a sectoral perspective, household net lending positions are declining in 2022 as a 
result of the reduced purchasing power. In 2021, the net lending/borrowing positions in most 
Member  States  were  characterised  by  net borrowing  by  governments  and  positive  net  lending  by 
the private sector, both households and corporates (Graph 2.1.3 b). There was a slight reversal of 
the exceptional fiscal support pursued in 2020 to mitigate the pandemic crisis, broadly offsetting a 
small  decline  in  the  private  sectors’  net  lending  positions.  In  2022,  fiscal  support  is  expected  to 
remain in place, even if most Member States are expected to continue recording further improved 
government net positions (Graph 2.1.3 c). At the same time, the decline in household net lending is 
expected to dominate, contributing to lower overall net borrowing/lending positions in most cases.  

(18)  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. The current account required to reach a specific NIIP target is the current account required to 
reach the prudential threshold over the next 10 years, or to halve the gap to the NIIP in line with fundamentals, whichever 
is higher. 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. NIIP in line with 
fundamentals (NIIP norms) are obtained as the cumulation over time of the values of the current account norms. For the 
methodology for the computation of NIIP prudential and fundamental benchmarks, see A. Turrini and S. Zeugner (2019), 
"Benchmarks for Net International Investment Positions", European Economy, Discussion Paper 097/2019. 

15 

                                                 
Graph 2.1.1: Current account balances and net international investment positions (NIIPs) 

2.1. External sector 

Countries are ranked in increasing order of current account balances in 2021, and in decreasing order of the NIIP-to-GDP 
ratios in 2021. CA stands for current account. NENDI is the NIIP excluding non-defaultable instruments. Current account 
norms: see footnote 16. For the concepts of NIIP norm, NIIP prudential threshold, and NIIP-stabilising current account 
benchmark and required CA for reaching specific NIIP target: see footnote 18.  
Source: Eurostat and Commission services calculations. 

Global  monetary  tightening,  amid  high  inflation,  as  well  as  elevated  geopolitical  risks, 
could affect the external financing conditions of some non-euro area Member States. As 
set  out  in  Section  1,  both  the  pandemic  and,  more  recently  increased  uncertainty  following  the 
Russia’s  aggression  of  Ukraine,  have  resulted  in  changes  to  some  non-euro  area  exchange  rates, 
with the Polish złoty and the Hungarian forint depreciating. If external (re-)financing risks were to 
emerge, countries with substantial foreign exchange reserve stocks, as well as those recording solid 
surpluses in external flows, would be less exposed. External financing needs, including these of the 
government sector, play a role in this context (see Section 2.6 on the government sector).  

The euro area current account surplus is falling sharply in 2022. Energy costs are the key 
factor for the strong in-year reduction of the euro area current account (Graph 2.1.2 a). Since 2021, 
global supply problems have led to marked rises in import prices for goods beyond commodities. 
This is reflected in the euro area trade balance vis-à-vis China, which has declined by more than 
one  percentage  point  of  GDP  compared  to  2019.  High  inventory  imports  and  import  prices  from 
China explain part of the strong decline in the trade surplus of Germany in particular. In addition, 

16 

-15-10-505101520CYELMTLVSKEEPTATFRBEFIESLTITSILUNLDEIEROHUPLCZBGHRSEDKEuro areaNon-euro area% of GDPa) Current accont balances and benchmarks CA balance 2019CA balance 2020CA balance 2021CA balance 2022Req. CA for NIIP target 2021CA norm 2021NIIP-stab. CA 2021-200-150-100-50050100NLDEBEMTLUATITFISILTEELVFRSKESPTCYIEELDKSECZBGHRPLROHUEuro areaNon-euro area% of GDPb) NIIPs and benchmarksNIIP 2019NIIP 2020NIIP 2021NIIP 2022NENDI 2021NIIP norm 2021Prudential NIIP 2021  
2.1. External sector 

global  demand  for  European  exports  is  decelerating,  as  the  slowdown  in  China  and  monetary 
tightening in the US have implications for demand not only in these two trading partners, but also 
in most emerging markets. As set out in Section 1, the euro has depreciated strongly, in particular 
vis-à-vis  the  US  dollar.  This  weighs  on  the  euro  area  trade  balance  as  the  share  of  dollar-
denominated  imports,  particularly  for  energy  goods,  largely  exceeds  the  dollar  denomination  of 
exports.  However,  income  from  dollar-denominated  foreign  assets  as  well  as  merchanting  and 
revenue  from  the  global  commodity  trade  has  somewhat  cushioned  the  overall  impact  of  the 
terms-of-trade shock on the external balance.  

The decline in the euro area trade balance in 2022 has been driven by the terms of trade 
shock, with real demand remaining strong. The terms of trade shock that has been underway 
in 2022 on account of much higher energy import prices and weaker euro has driven the decline in 
the  euro  area  nominal  trade  balance  –  and  by  extension  current  account  (Graph  2.1.2  b).  When 
measured  in  real  terms,  i.e.  at  constant  prices,  the  trade  balance  is  forecast  to  strengthen 
somewhat  in  2022,  as  real  aggregate  demand  should  grow  slightly  less  than  GDP.  Real  demand 
growth  is  forecast  to  outpace  output  growth  in  2022  in  large  net-creditor  countries  and  has 
reduced their contribution to the euro area current account surplus (Graph 2.1.2 b). This is forecast 
to persist in 2023. Several net-debtor countries improved their real trade balance by demand not 
keeping  up  with  recovering  GDP  growth.  It  is  the  total  of  smaller  countries  that  are  driving  the 
stability  of  the  real  trade  balance  in  2022,  and  counteracting  the  decline  in  the  real  balance  of 
Germany, the largest contributor to the euro area.  

The forecast for 2023 is for an overall stability in the euro area trade balance, including 
its composition, but this is subject to much uncertainty. Supply chain bottlenecks and import 
prices are likely to ease somewhat in 2023 but should continue weighing on the euro area trade 
balance. Decelerating global demand will dampen export prospects but may provide some relief for 
commodity  prices.  As  a  result,  the  impact  of  terms  of  trade  is  forecast  to  lessen  somewhat, 
providing  a  marginal  improvement  in  the  overall  euro  area  trade  balance.  Instead,  domestic 
demand growth remains a key factor for the dynamics of the euro area external balance in 2023. 
In  terms  of  its  composition,  the  readjustment  away  from  the  contribution  of  large  net-creditor 
countries is forecast to persist. 

17 

 
Graph 2.1.2: The euro area current account and trade balance 

2.1. External sector 

'Physical goods' is the balance of trade of SITC total; 'Energy goods' corresponds to balance of trade for the SITC3 
category, while 'Non-energy goods' is the difference between the two. 'Merchanting' is the difference between balance of 
trade in goods from the Balance of Payments and 'Physical goods'.  
Source: European Commission services 

At country level, the following developments are worth highlighting:  

  In 2021, the current account balances, based on 3-year averages, of four Member States stood 
below the lower scoreboard threshold of -4% of GDP: Cyprus, Greece, Ireland, and Romania. At 
the  same time,  three Member  States  had  averages  above  the  upper threshold  of  6%  of  GDP: 
Denmark, Germany, and the Netherlands. As for the NIIP readings, for ten Member States they 
were below the scoreboard threshold of -35% of GDP: Croatia, Cyprus, Greece, Hungary, Ireland, 
Poland, Portugal, Romania, Slovakia, and Spain. 

  Current  accounts  of  some  large  net-debtor  countries,  such  as  Cyprus,  and  especially  Greece, 
remained in sizeable deficits, even though Cyprus has recorded moderate improvements. While 
the  small  surplus  of  Spain  increased  slightly,  the  moderate  deficit  of  Portugal  was  largely 
unchanged in 2021. In these countries, apart from Spain, the current accounts remain below the 
levels  suggested  by  economic  fundamentals,  even  if  by  different  margins.  In  the  first  two 
quarters of 2022, a further solid recovery of international travel, coupled with rising prices in the 
sector, is lending a strong support to their  surpluses in travel balances, especially for Portugal 
and, to a slightly lesser extent, also for Cyprus, Greece, and Spain, with the main tourist season 
still  to  come  in  the  third  quarter  of  the  year.  However,  bar  Spain,  for  these  countries  a 
deterioration  of  their  current  account  readings  is  expected  for  this  year  as  a  whole,  chiefly 
reflecting worse energy balances. Their clearly negative NIIPs have been improving mostly due 
to the strong nominal economic growth, but the improvement was somewhat weakened  by the 
negative valuation effects in the case of Greece. 

  Current  account  deficits  are  very  sizeable  and  at  their  highest  levels  in  years  in  the  case  of 
Hungary and Romania. Romania’s current account deteriorated from an already elevated deficit 
and  continues to  worsen  in  2022  with  no  expectation  of  a  significant improvement  next  year. 

18 

-303607080910111213141516171819202122f23f% of EA19 real GDPb) Trade balance, euro areaDE real TBNL real TBFR real TBIT real TBES real TBReal TB othersAggregate T-o-T impactEA19 real TBEA 19 nominal TB-6-4-2024607080910111213141516171819202122% of GDPa) Current account, euro areaIncome balanceServicesMerchantingNon-energy goodsEnergy goodsPhysical goodsCurrent accountBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with current account balance (three year average) in % of GDP above 6% or below -4% in 2021 in blueBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with NIIP below -35% in 2021 in blue  
 
 
2.1. External sector 

Hungary is also recording a noticeable deterioration, with only a mild improvement expected in 
2023, showing one of the sharpest deteriorations in its energy balance. The depreciation of the 
Hungarian  forint  adds  to  concerns  about  its  external  sector  developments.  For  both  countries, 
NIIPs are clearly negative but inward foreign direct investments represent a considerable portion 
of  that.  This  renders  their  NIIPs,  excluding  non-defaultable  instruments  (NENDI),  more 
favourable. 

  In  Latvia,  Malta,  and  Slovakia,  the  current  accounts  in  2021  were  in  non-negligible  deficit.  In 
many  cases  substantial  deteriorations  are  projected  for  2022  and  2023.  In  Czechia,  Bulgaria, 
and Poland the mild current account deficits of 2021 are forecast to increase.  The depreciation 
of  the  złoty  adds  to  concerns  about  external  sector  developments  in  Poland.  Belgium  and 
Lithuania  are  forecast  to  move  into  noticeable  deficit  in  2022.  Slovakia  and  Lithuania  have 
recorded some of the greatest deteriorations in trade balances as a result of worsened energy 
balances. The deficit of Slovakia is expected to further expand exceeding its pre-pandemic level. 
For  Poland  and  Slovakia, which  have  pronounced  negative  NIIPs,  as  well  as  for  other  Member 
States in central and eastern Europe, inward foreign direct investments represent a considerable 
portion of their external liabilities. Consequently, their NENDIs are more favourable.  

  The  large  surpluses  of  Denmark,  Germany,  the  Netherlands,  and  Sweden  remain  above  their 
current  account  norms.  While  the  current  account  surpluses  increased  in  those  countries,  bar 
Sweden,  in  2021,  they  are  expected  to  record  a  marked  decline  in  2022.  In  particular,  the 
current accounts of Germany, the Netherlands, and Sweden have been declining noticeably and, 
in excess of the worsening of the energy balance. The surplus of Denmark has been increasing 
in  the  first  half  of  the  year,  but  overall,  a  decline  is  forecast  for  2022.  The  NIIPs  of  the 
Netherlands, Denmark, Germany, and Belgium are far above the levels suggested by economic 
fundamentals. 

19 

Graph 2.1.3: External sector: selected graphs 

2.1. External sector 

Source: European Commission services 

20 

-21-18-15-12-9-6-3036912151821IEDKNLDEEEMTHRSELUSIITLTESPLFIBEPTATBGFRLVCZHUSKROELCY% of GDPb) NLB by sector, 2021Households and NPISHCorporationsGovernmentPrivate sectorTotal economy-8-6-4-20246IEBGMTESPTATELFINLROLUFRSEITDKCYCZPLHRBEHUSKDELVSILTEE% of GDPc) Change in NLB by sector, 2021-2022Households and NPISHCorporationsGovernmentPrivate sectorTotal economy-30-25-20-15-10-50510152025IECYESHRBESEPTEESILTBGDKITLVDEPLSKATELFIMTCZROHUFRNLLUChange in pp of GDP (y-o-y)a) Change in NIIP, 2020-2021Nom. growth effectInvest. income effectNet transaction effectValuation changesΔNIIP (y-o-y)ΔNIIP (y-o-y) (t-1)-20246810121416HRMTELCYPTESBGHUSIATLUITPLLVEESKCZFRLTNLDKIEFIROSEDEBE% of GDPe) Travel balances, 4Q sum19Q420Q421Q422Q2-8-7-6-5-4-3-2-10DKNLSEIEEEFIROFRDEESITATELPLCZPTBELVHRBGSKLUSILTHUCYMT% of GDPd) Energy balances, 4Q sum19Q420Q421Q422Q2BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISE0510152025303540010203040exports of good and services, in %imports of goods and services, in %f) Annual change in trade deflators, 2022Q2   
2.2. COMPETITIVENESS 

Unit labour costs grew faster over 2020-21 than in the pre-pandemic period, and their 
growth rate is accelerating in 2022. A strong increase in unit labour costs had been observed 
in  most  Member  States  in  2020,  driven  by  mechanical  drops  in  measured  productivity,  as  job 
retention  schemes mitigated  the  fall in  employment  despite  the  markedly lower  output.  In  2021, 
this trend partly reversed as the recovery in productivity led to either unit labour costs declines, or 
to a visible deceleration in their growth, in nearly the entire EU (Graph 2.2.1 a). Unit labour costs are 
forecast to rise this year and next, substantially in some cases (Graph 2.2.1 b). The increase in unit 
labour costs is expected to be  driven by strongly rising nominal  compensation per employee that 
should considerably exceed real labour productivity growth in almost all EU countries (Graph 2.2.3 a 
and  b)  often  against  a  backdrop  of  low  and  falling  unemployment.  In  some  cases,  these  effects 
may  be  the  continuation  of  trends  that  led  to  concerns  about  potential  overheating  pressures 
before  the  COVID-19  crisis.  As  the  economic  momentum  slows  down,  productivity  gains  will  be 
lower and will dampen unit labour costs less than they have done recently.  

Real exchange rate dynamics have not yet been substantial overall, although there has 
been divergence, particularly outside the euro area. The changes in HICP-based real effective 
exchange rates (REER) remained contained in 2021, although small depreciations were observed in 
more countries than in 2020. The changes in HICP-based and GDP deflator-based REER over three 
years up to 2021 were also limited (Graph 2.2.3 c). In 2022, the nominal effective exchange rate 
(NEER) has so far depreciated in nearly all euro area Member States reflecting the depreciation of 
the euro, while changes in the HICP-based REER have remained moderate except for the few cases 
in  which  inflation  was  either  much  higher  than  elsewhere  or  where  the  NEER  depreciated  more 
sharply (Graph 2.2.3 e). In some non-euro area countries, in-year changes in the REER have been 
more  marked.  The  GDP  deflator-based  REER  does  not  show  strong  signs  of  deteriorating  price 
competitiveness  for  most  Member  States  although  with  some  notable  variation  across  countries 
(Graph  2.2.3  d).  Going  forward,  challenges  may  emerge  in  intra-euro  area  REERs  on  account  of 
divergence in inflation rates and differences in exposures to euro nominal exchange rate changes 
across  the  different  euro  area  countries.  More  heterogeneity  is  expected  across  non-euro  area 
countries, partly reflecting different nominal exchange rate dynamics.  

High  and  divergent  inflation  rates  are  a  risk  to  competitiveness  to  the  extent  they 
become  entrenched,  with  particular  risks  within  the  euro  area.  As  set  out  in  Section  1, 
inflation  rates  are  not  only  high,  but  very  divergent,  including  within  the  euro  area.  Overall,  this 
divergence is rooted in varying energy-intensity across economies, and is affected by the scale and 
composition  of  government  measures.  Despite  the  fact  that  inflation  is  largely  driven  by  the 
increase  in  energy  costs,  and  is  expected  to  fall,  divergence  in  inflation  rates  brings  a  risk  to 
competitiveness from two angles. First, energy prices may not return to their previous levels, but 
stabilise at higher levels. This would entail major costs for specific sectors, such as energy intensive 
industries. To the extent that these costs become permanent, countries with higher inflation due to 
the direct impact of energy costs would have permanently higher price levels. This relative increase 
could  have  a  negative  impact  on  their  competitiveness  and  may  lead  to  risk  of  relocation, 
ultimately resulting in a fall in export shares and potential growth in the more exposed countries. 
Over  time,  this  may  make  a  change  in  their  business  model  necessary,  and  could  involve  costly 
structural shifts. Second, inflation differences can lead to increases in prices beyond energy. Cross-
country differences relate not just to overall inflation rates but are also increasingly marked in core 
inflation. Box 2.2.1 discusses the risk that these may become entrenched and bring about further 

21 

 
 
2.2. Competitiveness 

increases, including to wages. Such widening differentials can result in real appreciations, reducing 
competitiveness. The resulting relative changes to competitiveness could lead to a rebalancing in 
the  euro  area,  if  countries  with  pre-existing  competitiveness  weaknesses  gain  relative  to  their 
peers.  However,  at  present,  the  most  marked  differences  in  inflation  are  not  affecting  large  net 
creditors or net debtors, on the whole.  Furthermore, heterogeneous inflation expectations in some 
cases might lead to increased vulnerabilities within the euro area, if too low expected real interest 
rates  in  some  countries  result  in  excessive  debt  accumulation.  Outside  the  euro  area,  currency 
depreciations entail other risks, for instance in terms of external borrowing and debt service costs.  

The  current  context  in  which  inflation  differentials  are  rising  is  different  than  that  of 
the  run-up  to  the  global  financial  crisis,  but  could  still  entail  risks  of  macroeconomic 
imbalances. In the run up to the financial crisis, high inflation in some euro area countries resulted 
in a cycle where low real interest rates fed excessive demand and debt accumulation, fuelling real 
exchange  rate  appreciations.  This  time,  however,  the  shock  experienced  is  predominantly  a 
contractionary  cost-push  energy  shock,  rather  than  an  expansionary  one.  While  this  time  high 
inflation in the most affected countries may work to keep real interest rates low and provide some 
cushioning of the more adverse impact on demand in the near term due to higher energy bill, the 
emergence  of  entrenched  increases  in  prices  or  wages  could  complicate  efforts  to  bring  down 
inflation leading to competitiveness losses that may dampen economic growth going forward.  

Graph 2.2.1: Unit labour costs 

(1) Countries are presented in increasing order of ULC in 2020-21  
Source: Ameco; 2022 and 2023 data come from the European Commission autumn 2022 economic forecast. The data 
refer to the number of employees and of persons employed 

Export  market  share  developments  in  2021  reflect  a  partial  reversal  of  the  COVID-19 
crisis effects but are likely to fall in the immediate future, amid the higher energy costs 
and  a  slowdown  in  trade.  An  effect  of  the  pandemic  was  to  reduce  export  market  shares  of 
economies  with  important  international  tourism  sectors,  several  of  which  have  more  negative 
external positions, and to increase export market shares for several net-creditor countries relative 
to their pre-crisis levels. Export shares are forecast to fall in most EU countries in 2023, negatively 
affected by the particularly high energy cost increase in Europe, with some supply chain disruptions 
also  playing  a  role.  A  stronger  effect  is  forecast  for  some  net-creditor  countries  with  substantial 
manufacturing sectors.  

Changes  in  competitiveness  have  once  again  become  generally  conducive  for  more 
symmetric  rebalancing  of  external  positions  within  the  euro  area.  (Graph  2.2.3  f). 
Developments  in  unit  labour  costs  are  somewhat  more  moderate  in  net-debtor  countries  than  in 

22 

  
2.2. Competitiveness 

net-creditor ones. However, developments in inflation, and particularly in core inflation, have been 
either broadly similar or sometimes more contained in net-creditor countries, which might dampen 
the  rebalancing  going  forward,  unless  wage  developments  continue  to  diverge  in  view  of 
differences in labour market slack. While, net-creditor countries generally tend to gain more from a 
depreciation  of  the  euro  given  their  higher  share  of  extra-euro  area  trade,  in  this  case  export 
market shares dynamics point to external rebalancing as net-debtor countries are regaining some 
of the lost export market, while net-creditors’ shares are expected to decline going forward. 

At country level, the following competitiveness developments are worth highlighting:  

  Unit  labour  cost  growth,  cumulated  over  the  three  years  to  2021,  was  above  the  scoreboard 
threshold  in  15  Member  States:  Austria,  Bulgaria,  Czechia,  Estonia,  Hungary,  Latvia,  Lithuania, 
Luxembourg,  Malta, the  Netherlands,  Portugal,  Romania,  Slovenia,  Slovakia,  and  Spain.  For  the 
HICP-based REER, the three-year changes were more contained and no Member State exceeded 
the  scoreboard  thresholds.  The  five-year  changes  in  export  market  shares  were  below  the 
scoreboard threshold in France, Italy, and Spain in 2021. While a decline in France was mainly 
driven  by  the  declining  share  of  exports  of  goods,  in  Spain  and  Italy  the  fall  was  caused  by 
decreasing  export  shares  of  services.  In  all  three  countries,  the  aforementioned  declines  were 
most pronounced during 2020 pandemic.   

  Concerns about cost pressures have been significant in some countries over a number of years 
and are increasing, or not sufficiently abating, including in Bulgaria, Czechia, Estonia, Hungary, 
Latvia,  Lithuania,  Luxembourg,  Romania,  and  Slovakia.  They  were  typically  already  sizeable 
before  the  COVID-19  crisis,  in most  cases  continued  in  2021  and  the  first  half  of  2022  amid 
comparatively  tight  labour  markets.  Unit  labour  costs  growth  is  forecast  to  remain  high  or  to 
increase  strongly  again  next  year  in  most  of  these  countries.  Several  of  them  face  additional 
risks to their competitiveness, relating to the surge in inflation, which is much higher than in the 
rest  of  the  EU  and  in  the  euro  area  peers.  While  for  most  of  these  countries  the  REER  are 
forecast to depreciate in 2023, a mild appreciation is expected for Slovakia.  

  Malta and Slovenia have displayed similar effects as the countries mentioned above in the pre-
COVID-19  period,  but  concerns  about  competitiveness  losses,  if  any,  were  more  moderate  in 
2021 and are expected to remain small this year too. In Belgium and Poland, unit labour costs 
are forecast to increase strongly over this year and next. Conversely, unit labour cost increases 
have been, and are forecast to continue being, more muted in Italy, pointing to a small relative 
gain in competitiveness. 

  Concerns  about  cost  competitiveness  have  been  receding  in  some  large  net-debtor  countries, 
including Cyprus, Greece, Portugal, and Spain. In particular, unit labour costs have been growing 
slightly less than in trading partners and the rest of the euro area.  

23 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with nominal unit labour cost growth (3 year % change) above 9% (EA) or 12% (non-EA) in 2021 in blueBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with REER, HICP deflator (3 year % change) above +/- 5% (EA) and +/- 11 (non-EA) in 2021 in blueBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with export market share, % of world exports (5 year % change) below -6% in 2021 in blue 
 
  
 
2.2. Competitiveness 

Box 2.2.1: Potential entrenchment of inflation and competitiveness losses 

High and divergent inflation, which has been observed across the EU since late 2021, can 
adversely  affect  competitiveness  especially  if  persistent.  If  aggregate  wage  rises  fully  or 
partially  compensate  for  the  loss  in  purchasing  power  of  workers,  these  wage  increases  will  be 
reflected  in  higher  unit  labour  costs  unless  they  are  offset  by  productivity  increases.  Such  unit 
labour cost increases can then lead to second-round effects and risks of higher future inflation. (19) 
Divergences in competitiveness across euro area Member States can emerge if the inflation shock 
is very different across countries or if very different second round effects develop in the wake of 
that  inflation  shock.  However,  if  demands  for  wage  increases  take  into  account  that  inflation  is 
likely to recede, then the risk of a price-wage spiral remains limited. The Commission’s 2023 Euro 
Area  Report  discusses  the  role  of  inflation  expectation  in  wage  increases. (20)  The  soaring  energy 
prices  account  for  a  large  share  of  the  price  level  increases  in  most  Member  States.  However,  if 
inflation has largely broadened beyond energy to other goods and services, living standards cannot 
be  maintained  unless  income  growth  keeps  up,  even  when  energy  prices  fall.  Energy  and  food 
components  of  the  overall  price  indexes  can  be  quite  volatile,  and  are  relatively  unaffected  by 
monetary  policy  decisions,  as  they  are  typically  strongly  influenced  by  international  markets,  at 
least  beyond  short  term,  i.e.  in  absence  of  regulatory  or  fiscal  policy  intervention.  As  a  result, 
central banks use measures of core inflation to better capture the underlying inflation trend. (21)  

Unit  labour  costs  for  several  EU  countries,  including  Estonia,  Latvia,  Lithuania,  and 
Luxembourg and two non-euro area Member States, Bulgaria and Poland, surged over the 
year up to the second quarter of 2022 (Graph 2.2.2 a). The jump was driven by very strong growth 
in compensation per employee, which exceeded or came very close to the 10% mark. Nonetheless 
in  only  four  Member  States  the  compensation  per employee increased  by more  than  prices,  with 
the differential being especially large in Bulgaria. Productivity changes were insufficient to mitigate 
growth in unit labour costs, and in some cases they reinforced it. In Bulgaria and Luxembourg, unit 
labour  costs  increased  by  more  than  prices,  while  in  Estonia,  Latvia,  Lithuania,  and  Poland  their 
growth exceeded the core inflation. While the latter holds true also for Belgium, France, Italy, and 
Romania,  their  unit  labour  costs  growth  has  been  somewhat  more  contained.  Those  excesses  of 
unit labour costs over prices growth create risks of further price hikes in order for firms to preserve 
price-cost margins.  

Divergent core inflation and unit labour cost developments could have considerable and 
more persistent consequences to some countries’ competitiveness, which is particularly 
relevant for the euro area countries. The change in core inflation-based REER (Graph 2.2.2 b) 
suggests non-negligible losses of competitiveness for Estonia, Lithuania, and Slovakia due to much 
higher  core  inflation  than  in  the  rest  of  the  euro  area.  For  the  latter  two  countries  this  is 
compensated  for  by  REER  changes  with  respect  to  non-euro  area  countries.  Conversely,  the 
competitiveness of Germany,  and to a lesser extent Finland,  France and Italy, benefit from lower 
core  inflation  than  in  the rest  of  the  euro  area.  REER  depreciation  with  respect  to  non-euro  area 
countries, observed broadly, contributes further to competitiveness gains of these countries.  

(19)  A recent IMF’s analysis indicates that the risks of wage-price spirals may be relatively contained. The conclusion is based on 
the comparisons of current inflation, wage, and unemployment developments with similar historical episodes for advanced 
economies, with the caveat that those episodes need not be fully representative of the current events, especially given the 
distinctive nature of the COVID-19 shock. Moreover, the analysis does not consider the developments in 2022 during which 
the energy price shock kicked-in with full intensity in most of EU countries. See IMF (2022), “Wage dynamics post-COVID-
19 and wage-price spiral risks”, in: World Economic Outlook: Countering the cost-of-living crisis. Chapter 2, October 2022.  

(20)  SWD(2022) 382. Commission staff working document. 2023 Report on the euro area accompanying the Recommendation 

for a Council Recommendation on the economic policy of the euro area 

(21)  See M. Ehrmann, et al. (2018), “Measures of underlying inflation for the euro area”, ECB Economic Bulletin, Issue 4/2018.  

24 

                                                 
2.2. Competitiveness 

For some non-euro area countries nominal exchange rate movements strongly affected 
the  REER.  Most  striking  is  the  case  of  Hungary,  where  the  strong  nominal  depreciation  led  to 
competitiveness gains despite comparatively high core inflation. Similar effects can be observed in 
Poland  and  Sweden.  Conversely,  Czechia  experienced  an  appreciation  in  the  (effective)  nominal 
exchange rate, which along the relatively high core inflation rate has led to strong real appreciation. 
It should be noted that while currency devaluations may mitigate cost pressures, they may entail 
other risks such as higher debt service costs of foreign-currency denominated debt, both domestic 
and  external.  This  may  constrain  the  use  of  nominal  devaluations  as  an  instrument in  mitigating 
the impact of increased costs on competitiveness. 

Graph 2.2.2: Unit labour cost, (core) inflation and competitiveness 

Countries are presented in the increasing order of the ULC change, i.e. in decreasing order of the core inflation-based 
REER. The core inflation measure excludes energy, food, alcohol and tobacco. The core inflation-based REER has been 
computed for analytical purposes, in which the core inflation rates for the trading partners China and Japan were proxied 
with their overall CPI growth as the core measure was not available. 
Source: Eurostat and Commission services calculations. 

25 

-10-50510152025SIELPTESMTCYIENLATFIDEITBEFRSKLULVLTEECZHRDKSEROHUPLBGEuro areaNon euro areaAnnual change, in %a) ULC and inflation from 21Q2 to 22Q2CompensationProductivityULCInflationCore inflation-18-15-12-9-6-303691215EELVNLLTSKSIELESBEPTLUATMTITCYDEFIFRIECZBGROHRPLDKSEHUEuro areaNon euro areaAnnual change, in %b) Change in core inflation-REER, Aug 2022Due to change in EUR exchange rateDue to core inflation differential with EA19Due to REER change with non-EA partnersChange in REER based on core inflation   
 
Graph 2.2.3: Competitiveness: selected graphs 

2.2. Competitiveness 

Source: European Commission services 

26 

-5-3-1135SIITFRMTLULTSKIECYLVELPTBEESFINLDEATEEDKROHUCZHRBGSEPLEuro areaNon euro areaAverage annual  % changec) NEER and REER, 2019-21REER-HICPNEERREER-GDP-8-6-4-20246IEELCYITPTESSIFIMTNLSKBEATFREEDELVLTLUHRHUPLDKROCZSEBGEuro areaNon euro areaAverage annual % changed) REER, GDP-based2020-212022f2023f-3-2-1012345610111213141516171819202122f23f% change  f) ULC growth across the euro areaNIIP < -35% of GDPNIIP > +35% of GDP-35% < NIIP < 35%-18-15-12-9-6-3036912EELVLTNLSKSIELESBEPTLUATITMTCYDEEA19IEFIFRCZBGROHRPLDKSEEU27HUBRMXNZJPEuro areaNon-euro areaWorldAnnual % changee) REER, HICP-based, decomposition, Aug 2022ΔNEERΔrel_HICPΔREER-4-20246ESMTPTFRATELBEITFINLDELUCYSKSILTLVEEIECZDKROHUSEPLHRBGEuro areaNon euro areaAverage annual % changea) Labour productivity, per person2017-192020-212022f2023f-20246810121416ELITFRBEESCYFIDEMTATPTIENLLUSKSILVEELTDKSECZROPLHUHRBGEuro areaNon euro areaAverage annual % changeb) Compensation, per person2017-192020-212022f2023f  
2.3. NON-FINANCIAL CORPORATIONS 

Non-financial  corporate  debt-to-GDP  ratios  remained  sizeable  in  many  countries  in 
2021, although they continued to decrease. Following the substantial deleveraging that took 
place  over  the  last  decade  in  many  Member  States,  non-financial  corporate  (NFC)  debt-to-GDP 
ratios  in  2021  were  below  their  pre-pandemic  peak  in  most  EU  countries.  Nonetheless,  in  2021, 
debt ratios were above levels suggested by both economic fundamentals and by levels related to 
prudential  concerns  in  almost  half  of  the  EU  countries  and  in  many  countries  above  levels 
registered in 2019, before the COVID-19 pandemic started (Graph 2.3.1 a and b). (22) In 2021, the 
corporate debt-to-GDP ratio decreased in most Member States, largely due to the marked recovery 
in GDP growth (Graph 2.3.3 a). Net credit to NFCs was positive across the EU and started to pick up 
in most  EU  countries  in  2021,  including  in  a  number  of  cases  with  high  NFC debt,  in  light  of the 
pickup in investment (Graph 2.3.3 c).  

The deleveraging process that restarted in 2021 continued into 2022, but going forward 
is likely to be hampered by the difficult macroeconomic context. The corporate debt-to-GDP 
ratio  continued  to  decrease  in  almost  all  Member  States  in  the  first  half  of  2022,  despite  the 
increase  in  credit,  which  may  also  reflect  rising  liquidity  needs.  The  effect  of  new  net  credit  on 
corporate debt-to-GDP ratio was more than offset by real  GDP growth and the sharp increase in 
inflation  (Graph  2.3.3  b).  Passive  deleveraging  is  overall  expected  to  continue,  driven  by  rising 
inflation  rather  than  real  GDP  growth,  but  there  is  a  considerable  risk  that  the  decrease  in  debt 
ratios may slow or reverse. The increase in inflation may squeeze profit margins if increasing costs 
cannot  be  passed  on  to  customers  and  reduce  demand  overall.  The  profit  share  of  corporates 
started to moderate in the first half of 2022, but remains above its pre-COVID-19 level. In almost 
all euro area countries a high share of new lending to corporates with short maturities implies that 
tightening  lending  conditions  and  rising  interest  rates  can  affect  corporates  rather  quickly. (23)  In 
several non-euro area Member States, there was a notable increase in lending rates for corporates 
and besides a high share of corporate loans denominated in foreign currency represents source of 
additional vulnerabilities. 

Increasing concerns related to corporate non-performing loans and bankruptcies add to 
overall  corporate  and  financial  sector  vulnerabilities  after  the  COVID-19  shock.  Some 
industries,  such  as  accommodation  and  transport,  have  been  strongly  affected  by  the  COVID-19 
crisis. (24)  Non-performing  loans  ratios  and  business  bankruptcies  have  been  declining  in  most 
Member States since 2020, even after debt repayments moratoria have been phased out. However, 
the  share  of  vulnerable  firms  after  COVID-19  is  particularly  high  in  some  countries  with  a  high 

(22)  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 assess private debt 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 by minimising the probability of 
missed crisis and of false alerts. 

(23)  European Central Bank (2022), Financial Stability Review – May 2022. Data for 2021. 

https://www.ecb.europa.eu/pub/pdf/fsr/ecb.fsr202205~f207f46ea0.en.pdf 

(24)  See L. Archanskaia, P. Nikolov and W. Simons (2022), Estimates of corporate cleansing during COVID-19 – using firm-level 

data to measure its productivity impact, Quarterly Report on the Euro Area (QREA), Vol. 21, No. 2 (2022). 

27 

 
                                                 
 
2.3. Non-financial corporations 

share  of  non-performing  loans  (Graph  2.3.3  f).  While  the  corporate  non-performing  loans  ratio 
continued to decrease in most Member States still in the first half of 2022, in some they started to 
increase (Graph 2.3.3 e). Also, business bankruptcies started to rise in some Member States in the 
first  half  of  2022.  In  addition,  while  credit  continues  to  increase  strongly,  credit  standards  are 
tightening  substantially  and  are  now  at  their  highest  levels  since  2013  (Graphs  2.3.3  c  and  d). 
While liquidity buffers and net savings have increased in recent years, the difficult macroeconomic 
context,  combined  with  structural  transformations  and  supply  chain  disruptions,  could  lead  to 
deteriorating balance sheets, squeezing profit margins and affecting debt servicing and corporate 
savings and investments (see Box 2.3.1).  

The  energy  crisis  will  affect  some  industries  particularly  strongly,  through  price 
increases and supply  disruptions,  and may  have  a lasting  effect resulting  in  structural 
transformations. Energy-intensive industries are particularly exposed and may face pressure on 
their balance sheets. Structural transformations are being accelerated by the energy crisis. While it 
is  expected  that  energy  prices  and  supplies  will  normalise,  there  may  be  a  permanent  structural 
change, that can have widespread effects on the productive capacity and potential growth of more 
affected countries depending on their energy intensity and specialisation of production. The acute 
phase of the energy crisis may result in a closure of firms and/or a shift of demand to production 
from other – less affected – locations, resulting in a permanent off-shoring. The normalisation of 
prices, and wages, may be to a higher level, which could compound the costs associated with the 
energy transition, and overall may lead to a loss of competitiveness, particularly in some energy-
intensive industries and with a differential impact across countries.  

Graph 2.3.1: Non-financial corporations' debt 

Countries are presented in decreasing order of the NFCs debt-to-GDP ratio in 2021.  
Source: Eurostat sectoral financial balance sheet accounts – loans (F4) plus debt securities (F3), Ameco and Commission 
services estimates. 

Policy  interventions  play  an  important  role  in  protecting  national  economies  from 
corporate stress, but a lack of coordination could raise concerns from a euro area and 
an  internal  market  perspective.  National  policy  interventions  distribute  the  burden  of  the 
energy  crisis  between  the  corporate,  household  and  public  sectors  more  fairly.  These  will  be 
particularly  important  in  protecting  exposed  industries  and  avoid  reductions  in  activity,  closures, 
offshoring  and  loans  defaults.  Without  such  measures,  corporate  stress  could  be  propagated 
throughout national economies. While there is no evidence so far, financial conditions and available 
fiscal space might eventually play a role in the possible scale and scope  of national interventions 
and different approaches between countries may  amplify the divergence of corporate liquidity or 
solvency risks, in particular in case the crisis would deepen or become protracted. This in turn would 
have an impact on prices, as differences in corporate investment and price setting behaviour could 

28 

050100150200250300LUCYIENLSEDKBEFRPTFIESMTATITELDEBGHUEEHRSKCZSIPLLVROLT% of GDPa) NFC debt to GDP ratios2019202020212022fFundamental benchmark, 2021Prudential threshold, 20218085909510010511011512005Q106Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q118Q119Q120Q121Q122Q1% of GDPb) Corporate debt, EA19  
2.3. Non-financial corporations 

lead to divergences in demand growth and monetary policy transmission, given the existing and the 
emerging  inflation  and  competitiveness  differentials  in  the  euro  area.  Further  integration  efforts 
can help to overcome this combination of challenges as well as reduce corporate vulnerabilities and 
divergence  in  growth  and  productivity.  On  the  national  side,  appropriate  insolvency  regimes  are 
important to minimise the long-term economic impact of any corporate insolvencies.   

At country level, the following developments are worth highlighting:  

  Non-financial  corporate  debt  is  very  high,  beyond  100%  of  GDP,  and  above  fundamental  and 
prudential benchmarks in Sweden and Denmark, and there are additional signs of vulnerabilities. 
In  Sweden,  the  corporate  debt-to-GDP  ratio  is  still  above  its  pre-COVID-19  crisis  peak  and 
increasing. In Denmark, corporate deposits declined from an already low level.  

  Belgium,  Cyprus,  Ireland,  Luxembourg,  and  the  Netherlands  also  have  very  high  non-financial 
corporate debt-to-GDP ratios beyond 100% and above fundamental and prudential benchmarks. 
However,  that  is  also  due  to  a  sizeable  share  of  foreign  direct  investment  loans  and  cross-
border intracompany borrowing, which may partly limit vulnerabilities.  

  High  non-financial  corporate  debt-to-GDP 

ratios,  above  fundamental  and  prudential 
benchmarks, in France, Greece, Malta, and Portugal, are on a declining path. In France and Malta, 
the high level of debt is partly mitigated by sizeable liquidity buffers. In Austria, the corporate 
debt  to  GDP  ratio  is  above  the  prudential  threshold  and  credit  growth  has  been  strong.  The 
COVID19  crisis  disproportionately  affected  a  number  of  industries,  leaving  corporate  sectors 
vulnerable in countries such as Greece and Italy.  

  The corporate debt-to-GDP ratio in Spain is above fundamental and prudential benchmarks. In 
Bulgaria,  the  corporate  debt-to-GDP  ratio  is  moderate,  although  beyond  the  fundamental 
benchmark and higher than in regional peers.  

29 

 
2.3. Non-financial corporations 

Box 2.3.1: Corporate savings and investment developments  

Corporate  savings  and  investment  developments  can  provide  useful  insights  about 
corporate soundness and vulnerabilities associated to corporate debt stocks. An increase 
in corporate debt to finance investment is economically different to increases to cover unexpected 
costs, as additional borrowing to finance investment tends to increase productivity and production 
capacity  and  thus  corporate  soundness.  At  the  same  time,  corporate vulnerabilities  associated  to 
high debt can be partly mitigated by increasing savings or deposits. This Box looks in more detail at 
the role of corporate savings and investment developments in mitigating corporate vulnerabilities 
in the context of the recovery from the COVID-19 pandemic and the recent economic slowdown.  

Corporate  savings  increased  in  many  Member  States  since  the  COVID-19  pandemic 
(Graph  2.3.2  a).  Many  corporates  built  up  precautionary  savings  at  the  onset  of  the  COVID-19 
pandemic to improve their liquidity position, partly facilitated by support measures. Corporate gross 
savings started to decline in the fourth quarter of 2021 and continued declining sharply in the first 
half  of  2022  from  one  year  earlier,  but  in  most  countries  remain  above  the  pre-COVID-19  level. 
However, corporate savings, in percentage of GDP, are forecast to increase in most Member States 
in 2022 overall (Graph 2.3.2 a). Deposits started to decline in the first half of 2022 in the majority 
of  Member  States,  as  many  corporates  require  substantial  liquidity  to  address  the  sharp  rise  in 
input costs, but remained above their 2019 level. The non-financial corporate profit share in the EU 
started to moderate in the first half of 2022, but remains above its level pre-COVID-19 level.  

Investment  of  corporates  declined  sharply  with  the  COVID-19  crisis,  but  recovered  in 
most countries in 2021. The recovery was strong, with corporate gross capital formation to GDP 
ratios in 2021 having exceeded their 2019 levels in 16 of the 24 Member States for which data are 
available,  except  Austria,  Cyprus,  Germany,  Ireland,  Luxembourg,  the  Netherlands,  Slovakia,  and 
Spain.  In  2021,  investment  and  net  credit  flows,  both  in  percentage  of  GDP,  increased  in  many 
Member States (Graph 2.3.2 b). This suggests that in some countries additional borrowing was used 
to  finance  investment.  The  need  to  finance  fixed  investments  has  become  a  considerably  less 
important  factor  for  loan  demand  in  the  course  of  2022,  according  to  the  ECB’s  Bank  Lending 
Survey. In real terms, investment for the EU as a whole  continued to slightly increase in the first 
half of 2022, but at a much lower pace than previously and it did not yet return to its 2019 level.  

Graph 2.3.2: Investment, credit and savings of non-financial corporates 

(1) Ireland was removed from the right panel because investment was very volatile in 2021. 
Source: Eurostat and Ameco 

30 

05101520253035CYLUELPTSIFRNLITSKLTDEHUPLESSELVFICZBEATDKEEROIE% of GDPa) Gross savings rate2019202020212022BECZDKDEEEELESFRHRITCYLVLUHUNLATPLPTROSISKFISE-10-8-6-4-2024681012-1.501.534.56Change in credit, non-financial corporationsChange in gross capital formation, corporationsb) Change in investment and credit (% of GDP), 2021  
 
Graph 2.3.3: Non-financial corporations: selected graphs 

2.3. Non-financial corporations 

Net credit flows (debt transactions) correspond to transaction of loans (F4) and debt securities (F3) from the Eurostat 
sectoral financial transactions accounts. 
The average credit standards for enterprise, loan supply, weighted net percentage (tightened minus eased or reverse) 
based on the share of each country in the total loan outstanding amounts of the area aggregate. For the definition of 
vulnerable firms, see footnote 24. 
Source: Ameco, Eurostat, ECB. 

31 

  
2.4. HOUSING MARKETS AND HOUSEHOLD DEBT 

House  prices  accelerated  further  in  2021  and are  estimated  to  be overvalued  by  more 
than  10%  in  half  of  the  EU  countries.  Since  the  COVID-19  pandemic  outbreak,  house  price 
growth  accelerated  and  prices  were  estimated  to  be  overvalued  by  more  than  10%  in  several 
Member States, and in many by over 20%, at the end of 2021 (Graph 2.4.1 a). (25) The acceleration 
of house prices is more evident in nominal terms but even deflated house prices, in a period of high 
inflation, accelerated in most countries. Supply constraints are still present in the housing market 
and  together  with  high  construction  costs,  contribute  to  higher  house  prices  alongside  strong 
demand.  

In the first half of 2022, house prices displayed record growth rates while in the short 
to  medium  term  moderation  is  expected.  Low  mortgage  rates  and  income  growth  were 
associated with the increase in both credit and house prices over the last decade, although since 
the  pandemic  outbreak  the  acceleration  is  too  sizeable  to  be  explained  by  these  factors.  The 
increase of interest rates is expected to foster some moderation in house prices and  recent 2022 
in-year data show that this is underway in many, but not all, EU countries. Mortgage rates remain 
considerably  lower  than  inflation,  yielding  record  negative  real  interest  rates  and  an  incentive  to 
further  real  estate  purchases,  but  the  expected  increase  in  the  cost  of  new  mortgages  should 
moderate housing demand and house prices going forward. Likewise, the fall in purchasing power 
caused  by  higher  inflation  as  well  as  the  uncertainty  about  the  strength  of  the  economy  and 
household  incomes  should  also  temper  demand  for  housing  and  in  that  way  also  contribute  to 
dampen house price growth. In some countries mortgage rates have already increased significantly 
while real incomes are declining or stagnant in most EU countries (Graph 2.4.1 b).  

(25)  House price valuation gaps are computed with respect to benchmarks to capture country-specific effects. 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). 

32 

 
 
                                                 
 
Graph 2.4.1: House price developments and fundamentals 

2.4. Housing markets and household debt 

(1) On panel a, countries are presented in decreasing order of deflated house price growth in 2021. For details and 
methodology see footnote 25. 
(2) On panel b, bank interest rates on new mortgages for households are the average of total loans calculated by 
weighting the volumes with a moving average (defined for cost of borrowing purposes) for euro area countries (blue 
diamonds) and the monthly average without weighting the volumes for non-euro area countries (yellow diamonds). (*) 
Real gross disposable income is proxied by real compensation of employees. Latest interest rate available for Hungary is 
2022-08. 
Source: Eurostat, Ameco, ECB, European Commission autumn 2022 economic forecast, and Commission services 
estimates for estimated house price valuation gaps in 2021. 

After  the  increase  in  2020,  household  debt-to-GDP  ratios  fell  in  2021  in  most  EU 
countries,  although  net  credit  flows  picked  up.  Household  debt-to-GDP  ratios  decreased  in 
2021  relative  to  2020  due  to  the  increase  in  GDP  but  remained  higher  than  in  2019  in  several 
countries and are not expected to fundamentally change in 2022 (Graph 2.4.3 a and b). Net credit 
flows  to  households,  however,  were  positive  in  almost  all  EU  countries,  increasing  even  where 
household  debt  is  already  high.  Household  debt  appears  high  in  close  to  half  of  the  EU  when 
compared  with  benchmarks  that  account  for  country-specific  economic  fundamentals  and  with 
thresholds that account for prudential concerns. (26)   

Bank credit developments in 2022 have been uneven across the EU, with credit growth 
decelerating especially in the non-euro area. Outside the euro area, mortgage interest rates 
increased  significantly  together  with  money  market  rates.  This  is  particularly  the  case  among 
countries facing a depreciation in their nominal exchange rate. In the euro area, developments are 
more  uneven,  but  the  cost  of  credit  has  also  increased  recently  (Graph  2.4.1  b).  Net  bank  credit 
flows  decelerated  only  in  a  very  limited  number  of  euro  area  countries,  while  in  non-euro  area 
countries the deceleration is more visible (Graph 2.4.2 b). 

Going  forward,  there  are  risks  associated  with  households’  abilities  to  meet  mortgage 
payments. In most Member States, the share of loans with interest rates fixed for a period of up 
to five years is high, above 80% in eight EU countries and between 40% and 80% in another nine, 
making  households  in  those  countries  more  vulnerable  to  interest  rate  increases.  Household 
incomes  will  be  under  pressure,  with  rising  energy  bills  reducing  available  income  for  other 
expenditures.  These  two  effects  create  a  risk  of  balance  sheet  stress  despite  very  low  and  even 
negative real interest rates. A deeper or longer lasting economic downturn with a negative impact 
on employment may trigger further loan repayment difficulties and forbearance.  

(26)  See footnote 22. 

33 

-200204060-5051015CZLUNLLTEEHUATDKDESEPTSILVELBGBEFRHRIEMTPLSKFIESITROCY%%a) Deflated house price changes and valuation gaps20202021Estimated valuation gap, 2021(rhs)ATBEBG*CYCZDEDKEEELESFIFRHR*HUIEITLTLULVMT*NLPLPTROSESISK-7.0-3.50.03.5-1012345Real gross disposable income (expected % change in 2022)Bank interest rate, new mortgages for households(2022-09 or latest vis-à-vis 2021-12, change in pp)b) Income change vs change in mortgage ratesEA19EU27  
                                                 
2.4. Housing markets and household debt 

Risks  to  the  economy  from  a  substantial  downward  adjustment  of  house  prices  are 
somewhat  mitigated  by  lower  weights  of  the  sector  in  the  economy  and  by 
macroprudential  measures,  but  cannot  be  discounted.  In  2021,  construction  activity  was 
higher  in  countries  where  house  prices  are  overvalued  the  most  but  still  below  peak  levels.  This 
may reduce the impact of any  downward adjustment on prices, as value added and employment 
would  be  less  affected  than  before  the  global  financial  crisis,  although  household  consumption 
growth could be reduced by wealth effects. In addition, any reduction in house prices is likely to be 
more  muted,  as  the  structural  factors  that  have  led  to  housing  supply  being  constrained  would 
remain in place. The macroprudential measures in place have also reduced the risks for the overall 
financial  stability  related  to the housing market  (see Box 2.4.1). Despite these mitigating factors, 
risks  remain  that  could  spill  over into  other  sectors and  create  negative  feedback  loops  exposing 
systemic weaknesses.  

Different  housing  market  country  dynamics  compounded  with  the  common  monetary 
policy  could  lead to divergent trends  within  the  euro  area.  Even  if the risk  of  large  house 
price  corrections  appears  muted,  there  are  challenges  related  with  high  levels  of  mortgage 
indebtedness,  particularly  when  interest  rates  have  low  fixation  period,  mortgages  have  long 
maturities  and  house  valuations  are  above  fundamentals.  The  situation  varies  widely  across  the 
euro  area  members,  which  may  raise  some  challenges  against  the  backdrop  of  a  common 
monetary policy. The current tightening of the monetary and financing conditions in the euro area 
may  be  insufficient  to  moderate  the  housing  price  in  countries  where  house  supply  is  very 
constrained.  On  the  contrary,  in  countries  with  more  flexible  supply,  tightening  of  financial 
conditions  can  drive  house  prices  down  with  adverse  impact  in  the  construction  sector.  This  may 
raise  the  stakes  for  country-specific  policies,  especially  those  related  to  housing  taxation  and 
household debt and repayments, as well as macroprudential measures and policies on the supply 
side. 

Graph 2.4.2: Household debt and bank loans to households 

(1) On panel a, countries are presented in decreasing order of the household debt-to-GDP ratio in 2021. Debt comprises 
loans (F4) and debt securities (F3). For details and methodology reference see footnote 25.  
(2) On panel b, countries are presented in decreasing order of the bank loans ratio to GDP. Loans are adjusted loans (net 
flows) as reported by the ECB. No data available for Denmark. 
Source: Eurostat, Ameco, ECB, European Commission autumn 2022 economic forecast, and Commission services 
estimates 

34 

020406080100120DKNLSECYFIFRPTLUBEESDEELMTATSKITEECZHRPLIESIBGLTHULVRO% of GDPa) HH debt to GDP ratios2019202020212022fFundamentals benchmark 2021Prudential threshold 2021-101234567SKSELUMTEEFRBGBECZLTDEPTATSIHRCYHUITNLFIROLVESELIEPL% of 2019 GDPb) Bank loans to households, 12 month sum2019-092020-092021-092022-09BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with growth of deflated house price index above 6% in 2021 in blue   
 
 
2.4. Housing markets and household debt 

At  country  level,  the  following  housing  market  and  household  debt  developments  are 
worth highlighting:  

  In  2021,  deflated  house prices  growth  surpassed  the  6%  scoreboard  threshold  in  14  Member 
States:  Austria,  Czechia,  Denmark,  Estonia,  Germany,  Greece,  Hungary,  Latvia,  Lithuania, 
Luxembourg,  the  Netherlands,  Portugal,  Slovenia,  and  Sweden.  In the  second quarter  of  2022, 
house  prices  were  still  accelerating  and  growing  more  than  20%  in  nominal  terms  from  one 
year  earlier  in  Czechia,  Estonia,  Lithuania,  and  Hungary;  in  other  12  Member  States,  Austria, 
Bulgaria,  Croatia,  Germany,  Ireland,  Latvia,  Luxembourg,  the  Netherlands,  Poland,  Portugal, 
Slovakia, and Slovenia, price growth was between 10% and 20%. 

  Member  States  with  house  prices  are  estimated  to  be  overvalued  by  more  than  20%  include 
Austria,  Belgium,  Czechia,  Denmark,  Germany,  Luxembourg,  the  Netherlands,  Portugal,  and 
Sweden. In France and Sweden, household debt is above prudential levels, credit to households 
is high and household debt is estimated to be higher at the end of 2022 than in 2019. While in 
the case of France, most mortgages are at fixed rates, in Sweden, over two thirds of mortgages 
have variable interest rates with a fixed period only up to one year, which exposes households 
more to the risks of increased mortgage payments due to higher interest rates. In Luxembourg, 
house prices overvaluation is the highest in the EU and household debt is very high in relation to 
household  income;  furthermore,  credit  is  expanding  fast.  In  Austria,  Czechia,  and  Germany, 
household  debt  is  below  or  in  line  with  prudential  levels  but  credit  flows  to  households  are 
elevated.  Austria  and  Germany  recently  received  recommendations  from  the  ESRB  on  its 
residential  real  estate  market.  In  Belgium  household  debt  is  above  prudential  levels,  and  in 
Portugal  is  above  both  prudential  and  fundamental  levels.  Also  in  Portugal,  two  thirds  of 
mortgages  have  interest  rates  fixed  for  only  up  to  one  year,  with  the  remaining  mortgage 
mostly having rates fixed for a period between one and five years. 

  In Estonia, France, Greece, Hungary, Latvia, Malta, Slovakia, and Spain, house prices were also 
overvalued  in  2021  and  increasing  fast  in  the  first  half  of  2022.  In  these  countries,  except 
Estonia  and  Latvia,  also  household  debt  is  above  the  prudential  threshold  or  increasing  and 
approaching  the  benchmarks.  In  Slovakia,  household  debt  has  been  increasing  over  time,  it  is 
higher than the fundamental  benchmark and is forecast to cross the prudential  threshold this 
year.  

  In  Bulgaria,  Croatia,  Ireland,  Lithuania,  Poland,  and  Slovenia  nominal  house  prices  are  also 

increasing at a fast pace, above 10% from one year earlier in the first half of 2022.  

  In  Cyprus  and  Finland,  house  prices  do  not  seem  overvalued  but  there  are  issues  relating  to 
household debt. In Cyprus, household debt is decreasing and below the fundamental benchmark 
but  estimated  to  be  way  above  the  prudential  threshold.  In  Finland,  household  debt  is  also 
above fundamental and prudential levels. In both countries, more than 90% of mortgages have 
variable interest rates or are fixed for only up to one year. 

35 

 
 
  
2.4. Housing markets and household debt 

Box 2.4.1: Assessment of residential real estate vulnerabilities by the ESRB  

The  European  Systemic  Risk  Board  (ESRB)  has  assessed  systematically  medium-term 
residential  real  estate  (RRE)  vulnerabilities  in  the  European  Economic  Area  (EEA) 
countries since 2016 (27). The ESRB has been active in assessing RRE vulnerabilities across the 
EEA  and,  after  issuing  a  first  set  of  warnings  in  2016,  it  then  issued  a  set  of  country-specific 
recommendations in 2019, along with further warnings on medium-term vulnerabilities in the RRE 
sector. The ESRB can issue warnings if it sees the need to flag vulnerabilities and trends that have 
the  potential  to  disrupt  financial  stability,  while  recommendations  are  issued  not  only  to  flag 
financial  stability  risks  but  also  to  point  to  necessary  remedial  actions.  The  last  assessment  was 
published in February 2022.  

The February 2022 ESRB assessment concludes that RRE risks due to rapid house price 
growth  and  increasing  household  indebtedness  have  continued  to  increase  in  several 
countries.  The  key  vulnerabilities  highlighted  by  the  ESRB  assessment  are  of  a  medium-term 
nature and, depending on the country, relate to rapid house price growth and possible overvaluation 
of RRE (as the gap between house price growth and household disposable income widens), the level 
and dynamics of household indebtedness, the growth of housing credit and signs of a loosening of 
lending standards. The specific vulnerabilities vary from country to country, and the details for the 
more  concerning  cases  can  be  found  in  the  individual  warnings  and  recommendations.  Beyond 
macroprudential  policy  considerations,  in  a  number  of  countries,  some  underlying  vulnerabilities 
would be mitigated more efficiently with the help of reforms of housing and taxation policies.  

Table 2.4.1:   

(1) NA - Not Assessed. 
Source: ESRB 

issued 

the  ESRB 

its  assessment, 

four  country-specific  warnings  and 

Following 
two 
recommendations  on  medium-term  RRE  vulnerabilities  to  EU  countries.  Warnings  were  issued  to 
four  EU  countries  with  newly  identified  vulnerabilities:  Bulgaria,  Croatia,  Hungary,  and  Slovakia. 
Recommendations were issued to Austria and Germany, which had already received ESRB warnings 
in 2016 and 2019 respectively, and whose vulnerabilities have not been addressed sufficiently. RRE 
vulnerabilities  have  remained  elevated  in  the  countries  that  received  ESRB  recommendations  in 
2019.  In  Denmark,  Finland,  Luxembourg,  the  Netherlands  and  Sweden,  vulnerabilities  have 
persisted in spite of recent measures introduced to address them. In most of these cases, house 
prices  have  continued  rising  or  have  grown  even  faster  than  before,  resulting  in  unchanged  or 
increased  house  price  overvaluation.  The  risks  related  to  household  indebtedness  have  also 
remained unchanged or increased in several countries. For the remaining EEA countries, either the 
ESRB  has  not  identified  a  build-up  of  material  vulnerabilities  in  the  RRE  sector,  or  such 
vulnerabilities  have  been  identified  but  the  current  policy  stance  is  assessed  as  sufficient  to 
address them. 

(27)  ESRB (2016), “Vulnerabilities in the EU residential real estate sectors”, November 2016, ESRB (2019), “Vulnerabilities in the 
residential real estate sectors of the EEA countries”, September 2019 and ESRB (2022), “Vulnerabilities in the residential 
real estate sectors of the EEA countries”, February 2022. 

36 

LUSENLDKATCZDEPTBESKMTEEHUSIHRBGLTFRPLFIIELVESELITCYROStock risksHHHHMMMMMMMMLLLLLMMMMFlow risksHHHHHHHHHHHHHHHHHMMMMOverall riskHHHHMMMMMMMMMMMMMMMMMNANANANANANANoNoNoNoNoYesNoYesYesNoYesYesNoYesNoNoYesYesYesNoYes2016WWWWWWW2019RRRRWW R      W R       2022RR W W WW         ESRB risk assessment 2022Warning (W) or Recommendation (R) inPolicy appropriate and sufficient, 2022 
  
 
                                                 
Graph 2.4.3: Household debt and house prices: selected graphs 

2.4. Housing markets and household debt 

Source: Ameco, Eurostat, ECB, Commission services 

37 

-12-8-4048DKCYIEESELHRNLEEPTBELUPLFRMTITSIFISEATLVLTBGDEROHUCZSK% of GDPa) Household debt change contributions, 2021Net credit flowsReal GDP growthInflationOther changesD/GDP, change-16-12-8-4048DKELCYPLNLIEPTESSEATFIBEHRCZROLTITLVHUSIDEEEMTBGLUFRSK% of GDPb) Household debt change contributions, 2022fNet credit flowsReal GDP growthInflationOther changesD/GDP, change-20020406080100120140160180200ITCYELFIFRBEESROHRMTSIPLDKBGDESENLATSKLVPTLUIELTCZEEHUc) Nominal house price, % change, 12-Q4 to 22-Q2-100102030405060CYFIITESMTBEROFRDKIEELSEBGDEHRLVPTSISKATPLNLLUHULTEECZd) Nominal house price, % change, 19-Q2 to 22-Q205101520-250255075ROCYITIELTFIPLBGHRSIELMTESLVEESKDKBEFRDEHUCZPTATNLSELUYears of incomeOvervaluation gap (%)e) House price overvaluation metricsECFIN average overvaluation gap (lhs) ,2022Q2ECB average overvaluation gap (lhs), 2021Number of years of income needed to buy 100sqm (rhs), 2021020406080100FIBGLTLVCYPTEESKSEMTATRODKELCZLUESPLITHRBEDEHUIENLFRSIf) New mortgages by rate fixation period, 2022 1st semesterUp to 1 yearOver 1 and up to 5 yearsOver 5 and up to 10 yearsOver 10 yearsUnknown  
2.5. GOVERNMENT SECTOR 

Government  debt  ratios  decreased  in  most  Member  States  in  2021  but  remain  well 
above  pre-pandemic  levels.  In  2021,  the  debt-to-GDP  ratio  decreased  in  nearly  all  the  EU 
countries,  with  the  EU  aggregate  declining  by  some  two  percentage  points.  This  decrease  is  the 
result of the recovery of nominal GDP after 2020 while favourable financing conditions continued. 
Conversely,  fiscal  deficits,  while  lower  than  in  2020,  often  remained  sizeable,  averaging  5.1%  of 
GDP  for  the  euro  area  and  4.6%  of  GDP  for  the  EU  as  fiscal  policies  remained  expansionary.  In 
particular,  fiscal  deficits  continued  to  reflect  the  impact  of  sizeable  COVID-19  emergency 
temporary  measures  to  support  households  and  firms  affected  by  the  pandemic,  which 
corresponded to around 3¼% of GDP for the EU aggregate.  

The  government-to-GDP  ratio  is  expected  to  decrease  further  in  most  of  the  EU 
countries in 2022. In most  Member States, government debt is forecast  to fall in 2022 by 3½ 
percentage points on aggregate, but to still remain higher than its 2019 levels, in some cases by 
close to 15 percentage points. The improvement is a result of continued nominal economic growth, 
which  is  higher  than  the  implicit  cost  of  debt,  alongside  a  further  reduction  of  deficits  despite 
sizeable  support  packages  for  households  and  firms  related  to  high  energy  prices,  following  two 
years of substantial fiscal support provided in the context of the COVID-19 pandemic. The declines 
in the debt ratio have been more sizeable in the most indebted countries as economic growth has a 
stronger  deleveraging  effect  when  debt-to-GDP  ratios  are  larger.  In  some  countries  with  low  or 
moderate government debt ratios, these are expected to grow further. 

The  outlook  for  2023  points  to  milder  declines  or  a  stabilisation  of  government  debt 
ratios  in  most  EU  countries.  In  2023,  the  weakening  of  economic  activity  is  forecast  to  bring 
smaller  reductions  of  the  debt  ratio  whereas  government  deficits  are  expected  to  edge  up  on 
aggregate,  with  some  differentiation  across  countries.  Government  debt  ratios  are  forecast  to 
reach their pre-COVID-19 readings by 2023 only in a minority of Member States (Graph  2.5.1). In 
the coming months there may be additional targeted measures to support vulnerable households 
and firms, which would shift part of the cost of the energy crisis on the government sector and add 
to  government  debt.  In  addition,  further  tightening  of  financing  conditions  or  exchange  rate 
movements may have an adverse impact on the fiscal performance, especially in the non-euro area 
countries,  where  the  share  of  debt  denominated  in  foreign  currency  is  often  significant.  Higher 
inflation could act to reduce the debt burden insofar as it increases nominal GDP, but higher risk 
premia and weaker economic activity may contribute to increasing the government debt ratios and, 
in turn, pose challenges not just to fiscal sustainability, but also to other parts of the economy (see 
Box 2.5.1).    

Debt service costs may increase due to higher nominal interest rates. In real terms interest 
rates are currently forecast to remain negative in the euro area. Sovereign bond yields have been 
rising  across  the  euro  area  in  2022,  with  spreads  increasing  somewhat  as  markets  price  in  risk. 
Despite the tightening of monetary policy, real interest rates are still forecast to remain negative 
and euro area government bond yields remain among the lowest in the world. However, bond yields 
of Member States with large debts recorded somewhat stronger increases during the third quarter, 
but longer debt maturities help to cushion the impact. The possibility of a rise in interest rates and 
negative nominal GDP, which would be a situation that is more adverse than the current forecast, 
cannot  be  discounted.  In  this  case,  interest  rates  could  exceed  nominal  GDP  growth,  raising 
pressure  to  improve  fiscal  positions  in  some  high  debt  countries.  The  introduction  of  the 

38 

 
 
2.5. Government sector 

Transmission  Protection  Instrument  by  the  ECB  in  July  2022  to  ensure  orderly  monetary 
transmission  across  all  euro  area  Member  States  provides  some  insurance  against  a  strong 
deterioration of financing conditions, as long as its conditions relating to economic policy are met.  

Non-euro area Member States face higher debt service costs due to widening sovereign 
bond  yield  spreads  and  exposure  to  debt  denominated  in  foreign  currencies.  The  global 
tightening  of  financing  conditions  has  had  a  more  pronounced  impact  outside  the  euro  area. 
Sovereign bond yields  are  especially  high  in Hungary,  Poland,  and  Romania.  In  addition,  non-euro 
area  countries  have  a  significant  share  of  government  debt  denominated  in  foreign  currencies, 
especially  Bulgaria (28)  (74%),  and  Romania  (52%),  but  also  Hungary  (22%),  Poland  (22%),  and 
Sweden (17%). 

Graph 2.5.1: Government debt and deficit to GDP 

(1) Countries are presented in decreasing order of the debt-to-GDP and deficit-to-GDP ratios in 2021.  
Source: Ameco and European Commission services 

At country level, the following government sector developments are worth highlighting:  

  At  the  end  of  2021,  the  government  debt-to-GDP  ratios  were  above  60%  in  Austria,  Croatia, 
Finland, Germany, Hungary,  Slovenia, and  Slovakia, and above 100% in Greece, Italy, Portugal, 
Spain,  France,  Belgium,  and  Cyprus.  The  debt-to-GDP  ratios  decreased  in  all  those  Member 
States in 2021, except Germany and Slovakia, and are forecast to continue decreasing in most 
of them in 2022 and 2023. 

  Greece  has  been  identified  as  displaying  high  fiscal  sustainability  risks  in  the  short  term (see 
Box 2.5.1). Its government debt-to-GDP ratio is the highest in the EU and well above 100% and 
the fiscal deficit remains sizeable but is expected to decline markedly. Gross financing needs are 
expected to decrease over the next years.  

  Over  the  medium-term,  nine  Member  States  are  assessed  as  facing  high  fiscal  sustainability 
risks,  namely  Belgium,  France,  Greece,  Italy,  Portugal,  Romania,  Slovakia,  Slovenia,  and  Spain. 

(28)  Bulgaria maintains a fixed exchange rate vis-à-vis the euro via a currency board arrangement and joined ERM II in July 

2020. 

39 

-10-8-6-4-2024  MT  EL  IT  HU  RO  LV  ES  FR  AT  BE  SK  CZ  SI  BG  DE  PT  FI  NL  HR  EE  PL  CY  IE  LT  SE  LU  DKb) Deficit to GDP (%)202020212022f2023f2019050100150200  EL  IT  PT  ES  FR  BE  CY  AT  HR  HU  SI  FI  DE  SK  MT  IE  PL  NL  RO  LT  LV  CZ  DK  SE  LU  BG  EEa) Debt to GDP ratio (%)202020212022f2023f2019BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with government debt-to-GDP ratio above 60% in 2021 in blue   
 
                                                 
2.5. Government sector 

Countries  with  the  highest  debt  ratios  are  particularly  vulnerable  to  changes  in  financing 
conditions. Under a scenario of a 1 pp. increase in the growth-interest differential, debt would 
raise by more than 10pp. of GDP by 2023 in Italy, Greece, Spain, and Portugal (see Box 2.5.1).  

  Romania and Hungary are characterised by persistently high fiscal deficits and increasing bond 
yields, and debt denominated in foreign currencies is relevant for both countries, especially the 
former. In Hungary, the government debt is also above 60% of GDP and the government gross 
financing needs are high. In Romania, the government debt-to-GDP ratio is forecast to slightly 
decrease in light of expected better fiscal outturns.  

40 

2.5. Government sector 

Box 2.5.1: Change in financing conditions – an adverse scenario of ‘r-g’  

The  Commission  assesses  the  short,  medium-  and  long-term  sustainability  risks  of 
Member States. It finds that short-term vulnerabilities are present for Greece due to both fiscal 
and  macro-financial  variables. (29)  Over  the  medium-term,  nine  Member  States  are  assessed  as 
facing  high  fiscal  sustainability  risk,  namely  Belgium,  France,  Greece,  Italy,  Portugal,  Romania, 
Slovakia, Slovenia, and Spain. The risks are a result of:  

  high or increasing debt ratios, notably linked to a weak fiscal position,  

  increased uncertainty around the baseline projections, 

  vulnerability to adverse macro-financial scenarios,  

  the size of the required fiscal adjustment to bring the debt-to-GDP ratio to 60% in the medium 

term, i.e. S1 indicator. 

Beyond the debt analysis and risk classification there are other 
factors that may affect fiscal sustainability. (30) On the downside, 
contingent liabilities that are high for the EU as a whole but also with 
large cross-country differences may have a significant impact on public 
debt  and  deficit.  This  applies  also  to  the  contingent  liabilities’  risk 
coming  from  the  banking  sector.  On  the  upside,  fiscal  sustainability 
risks  are  mitigated  by  lengthening  debt  maturity  that  has  been 
observed  in  recent  years  or  the  impact  of  the  RRF  reforms  and 
investment  on  GDP  growth  that  is  expected  rather  in  the  medium  to 
long term. 

Uncertainty  and  changing  economic  environment  may  play  a 
crucial role in fiscal sustainability. Financing conditions have been 
favourable  over  the  past  decade  as  the  low  interest  rate  surrounding 
resulted from ageing societies, lower productivity growth and monetary 
policy  run  by  central  banks.  A  negative  ‘r-g’,  where  economic  growth 
exceeds  interest  rates,  mitigates  fiscal  challenges  to  some  extent  but 
does  not  eliminate  them  as  the  differential  can  be  reversed  as 
the  assessment  of 
conditions  change.  This 
sustainability  risks  is  of  particular  importance  currently  when  r  is 
increasing as g falls, due to the change in financing conditions and the 
weakening of the economic situation overall. 

is  precisely  why 

Weaker growth outcomes or higher interest rates over the next 
decade could lead to higher debt ratios in the absence of policy 
action. The baseline fiscal sustainability analysis has been carried out 
with the assumption of favourable financing conditions. In addition, an 
adverse  scenario  has been  designed  to capture  an increase  or  even  a 
reversal in ‘r-g’. Under this scenario, in most EU countries the ‘r-g’ projection is expected to remain 
negative  in  2032  but  would  be  higher  than  assumed  in  the  baseline  scenario.  As  a  result,  the 
projected debt in the adverse scenario would be higher by 2032 compared to the baseline,.  

(29)  The fiscal sustainability risk classification is based on the Commission Spring Forecast 2022 (presented also in the Country 

section of this Alert Mechanism Report). 

(30)  European Commission (2022): Fiscal Sustainability Report, Institutional Paper 171. 

41 

countryImpactIT11.86EL10.92FR8.62ES8.42BE7.89PT7.48HU5.97HR5.61AT5.47SI5.20FI5.00DE4.95PL4.65CY4.45NL4.33SK4.23MT4.21RO4.00CZ3.62LT2.75LV2.72BG2.20IE1.98DK1.85EE1.84LU1.66SE1.38Source: European Commission servicesImpact of an adverse 'r-g' scenario on projected debt level in 2032 (p.p) 
                                                 
Graph 2.5.2: Government sector: selected graphs 

2.5. Government sector 

Source: European Commission services 

42 

0246810121416ITFIELATESFRLUMTBEDKCYPTSISEROPLEEHRLVLTSKCZBUIEDEHUNL% of GDPc) Central government contingent liabilities202020212019-2024681020-0120-0320-0520-0720-0920-1121-0121-0321-0521-0721-0921-1122-0122-0322-0522-0722-09d) Sovereign bond yields (%)EA-19ROHUPLCZHRDKSEBG-8-32712070809101112131415161718192021222324%  of GDPb) Drivers of changes in debt ratio, EAPrimary balanceInterest expenditureReal growth effectInflation effectStock flow adjustmentChange in debt ratio051015202530ITFRESELBEDEHUATMTSIHRNLFIPTCZROLVSESKDKPLCYLTIEBGEELU% of GDPa) Gross financing needs202020212022f2023f2019   
 
 
2.6 Financial sector 

2.6. FINANCIAL SECTOR 

The EU banking sector showed resilience to the impact of the pandemic in 2021 but has 
remained challenged by structurally low profitability. The Common Equity Tier 1 (CET1) ratio 
remained high and stable in the last year (2021Q3 – 2022Q2) (Graph 2.6.1 a). The return on equity 
has  recovered  above  pre-pandemic  levels  in  amid  higher  operating  income  and  lower  provisions 
recorded over this period but profitability lingers as a structural challenge across the EU due to the 
overcapacity  and  low  cost-efficiency. (31)  The  disposal  of  the  legacy  non-performing  loans  (NPLs) 
continued  in  2021  and  the  first  half  of  2022,  while  there  was  no  notable  increase  of  new  NPLs 
despite  the  gradual  withdrawal  of  moratoria  on  loan  repayments  introduced  after  the  COVID-19 
pandemic outbreak (Graph 2.6.1 b). Credit provision to non-financial corporations continued despite 
gradual  expiration  of  the  government  guarantees  granted  during  the  COVID-19  outbreak  and,  in 
some  countries,  macro-prudential  tightening.  Credit  for  household  expanded  steadily  in  2021 
against a backdrop of spiking housing prices across the EU (Graph 2.6.2 a). Credit conditions started 
to tighten in the second half of 2021 and lending rates increased alongside monetary tightening, 
especially in the non-euro area countries (Graphs 2.6.2 b and c).  

Going  forward,  the worsening  economic outlook  is  likely  to  have  an  adverse  impact on 
asset quality and banking profitability. While the impact of the Russia’s invasion of Ukraine on 
the EU financial sector has been limited so far due to low direct financial exposures, there are risks 
of  the  second-round  effects.  The  worsening  economic  outlook  and  a  delayed  impact  of  the 
withdrawal  of  support  measures  may  drive  NPL  ratios  up,  which  for  the  median  large  EU  bank 
stood at 1.8% at the end of the second quarter of 2022. (32) This is supported by high forbearance 
and share of loans categorised as underperforming (Stage 2 loans) (Graph 2.6.2 d), which stood at 
9.5% in the euro area in the second quarter of 2022. (33) (34) This is well above the pre-pandemic 
levels  and  the 
inflow  continues  for  sectors  that  have  not  fully  recovered  from  the 
pandemic. (35) Capital  ratios  have  slightly  decreased  at  the  beginning  of  2022  amid  increases  of 
risk weighted assets but remained stable in the second quarter of 2022, with the aggregate CET1 
ratio for large banks staying at 15%. (36) The return on equity stood at 7.9% in the second quarter 
of  2022  supported  by  net  interest  income. (37)  Higher  energy  prices  and  the  deterioration  of  the 
economic outlook constrains many borrowers and the expected increase in credit risks have been 
already reflected in the decline of financial sector valuations in 2022, though broadly in line with 
the overall market trend. Bank lending surveys of the euro area suggest that banks kept tightening 
their  lending  standards  for  both  households  and  enterprises  in  2022  and  a  notable  tightening 

(31)  ECB Financial Stability Review, May 2022. 

(32)  EBA Key Risk Indicators. 

(33)  Under IFRS 9, applicable entities must now place financial instruments into three distinct stages, including “performing” 

(Stage 1), “underperforming” (Stage 2) and “non-performing” (Stage 3). Stage 2 refers to loans with significant increase of 
credit risk since initial recognition. 

(34)  ECB Supervisory Banking Data. 

(35)  The European Banking Authority (EBA) launched its annual 2022 EU-wide Transparency exercise in September 2022 and 

expects to release the information on banks’ exposures and asset quality at the beginning of December, along with the EBA 
Risk Assessment Report.  

(36)  EBA Key Risk Indicators. EBA published in July 2022 its 2023 EU-wide stress test draft methodology, which is being 

discussed with the industry. The methodology covers all risk areas and builds on the one prepared for the 2021 EU wide 
stress test with some methodological improvements and larger sample of banks. 

(37)  EBA Risk Dashboard, Q2 2022 and ECB supervisory banking statistics, Q2 2022.  

43 

 
                                                 
 
2.6 Financial sector 

occurred in the third quarter of 2022. (38). In September 2022 the General Board of the European 
Systemic  Risk  Board  (ESRB)  issued  a  warning  on  vulnerabilities in  the  financial  system  of  the  EU 
stressing  that  risks  to  the  financial  stability  in  the  EU  and  the  probability  of  tail-risk  scenarios 
materialising  have  increased.  The  identified  risks  pertain  to:  (i)  the  deterioration  of  the 
macroeconomic  outlook,  (ii)  risks  to  the  financial  stability  stemming  from  a  possible  sharp  asset 
price correction, and (iii) the implications of such developments for asset quality. (39)  

Increasing  interest  rates  represent  both  an  opportunity  and  a  challenge  for  the 
European  financial  sector,  with  an  increase  in  risk.  The  persistent  low  interest  rate 
environment challenged the EU financial sector in the previous decade and was one of the reasons 
behind its low profitability. While increased interest rates lift bank interest income, going forward 
they  can  also  drive  up  their  funding  costs.  Moreover,  higher  interest  rates  can  have  a  negative 
impact  on  the  valuations  of  banking  assets  and  collateral,  including  real  estate,  and  securities. 
Banks and institutional investors, notably insurance companies, could also be challenged by flat or 
inverted  yield  curves  in  an  environment  of  looming  recession  risks.  The increase  in  funding  costs 
coupled with high inflation and low economic growth can be expected to put pressure on vulnerable 
borrowers. (40)  Persisting  or  increased  fragmentation  of  sovereign  funding  cost  in  the  euro  area 
may have an adverse impact on banking sectors with a strong domestic bias. While higher interest 
rates are a positive development for insurance companies with asset portfolios mostly invested in 
the low-risk  assets,  the investment  and pension  funds may  suffer  from  valuation  losses  on their 
fixed  return  portfolio.  Rising  interest  rates  along  with  asset  price  reassessment  also  affect 
commercial  real  estate  (CRE)  that  banks  are  increasingly  exposed  to. (41)  However,  CRE  market 
complexity  with  the  presence  of  non-banks  and  international  subjects  as  well  as  significant  data 
gaps complicate the risk assessment. (42)   

(38)  ECB Euro area Bank Lending Survey, Third quarter of 2022.  

(39)  ESRB/2022/7 

(40)  ECB Financial Stability Review, May 2022. 

(41)  CRE accounts for more than 9% of euro area bank risk exposure.  In the euro area, of the 12.6% NFC loans growth between 

2019Q4 and 2022Q2, almost half (5.6 pp) was dedicated to real estate and professional services.  

(42)  “Commercial real estate and financial stability – new insights from the euro area credit register”, ECB Macroprudential 

Bulletin, Issue 19, October 2022. 

44 

 
 
                                                 
Graph 2.6.1: Banks: profitability, capital ratios and non-performing loans 

2.6 Financial sector 

The Common Equity Tier 1 (CET1) ratio encompasses ordinary shares and retained earnings. Tier 1 ratio and return on 
equity are average of quarterly data over the last year (2021Q3 – 2022Q2). The average value for the EU is unweighted 
by the economy size. EL featuring deeply negative return on equity (-6%) is not included in the left panel. Data 
concerning the "peak" refer to the ratio of gross non-performing debt instruments (NPDs) over total gross debt 
instruments; NPL ratios are reported for 2021Q2 and 2022Q2; numbers below the country codes indicate the year when 
NPDs peaked   
Source: ECB Consolidated Banking Data, European Commission services 

Global financial stability risks have significantly increased over the last year. In 2022 the 
financial stability risks have increased across the globe amid high inflation, tightening of financial 
conditions and elevated market volatility. (43) The repricing of risk across the world can reverberate 
through  financial  markets  and  can  lead  to  instability  as  well  as  drive  up  borrowing  costs  for 
sovereigns and private borrowers, sometimes even in idiosyncratic ways. This represents different 
challenges for different parts of financial sector and the interconnectedness of the global financial 
system makes it difficult to predict where vulnerabilities could materialise. 

The financial system is exposed to new systemic risks, which may have a differentiated 
impact within both the EU and the euro area. The probability of some adverse systemic risks, 
in particular risks of market malfunctioning and liquidity drying up, have increased for the whole EU 
and can impact both banking and non-banking financial institutions. (44) A materialisation of these 
systemic  risks may  have a  differentiated  impact  across  the  EU.  While  in  the euro  area  divergent 
developments can be precipitated by heterogenous policy interventions by Member States, the non-
euro  area  Member  States  are  subject  to  additional  risks  related  to  liquidity  drying  up  and  the 
exchange rate market functioning. Operational risks are expected to remain high, which is linked to 
a  higher  risk  of  cyber-attacks  amid  increasing  digitalisation. (45)  Climate  risks  and  an  increasing 
exposure  towards  crypto  assets  represent  a  particular  challenge  for  some  non-banking  financial 
institutions. 

(43)  IMF (2022): Global Financial Stability Report: Navigating the High-Inflation Environment, October 2022. 

(44)  ESRB Warning on vulnerabilities in the financial system of the EU (ESRB/2022/7), October 2022. 

(45)  EBA Risk Dashboard, Q2 2022. 

45 

ATBEBGCYCZDEDKFIFRHUIEITLTLUMTNLPLPTROSESISK0123456789101416182022Return on equity (2021Q3 -2022Q2)Tier 1 ratio (2021Q3 -2022Q2)a) Profitability and capital ratiosEU(2020Q3 -2021Q2)EU(2021Q3 -2022Q2)051015202530354045ELCYBGHRPLPTITROHUESMTIELVSKFRSIDKATBECZNLFIDEEESELTLU171412141116151413141514101514131414141614141610141115% of total gross debt instruments / loansCountry | Peak yearb) Non-performing loansPeak (NPDs)2021Q2 (NPLs)2022Q2 (NPLs)BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with private sector credit flow, consolidated (% of GDP) above 14% in 2021 in blue 
 
   
 
                                                 
2.6 Financial sector 

At country level, the following financial sector developments are worth highlighting:  

  A few countries, including Cyprus, Greece, and Italy, suffer from a combination of weak financial 
sector profitability, vulnerable corporate sector, and high government debt, which increases the 
risk of negative feedback loops. All three countries have recorded big improvements in their NPL 
ratios,  which  nonetheless remain  above  the  EU  average  (only  slightly  for  Italy),  while  Stage  2 
loans  and  forborne  loans  are  elevated.  In  Greece,  the  NPL  ratio  of  banks  has  declined 
significantly due to sales of NPLs, which eliminated risk for banks but partially shifted it to some 
financial  institutions  outside  the  banking  sector.  Additional  concerns  arise  from  the  negative 
profitability of banks and negative credit flows in 2021 while the capital ratio remained among 
the lowest in the EU. Cypriot banks have also recorded very low profitability in 2021, while the 
capital  ratio  has  been  close  to  the  EU  average.  Italian  banks  record  a  below-average  capital 
ratio and high exposure to government debt.  

  The  quality  of  banks’  assets  is  an  issue  in  Bulgaria,  where  NPLs  remain  elevated  even  if 
declining,  in  the  context  of  elevated  forborne  debt.  In  the  euro  area,  Stage  2  loans  are 
particularly high in Austria. The ratio of forborne debt significantly increased in Hungary in 2021. 

  The  banking  sectors  in  Germany,  Malta,  and  Ireland  continue  to  be  marked  by  a  very  low 

profitability and the deteriorating economic outlook poses risks of further dampening it. 

  The  financial  sector  liabilities  grew  in  2021  above  the  MIP  scoreboard  threshold  of  16.5%  in 
Estonia, Ireland, Lithuania, and Slovakia. Private sector credit flow crossed the MIP scoreboard 
threshold of 14% in Luxembourg and Sweden. 

46 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with total financial sector liabilities, non-consolidated (1-year % change) above 16.5% threshold in 2021 in blue 
 
 
Graph 2.6.2: Financial sector: selected graphs 

2.6 Financial sector 

Source: ECB 

47 

05101520-20246810ELCYBGHRPLPTHUESROITMTIEFRSKSIATLVDKBECZNLDEFIEELTLUSE% loans/advances subject to impairment review% of total debt instrumentsd) NPLs per Member StatePerforming forborne debt instruments (lhs)Provisions (accumulated impairment) (lhs)Net non-performing debt instruments (lhs)Gross non-performing debt instruments (lhs)Stage2 loans and advances (rhs)0.00.51.01.52.02.5Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20Dec-20Mar-21Jun-21Sep-21Dec-21Mar-22Jun-22b) Lending rate (%) for NFC (new business) selected EA countriesDEFRITES-4-20246810SESKATFRBGBEEEDEMTCZLTROFIHRHUSIPTCYNLPLITLVLUESIEEL% of GDPNFC (2021Q3 –2022Q2)HH (2021Q3 –2022Q2)Total (2021Q3 –2022Q2)Total (2020Q3 –2021Q2)a) Loans (transactions) from banks to domestic 024681012Sep-18Dec-18Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20Dec-20Mar-21Jun-21Sep-21Dec-21Mar-22Jun-22c) Lending rate (%) for NFC (new business) selected non-EA countriesCZHUPLROEuro area 
 
  
3. COUNTRY SECTION 

3.1. BELGIUM 

In Belgium, private sector and government debt-to-GDP ratios are high, although associated risks 
appear to be limited. Cost competitiveness concerns  are emerging, with nominal unit labour costs 
set to increase strongly. Belgium’s government debt remains large despite its recent reductions. 

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Belgium.  This  year,  the  Commission  does  not  consider  it 
necessary to carry out further in-depth analysis for Belgium.  

Real GDP growth is forecast at 2.8% in 2022 and 0.2% in 2023. Inflation is high. Year-on-year, it 
increased to 13.1% in October, with core inflation estimated at 4.8%. Prices are set to rise faster 
than wages. 

The  scoreboard  reading  for  Belgium  shows  that  in  2021  three  indicators  were  beyond  their 
indicative  thresholds,  namely  private  sector  debt,  government  debt  and  the  change  in  youth 
unemployment.  An  economic  reading  of  the  scoreboard  highlights  the  following  relevant 
developments:  

  Cost  competitiveness  concerns  are  emerging.  Nominal  unit  labour  costs  declined  slightly  in 
2021,  following  a  strong  pandemic-related  increase  in  2020,  but  are  forecast  to  increase 
markedly  in  2022  and  2023,  due  to  relatively  strong  nominal  wage  increases.  This  increase 
marks an acceleration relative to the immediate pre-pandemic period and is more marked than 
for  Belgium’s  euro  area  peers.  The  HICP-based  real  effective  exchange  rate  appreciated 
marginally in 2021. However, year-on-year, it depreciated by August 2022.  

  The non-financial corporation debt-to-GDP ratio remains among the highest in the EU, but is 
on a declining path. It fell moderately, to 106.9% in 2021, as strong growth offset a resumption 
in  credit  flows.  It  continued  decreasing  in  the  first  half  of  2022,  but  there  are  risk  factors 
associated to the macroeconomic environment. Debt is now 11 percentage points lower than in 
2019,  but  it  remains  above  both  prudential  and  fundamental  benchmarks.  The  high  share  of 
cross-border intra-group lending in corporate debt reduces risks.  

  The  household  debt-to-GDP  ratio  is  edging  down  but  remains  elevated.  Following  a  strong 
increase in 2020, it declined in 2021, as net credit flows are expected to remain moderate. The 
household debt ratio slightly declined also in the first half of 2022, to close to its pre-pandemic 
level.  Nominal  output  growth  is  still  likely  to  support  deleveraging  in  2022  given  the  rate  of 
inflation. Household debt is above the fundamental benchmark but below the prudential-based 
one. Household non-performing debt remains low; the high share of mortgages with long fixed 
rates  and  the  projected  real  increase  in  compensation,  reduces  the  risks  associated  with 
household debt in the short term.  

  Concerns associated to house price developments are increasing. Nominal house price growth 
accelerated to 7.1% in 2021. Nominal year-on-year house price growth came in at 5.9% in the 
second quarter of 2022. House prices were estimated to be 23.4%overvalued in 2021.  

  There are risks associated with Belgium’s high government debt. Government debt decreased 
in 2021, to 109.2% of GDP, as strong growth delivered a marked denominator effect. It is still 

48 

 
 
 
some 12 percentage points above its 2019 level. Government debt is projected to decline again 
in 2022, but is forecast to edge up over 2023 and 2024. The government deficit remains high, 
although it declined to 5.6% in 2021 and is forecast to narrow slightly in 2022 before edging up 
again.  Fiscal  sustainability  risks  are  high,  both  in  medium  and  long  term  due  to  long-term 
projections of debt developments and raising ageing related costs. 

Graph 3.1.1: Selected graphs: Belgium 

3.1. BELGIUM 

Source: Ameco, Eurostat and European Commission services 

49 

-20-10010203012Q413Q414Q415Q416Q417Q418Q419Q420Q421Q4y-o-y changea) Evolution of corporate debt to GDPCredit flowReal growthInflationOther changesD/GDP, change-5%0%5%10%15%07080910111213141516171819202122*23*24*b) Unit labour costnominal CoE per hourlabour (hours worked)TFP contributioninvestment contrib.nominal ULC growthRate of change, y-o-y     
 
Table 3.1.1:  Key economic and financial indicators, Belgium 

3.1. BELGIUM 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

50 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.0 0.1 0.5 -0.4 -1.7 Current account balance, balance of payments (% of GDP)0.8 (1)2.2 (2)0.1 1.1 0.4 -2.7 -2.9 Net international investment position (% of GDP)-35%-81.5 (3)11.1 (4)40.9 47.0 59.9 51.7 45.7 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)36.1 34.6 37.3 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)4.8 7.1 p5.4 p9.6 15.0 Nominal unit labour cost index (% y-o-y change)1.4 4.1 p-0.1 p5.4 9.2 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.7 2.5 0.6 -1.9 -5.0 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.2 1.3 0.5 -3.6 -2.0 Export market share - % of world exports (5 year % change)-6%-2.3 10.1 2.4 2.2 2.4 Export market share - % of world exports (1 year % change)-0.5 4.7 -0.5 0.1 -1.3 Private sector debtPrivate sector debt, consolidated (% of GDP)133%178.3 180.9 p169.0 p159.9 154.1 Private sector credit flow, consolidated (% of GDP)14%4.7 -3.3 p3.8 p5.9 7.6 Household debt, consolidated (% of GDP)48.8 (6)66.8 (7)60.4 65.6 62.1 60.760.3Non-financial corporate debt, consolidated (% of GDP)72.3 (6)71.9 (7)117.9115.3106.999.293.8Housing marketHouse price index, deflated (1 year % change)6%2.5 3.3 4.5 -2.1 -1.4 House price index, nominal (1 year % change)23.4 (8)4.04.27.13.51.1Government debtGeneral government gross debt (% of GDP)60%97.6 112.0 109.2 106.2 107.9 General government balance (% of GDP)-1.9-9.0-5.6-5.2-5.8Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%5.8 8.8 7.5 6.1 Return on equity (%)8.65.99.9Common Equity Tier 1 ratio10.6 (9)15.517.117.6Gross non-performing loans, domestic and foreign entities (% of gross loans)2.1e2.1e1.6p1.4Labour marketUnemployment rate (3 year average)10%6.2 b5.8 5.9 6.0 6.2 Unemployment rate (year level)6.4 (10)5.5 5.8 6.3 5.8 6.4 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.4 0.4 b1.1 1.9 2.3 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.6 -1.0 0.0 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-5.8 -3.5 2.2 forecast 
  
 
3.2. BULGARIA 

In  Bulgaria,  there  are  concerns  related  to  cost  competitiveness  and  corporate  debt,  although 
associated  risks appear  to  be  limited. Nominal  unit  labour  costs  have  been increasing  strongly in 
recent years and are expected to continue rising, in a context of very high core inflation and strong 
nominal  wage  increases.  Non-financial  corporate  debt  is  decreasing,  but  remains  comparatively 
high. 

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Bulgaria.  This  year,  the  Commission  does  not  consider  it 
necessary to carry out further in-depth analysis for Bulgaria.  

Real  GDP  growth  is  forecast  at  3.1%  in  2022  and  1.1%  in  2023.  Inflation  is  high,  including  in 
comparison to many of Bulgaria’s euro area trading partners. Year-on-year, it increased to 15.6% in 
September, with core inflation estimated at 9.4%. Wages are set to rise rapidly, in line with prices.   

The  scoreboard  reading  for  Bulgaria  shows  that  in  2021  one  indicator  was  beyond  its  indicative 
threshold,  namely  nominal  unit  labour  cost  growth.  An  economic  reading  of  the  scoreboard 
highlights the following relevant developments:  

  External sustainability concerns are not strongly pronounced. The current account recorded a 
small deficit of 0.5% of GDP in 2021, which is expected to deepen going forward. The negative 
net  international  investment  position  (NIIP),  largely  consisting  of  foreign  direct  investment, 
improved  in  2021  and  is  expected  to  come  close  to  balance  by  2024.  The  NIIP  net  of  non-
defaultable instruments is positive and high. 

  Cost  competitiveness  pressures,  which  existed  already  before  the  COVID-19  pandemic, 
persist.  Nominal  unit  labour  costs  have  been  increasing  strongly  in  recent  years  and  are 
expected to continue doing so, in context of very high core inflation, labour shortages and strong 
nominal wage increases. The HICP-based real effective exchange rate appreciated marginally in 
2021 and appreciated further by August 2022. 

  Non-financial  corporate  debt  remains  high  compared  to  regional  peers  and  is  in  excess  of 
fundamentals,  but  is  on  a  declining  path.  After  some  edging  up  in  2020  amid  the  COVID-19 
crisis,  the  non-financial  corporate  debt-to-GDP  ratio  decreased  again  in  2021,  to  59.5%.  It 
decreased further in the first half of 2022, but there are risks associated to the macroeconomic 
environment.  As  for  many  other  non-euro  area  Member  States,  the  share  of  corporate  loans 
denominated  in  foreign  currency  is  high.  Corporate  indebtedness  is  flanked  by  high  liquidity 
buffers,  which  mitigates  risks,  but  non-performing  loans  are  present.  The  household  debt-to-
GDP  ratio  is  below  prudential  and  fundamentals-based  benchmarks,  but  the  predominance  of 
variable  rates  for  housing  loans  exposes  indebted  households  to  the  risks  of  higher  interest 
rates.  

  Concerns  associated  to  house  price  developments  are  present.  Nominal  house  price  growth 
accelerated from 4.6% to 8.7% in 2021. Nominal year-on-year house price growth increased to 
14.6%  in  the  second  quarter  of  2022.  Valuation  gap  metrics  do  not  show  signs  of  potential 
overvaluation, though. 

  In  the  banking  sector,  concerns  mostly  related  to  the  quality  of  its  assets  remain.  The  non-
performing  loans  ratio  declined  further  to  4.8%  in  2021  but  it  remains  well  above  the  EU 
average. The ratio of underperforming (stage 2) loans and forborne loans, which increased after 
the  pandemic,  remains  high  as  well.  The  private  loan  moratorium  expired  only  in  December 
2021. While the tier-1 capital ratio is well above the EU average, the return on equity is low.  

51 

 
 
Graph 3.2.1: Selected graphs: Bulgaria 

3.2. BULGARIA 

Source: Ameco, Eurostat and European Commission services 

Table 3.2.1:  Key economic and financial indicators, Bulgaria 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

52 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%2.0 0.9 0.5 -0.6 -1.6 Current account balance, balance of payments (% of GDP)-0.8 (1)-4.0 (2)1.9 0.0 -0.5 -1.2 -3.0 Net international investment position (% of GDP)-35%-37.2 (3)-20.9 (4)-30.2 -26.1 -18.4 -13.7 -13.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)40.2 47.9 49.8 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)20.4 19.9 16.4 26.9 25.5 Nominal unit labour cost index (% y-o-y change)3.1 9.0 3.6 12.3 7.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)4.6 7.1 3.8 4.6 -1.6 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.0 2.9 0.8 1.0 -3.5 Export market share - % of world exports (5 year % change)-6%15.1 15.7 12.2 10.6 9.2 Export market share - % of world exports (1 year % change)2.7 -0.7 5.0 3.1 -1.1 Private sector debtPrivate sector debt, consolidated (% of GDP)133%90.7 92.5 84.4 80.0 75.2 Private sector credit flow, consolidated (% of GDP)14%5.6 3.6 4.4 7.1 6.0 Household debt, consolidated (% of GDP)78.6 (6)28.5 (7)23.0 24.4 24.9 24.125.5Non-financial corporate debt, consolidated (% of GDP)105.3 (6)52.0 (7)67.768.159.555.949.7Housing marketHouse price index, deflated (1 year % change)6%3.9 5.2 2.5 p0.9 0.5 House price index, nominal (1 year % change)-0.5 (8)6.04.68.79.35.3Government debtGeneral government gross debt (% of GDP)60%20.0 24.5 23.9 22.5 23.6 General government balance (% of GDP)2.1-3.8-3.9-3.4-2.8Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%5.2 10.6 9.5 2.6 Return on equity (%)11.24.98.8Common Equity Tier 1 ratio10.6 (9)18.422.022.0Gross non-performing loans, domestic and foreign entities (% of gross loans)6.5e5.9e4.8p4.3Labour marketUnemployment rate (3 year average)10%6.2 5.8 5.5 5.5 5.2 Unemployment rate (year level)4.9 (10)5.2 6.1 5.3 5.2 5.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp4.5 0.9 0.6 0.6 1.7 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-2.1 -1.2 -1.0 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-8.3 1.3 -0.1 forecast     
 
 
  
 
 
 
3.3. CZECHIA 

 In Czechia, concerns related to cost competitiveness and house price developments, which existed 
already before the COVID-19 pandemic, persist. Nominal unit labour costs are set to grow further, 
with  an appreciation  of  the  real  effective  exchange rate  being  underway  and core inflation  being 
very high compared to Czechia’s euro area peers. Nominal house price growth has been amongst 
the highest in the EU, while house prices are estimated as being overvalued.  

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Czechia.  This  year,  the  Commission  finds  it  opportune  to 
examine newly emerging vulnerabilities and their implications in an in-depth review for Czechia.  

Real  GDP  growth  is  forecast  at  2.5%  in  2022  and  0.1%  in  2023.  Inflation  is  currently  very  high 
compared to Czechia’s euro area trading partners, alongside restrictive monetary policy. Year-on-
year,  it  increased  to  17.8%  in  September,  while  the  main  monetary  policy  rate  rose  to  7%.  Core 
inflation was estimated at 13.7% in September. Prices are set to rise faster than wages.  

The scoreboard reading for Czechia shows that in 2021 two indicators were beyond their indicative 
thresholds,  namely  nominal  unit  labour  cost  growth  and  real  house  price  growth.  An  economic 
reading of the scoreboard highlights the following relevant developments:  

  External  sustainability  concerns  remain  limited.  After  seven  years  of  surpluses,  the  current 
account balance moved to a deficit of 0.8% of GDP in 2021, driven by a reduced goods surplus 
amid rising imports, and higher energy costs. The deficit is forecast to expand, with in-year data 
pointing  to  a  further  reduction  in  the  goods  balance.  However,  the  mildly  negative  net 
international  investment  imposition  (NIIP)  further  improved,  but  is  forecast  to  slightly 
deteriorate going forward. The NIIP net of non-defaultable instruments is positive and large. 

  Cost competitiveness concerns, which existed already before the COVID-19 pandemic, persist. 
Nominal unit labour costs have been increasing strongly in recent years, amidst a tight labour 
market. After a temporary moderation in 2021, unit labour cost growth is projected to be high 
again in 2022 and 2023. The HICP-based real effective exchange rate appreciated in 2021 and 
an appreciation is also underway in 2022. Both the inflation differential and the strengthening 
of the nominal effective exchange rate vis-à-vis the euro area contributed to this increase.  

  Very  high  house  price  growth  continues  being  of  concern.  Nominal  house  price  growth 
accelerated from 8.5% in 2020 to 19.7% in 2021 and grew at one of the highest paces in the 
EU. Nominal year-on-year house price growth increased to 23.1% in the second quarter of 2022. 
House prices were estimated to be 25% overvalued in 2021. There was also significant increase 
of  mortgage  credit  in  2021,  including  new  loans  in  expectation  of  monetary  tightening.  This 
trend  was  reversed  in  2020  after  strict  macroprudential  measures  were  introduced  and 
mortgage  rates  significantly  increased.  The  household  debt-to-GDP  ratio  remained  broadly 
unchanged while remaining below benchmarks.  

  Government debt related risks remain relatively low. The government debt-to-GDP ratio is still 
relatively  low,  although  it  increased  to  42%  in  2021  and  is  forecast  to  continue  increasing 
slightly. The government deficit narrowed to 5.1% in 2021 and is forecast to continue improving 
going  forward.  Moreover,  the  long-term  fiscal  sustainability  risks  are  high  due  to  an  ageing 
population. 

  The banking sector is stable and resilient. The banks are well capitalised and their profitability 
is high. The non-performing loans ratio remains low. A significant increase of lending rates may 
drive  down  the  relatively  high  lending  volumes  and  contribute  to  some  correction  of  house 
prices.  

53 

 
 
Graph 3.3.1: Selected graphs: Czechia 

3.3. CZECHIA 

Source: Eurostat and European Commission services 

Table 3.3.1:  Key economic and financial indicators, Czechia 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

54 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.8 0.9 0.5 -1.0 -3.5 Current account balance, balance of payments (% of GDP)0.8 (1)-2.9 (2)0.3 2.0 -0.8 -4.1 -5.4 Net international investment position (% of GDP)-35%-64.0 (3)6.5 (4)-19.8 -16.3 -15.6 -17.1 -15.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)30.2 37.3 36.4 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)14.5 18.7 13.9 15.2 15.0 Nominal unit labour cost index (% y-o-y change)4.3 7.3 1.8 5.5 7.1 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)8.7 5.6 5.0 8.7 7.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.3 0.7 3.9 3.9 -0.3 Export market share - % of world exports (5 year % change)-6%4.8 8.1 -1.1 -1.6 -2.4 Export market share - % of world exports (1 year % change)-1.0 2.4 -4.5 0.7 0.1 Private sector debtPrivate sector debt, consolidated (% of GDP)133%78.6 81.7 78.8 74.9 69.4 Private sector credit flow, consolidated (% of GDP)14%1.4 0.6 2.9 5.9 5.6 Household debt, consolidated (% of GDP)62.8 (6)46.3 (7)31.5 33.9 34.4 34.133.7Non-financial corporate debt, consolidated (% of GDP)88.5 (6)63.1 (7)47.147.844.440.835.7Housing marketHouse price index, deflated (1 year % change)6%6.2 5.4 16.4 3.8 -4.4 House price index, nominal (1 year % change)25.3 (8)9.28.519.715.12.8Government debtGeneral government gross debt (% of GDP)60%30.0 37.7 42.0 42.9 44.2 General government balance (% of GDP)0.3-5.8-5.1-4.3-4.1Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%4.6 4.8 7.9 0.2 Return on equity (%)13.96.710.6Common Equity Tier 1 ratio10.6 (9)18.220.319.8Gross non-performing loans, domestic and foreign entities (% of gross loans)1.7e1.9e1.7p1.4Labour marketUnemployment rate (3 year average)10%2.4 2.3 2.5 2.7 2.9 Unemployment rate (year level)2.7 (10)2.0 2.6 2.8 2.7 3.3 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.7 0.5 0.0 -1.7 -0.9 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.1 -0.4 0.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-4.9 0.1 1.5 forecast     
 
 
  
 
3.4. DENMARK 

In Denmark, house price growth and private debt are high, although associated risks appear to be 
limited. The current account surplus is sizeable. Nominal house price growth has been among the 
highest  in  the  EU,  amidst  an  estimated  moderate  overvaluation  of  house  prices.  Household  and 
non-financial corporate debt-to-GDP ratios are high and above both prudential and fundamentals-
based benchmarks, but are declining.  

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Denmark.  This  year,  the  Commission  does  not  consider  it 
necessary to carry out further in-depth analysis for Denmark. 

Real  GDP  growth  is  forecast  at  3.0%  in  2022  and  0%  in  2023.  Inflation  is  high,  alongside 
significant  monetary  policy  tightening.  Year-on-year,  inflation  increased  to  11.1%  in  September, 
with core inflation estimated at 5.2%. Prices are set to rise faster than wages.   

The  scoreboard  reading  for  Denmark  shows  that  in  2021  three  indicators  were  beyond  their 
indicative  thresholds,  namely  the  current  account  balance,  real  house  price  growth  and  private 
sector debt. An economic reading of the scoreboard highlights the following relevant developments:  

  External sector  issues relate to very high current account surplus, which increased to 9% of 
GDP in 2021. The surplus is forecast to decline in 2022, but remain clearly above the upper MIP 
threshold, as the services balances gains strength. Accumulated surpluses have led to a high net 
international  investment  position  (NIIP)  that  reached  77%  of  GDP  in  2021,  although  it  is 
forecast to decrease going forward. The large NIIP generates positive net primary income, which 
reinforces the large current account surplus. 

  Cost competitiveness concerns continue to be limited. Nominal unit labour costs edged up in 
2021  and  are  forecast  to  increase  more  strongly  in  2022  and  2023.  The  HICP-based  real 
effective exchange rate depreciated marginally in 2021. Year-on-year, it continued depreciating 
by August 2022.  

  Non-financial corporate (NFC) debt is high, and increased moderately to 110.4% of GDP in 
2021. It remains above both prudential and fundamental benchmarks. NFC credit flows in % of 
GDP are high but decreased in the second quarter of 2022. 

  The  household  debt-to-GDP  ratio  remains  the  highest  in  the  EU,  above  both  prudential  and 
fundamentals-based benchmarks. However, it has declined in 2021 and continued to decline in 
the  first  half  of  2022,  as  net  credit  flows  remain  moderate.  Nominal  GDP  is  still  expected  to 
support  deleveraging  in  2022.  Household  non-performing  debt  remains  low.  Around  half  of 
mortgages have variable interest rates or are fixed up to five years. 

  Very  high  house  price  growth  continues  being  of  concern.  Nominal  house  price  growth 
accelerated  from  5.1%  to  11.7%  in  2021  and  grew  at  one  of  the  highest  paces  in  the  EU. 
Nominal  year-on-year house price growth decelerated to 2.8% in the second quarter of 2022. 
House prices were estimated to be 20% overvalued in 2021. 

55 

 
 
Graph 3.4.1: Selected graphs: Denmark 

3.4. DENMARK 

Source: Eurostat, ECB and European Commission services 

Table 3.4.1:  Key economic and financial indicators, Denmark 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

56 

050100150200250300080910111213141516171819202122f% of GDPb) Debt by sector, consolidatedGovernmentHouseholdNon financial corporationsPrivate sector-20-1001020304002040608010012014016004Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q4Rate of change, y-o-y (%)2015 = 100a) House pricesNominal House Price Index (2015=100), right axisNominal House Price Index (y-o-y growth rate), right axisThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%7.9 7.9 8.5 7.9 7.7 Current account balance, balance of payments (% of GDP)1.1 (1)2.7 (2)8.5 7.9 9.0 6.7 7.4 Net international investment position (% of GDP)-35%-91.7 (3)19.9 (4)77.7 70.0 77.0 71.7 80.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)29.0 32.6 32.1 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)3.4 6.7 6.1 8.9 8.6 Nominal unit labour cost index (% y-o-y change)1.9 3.5 0.6 4.6 3.2 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)-0.2 0.9 -1.1 -4.9 -8.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.8 1.5 -0.9 -5.5 -2.5 Export market share - % of world exports (5 year % change)-6%1.7 10.6 6.5 8.7 9.3 Export market share - % of world exports (1 year % change)2.3 6.6 -2.3 1.5 1.0 Private sector debtPrivate sector debt, consolidated (% of GDP)133%221.2 221.3 214.7 212.2 206.9 Private sector credit flow, consolidated (% of GDP)14%10.5 5.0 12.3 10.4 13.6 Household debt, consolidated (% of GDP)69.7 (6)93.7 (7)110.6 111.9 104.3 100.597.8Non-financial corporate debt, consolidated (% of GDP)96.2 (6)99.6 (7)110.6109.4110.4111.7109.1Housing marketHouse price index, deflated (1 year % change)6%1.4 4.7 9.5 -6.3 -1.6 House price index, nominal (1 year % change)20.0 (8)2.45.111.71.1-0.7Government debtGeneral government gross debt (% of GDP)60%33.7 42.2 36.6 33.7 32.8 General government balance (% of GDP)4.10.23.61.80.5Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%13.4 5.6 11.7 0.3 Return on equity (%)8.74.58.2Common Equity Tier 1 ratio10.6 (9)18.019.118.7Gross non-performing loans, domestic and foreign entities (% of gross loans)1.9e1.9e1.8p1.5Labour marketUnemployment rate (3 year average)10%5.3 b5.2 5.2 5.1 5.0 Unemployment rate (year level)4.7 (10)5.0 5.6 5.1 4.5 5.5 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.6 b1.1 b1.4 3.0 2.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.4 -0.3 0.0 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-2.1 -0.8 0.3 forecast     
 
 
  
 
3.5. GERMANY 

Germany’s  large  current  account  surplus  has  recently  decreased  substantially,  as  a  result  of  the 
deterioration  of  terms  of  trade  driven  by  the  adverse  external  shock.  Until  early  2022,  nominal 
house price growth has been among the highest in the EU, and house prices are estimated to be 
overvalued. Core inflation and wage increases in Germany may facilitate euro area rebalancing.  

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Germany is experiencing macroeconomic imbalances. This year, the Commission finds it opportune 
to examine the persistence of imbalances or their unwinding in an in-depth review for Germany. 

Real GDP growth is forecast at 1.6% in 2022 and -0.6% in 2023. At 11.6% year-on-year, inflation 
was  high  and  increasing  in  October,  albeit  lower  than  in  most  euro  area  countries,  with  core 
inflation estimated at 5.1%. Prices are set to rise faster than wages.   

The  scoreboard  reading  for  Germany  shows  that  in  2021  three  indicators  were  beyond  their 
indicative thresholds, namely, the current account balance, real house price growth and government 
debt. An economic reading of the scoreboard highlights the following relevant developments:  

  The  current  account  surplus  increased  slightly,  to  7.4%  of  GDP  in  2021,  linked  to  subdued 
private  and  public  investment  despite  favourable  financing  conditions.  In  2022,  the  current 
account surplus is on course to decline to well below 6% of GDP for the first time since 2010. 
This decrease reflects surging energy prices and an associated deterioration of terms of trade, 
relatively  resilient domestic  demand  and inventory growth.  The  surplus is  forecast  to  increase 
again in 2023, while remaining well below 6% of GDP. 

  Cost competitiveness developments may facilitate euro area rebalancing. Nominal unit labour 
cost  growth  has  remained  muted,  despite  a  tight  labour  market,  but  is  forecast  to  pick  up  in 
2022 and 2023. The HICP-based real effective exchange rate declined in 2022.  

  House price growth continues being of concern. Nominal house price growth accelerated from 
7.8% to 11.5% in 2021 and grew at one of the highest paces in the EU. Nominal house prices 
accelerated  further  and  reached  10.2%  year-on-year  in  the  second  quarter  of  2022,  with  a 
broadly unchanged price to income ratio. House prices were estimated to be 21% overvalued in 
2021.  

  Government  debt  risks  remain  contained.  The  government  debt-to-GDP  ratio  exceeded  the 
indicative  scoreboard  threshold  of  60%  of  GDP,  rising  to  68.6%  in  2021.  It  is  forecast  to 
decrease  going  forward,  with  fiscal  sustainability  risks  in  the  long-term  being  considered 
medium. The fiscal deficit narrowed to 3.7% of GDP in 2021, representing a smaller deficit than 
the euro area average. It is forecast to continue narrowing in 2022, but to widen in 2023.  

57 

 
 
 
 
Graph 3.5.1: Selected charts: Germany 

3.5. GERMANY 

Source: Eurostat and European Commission services 

Table 3.5.1:  Key economic and financial indicators, Germany 

Notes: See Annex 1   
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

58 

DEEA19-10123451819202122Growth, year-on-year (%)a) Inflation, year-on-year-4048121819202122% of GDPb) Current account, 12-month moving averageIncome balanceServices balanceOther goods balanceEnergy price impactEnergy balance (2019 prices)Current account balanceThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%7.8 7.5 7.3 6.0 5.2 Current account balance, balance of payments (% of GDP)1.9 (1)2.9 (2)7.6 7.0 7.4 3.7 4.6 Net international investment position (% of GDP)-35%-83.3 (3)25.1 (4)58.5 64.1 70.7 76.8 76.4 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)51.0 54.9 54.6 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)8.1 p10.3 p7.4 p8.3 11.0 Nominal unit labour cost index (% y-o-y change)3.3 p3.4 p0.6 p4.1 6.0 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.0 2.4 0.5 -2.3 -5.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.5 1.4 0.8 -4.3 -2.0 Export market share - % of world exports (5 year % change)-6%-1.2 0.9 -5.9 -7.0 -7.3 Export market share - % of world exports (1 year % change)-1.9 2.1 -3.6 -2.4 -1.7 Private sector debtPrivate sector debt, consolidated (% of GDP)133%112.7 p121.2 p120.4 p120.2 111.3 Private sector credit flow, consolidated (% of GDP)14%6.4 p6.4 p5.7 p7.7 5.2 Household debt, consolidated (% of GDP)52.8 (6)65.9 (7)53.4 57.0 56.7 56.155.2Non-financial corporate debt, consolidated (% of GDP)76.9 (6)80.6 (7)59.364.263.764.156.1Housing marketHouse price index, deflated (1 year % change)6%4.4 7.1 8.2 p4.6 -0.9 House price index, nominal (1 year % change)20.5 (8)5.87.811.5 p8.22.2Government debtGeneral government gross debt (% of GDP)60%58.9 68.0 68.6 67.4 66.3 General government balance (% of GDP)1.5-4.3-3.7-2.3-3.1Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%7.3 11.4 7.2 9.7 Return on equity (%)2.12.24.0Common Equity Tier 1 ratio10.6 (9)15.516.015.7Gross non-performing loans, domestic and foreign entities (% of gross loans)1.2e1.2e1.1p1.0Labour marketUnemployment rate (3 year average)10%3.3 3.3 b3.4 b3.5 3.4 Unemployment rate (year level)3.3 (10)3.0 3.7 b3.6 3.1 3.5 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.3 0.3 b1.2 1.5 1.9 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.5 -0.4 b-0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-1.3 0.8 b0.3 forecast   
 
 
  
 
3.6. ESTONIA 

In Estonia, concerns related to cost competitiveness are increasing. Nominal unit labour cost growth 
is  set  to  rise  and  core  inflation  is  high  compared  with  Estonia’s  euro  area  peers.  Nominal  house 
price growth is among the highest in the EU, amidst an estimated moderate overvaluation of house 
prices.  

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Estonia.  This  year,  the  Commission  finds  it  opportune  to 
examine newly emerging vulnerabilities and their implications in an in-depth review for Estonia.  

Real GDP growth is forecast at -0.1% in 2022 and 0.7% in 2023. Inflation is high, even compared 
to Estonia’s euro area trading partners. Year-on-year, it decreased to 22.4% in October, with core 
inflation estimated at 12.5% in September. Prices are set to rise faster than wages. 

The scoreboard reading for Estonia shows that in 2021 five indicators were beyond their indicative 
thresholds,  namely  nominal  unit  labour  cost  growth,  real  house  price  growth,  financial  sector 
liability  growth,  the  change  in  activity  rate  and  the change  in  youth  unemployment.  An economic 
reading of the scoreboard highlights the following relevant developments:  

  External  sustainability  concerns  remain  contained.  While  the  current  account  balance 
recorded a deficit of 1.8% of GDP in 2021, it is forecast to move to a slight surplus in 2022 and 
improve further going forward. The government deficit has narrowed to 2.4% of GDP in 2021, 
and  is  forecast  to  remain  broadly  unchanged in  2022,  but  to  start  widening in  2023.  The  net 
international  investment  position  (NIIP)  is  negative,  but  improved  in  2021.  After  a  temporary 
deterioration in 2022, it is forecast to continue improving in 2023. As the accumulated stock of 
FDI represents most of the liabilities, the NIIP net of non-defaultable instruments is positive and 
high.  

  Cost  competitiveness  concerns  are  increasing.  Nominal  unit  labour  costs  edged  up  in  2021 
and are forecast to increase strongly in 2022 and 2023, in the context of Estonia’s high nominal 
wage  increases  not  matched  by  productivity.  The  HICP-based  real  effective  exchange  rate 
appreciated in 2021 and stronger appreciation is underway in 2022. 

  High house price growth continues being a concern. Nominal house price growth accelerated 
from 6% in 2020 to 15.1% in 2021, one of the highest paces in the EU in recent quarters and 
reaching 27.4% in the second quarter of 2022. One of the highest price-to-income ratios in the 
EU raises affordability concerns. House prices were estimated to be 7% overvalued in 2021. 

  The  household  debt-to-GDP  ratio  is  close  to  the  fundamentals-based  benchmark  and  below 
the  prudential  threshold.  Net  credit  flows  to  households  have  been  moderate  up  to  2021  at 
around 2% of GDP. While net credit flows have increased in 2022 to close to 4% of GDP, the 
debt-to-GDP ratio continued to decline in the first half of 2022. 

  The  unemployment  rate  decreased  to  6.2%  in  2021  and  is  forecast  to  slightly  decrease  in 
2022,  but  to  increase  in  2023.  The  activity  rate  decreased  in  2021,  still  reflecting  pandemic 
restrictions;  it  is  set  to  pick  up  again  going  forward.  Youth  unemployment  remains  elevated, 
although it has decreased.  

59 

 
 
 
 
Graph 3.6.1: Selected graphs: Estonia 

3.6. ESTONIA 

Source: Eurostat, ECB (BSI) and European Commission services 

Table 3.6.1:  Key economic and financial indicators, Estonia 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

60 

020406080100120140160180200-20246810121413Q414Q415Q416Q417Q418Q419Q420Q421Q42015=100Rate of change y-o-y (%)b) House price and mortgage growthMFI loans for house purchase (y-o-y growth rate)Real House Price Index (2015=100), right axisNominal House Price Index (2015=100), right axis9510010511011518192021222019=100a) Real effective exchange ratevs. 42 partners, based on headline inflationvs. EA19, based on headline inflationvs. EA19, based on core inflationThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%1.8 0.8 -0.1 -0.8 -0.2 Current account balance, balance of payments (% of GDP)-0.6 (1)-2.6 (2)2.4 -1.0 -1.8 0.4 0.7 Net international investment position (% of GDP)-35%-61.6 (3)-14.3 (4)-22.6 -21.9 -13.0 -18.4 -14.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)31.0 41.5 39.9 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)15.8 15.7 10.7 19.5 25.2 Nominal unit labour cost index (% y-o-y change)4.7 3.9 1.8 12.9 8.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)6.1 5.3 1.9 0.0 -3.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.0 0.7 1.2 -2.1 -2.9 Export market share - % of world exports (5 year % change)-6%1.7 16.4 17.8 19.4 16.0 Export market share - % of world exports (1 year % change)2.6 4.8 7.8 1.2 -1.1 Private sector debtPrivate sector debt, consolidated (% of GDP)133%98.9 101.4 95.3 91.3 81.5 Private sector credit flow, consolidated (% of GDP)14%3.4 3.0 6.5 7.8 3.9 Household debt, consolidated (% of GDP)87.8 (6)38.2 (7)38.6 40.7 37.8 37.337.5Non-financial corporate debt, consolidated (% of GDP)111.8 (6)61.0 (7)60.360.757.554.044.0Housing marketHouse price index, deflated (1 year % change)6%4.4 7.0 10.4 1.3 -0.6 House price index, nominal (1 year % change)6.9 (8)7.06.015.120.87.0Government debtGeneral government gross debt (% of GDP)60%8.5 18.5 17.6 18.7 19.3 General government balance (% of GDP)0.1-5.5-2.4-2.3-3.7Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%11.6 17.9 17.5 1.5 Return on equity (%)8.37.49.5Common Equity Tier 1 ratio10.6 (9)25.727.023.3Gross non-performing loans, domestic and foreign entities (% of gross loans)1.6e1.6e1.1p1.0Labour marketUnemployment rate (3 year average)10%5.2 5.6 5.9 6.4 6.3 Unemployment rate (year level)6.2 (10)4.5 6.9 6.2 6.1 6.6 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.3 0.4 -0.2 4.8 2.0 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.3 -0.8 0.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-2.4 6.2 4.7 forecast     
 
 
  
 
3.7. IRELAND 

In Ireland, external, household and non-financial corporate and government debt-to-GDP ratios are 
high but  continue  to  decline  markedly.  As a result,  associated  concerns  appear  to  remain  limited. 
Debt  ratios  in  Ireland  are  affected  by  the  presence  of  multinational  enterprises.  Nominal  house 
price growth is accelerating and housing affordability is a concern.  

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Ireland was no longer experiencing macroeconomic imbalances. This year, the Commission does not 
consider it necessary to carry out further in-depth analysis for Ireland.  

Real GDP growth is forecast at 7.9% in 2022 and 3.2% in 2023. Inflation is high. Year on year, it 
increased to 9.6% in October, with core inflation estimated at 5.1% in September. Prices are set to 
rise faster than wages.   

The scoreboard reading for Ireland shows that in 2021 four indicators were beyond their indicative 
thresholds,  namely  the  current  account  balance,  net  international  investment  position,  private 
sector debt and financial sector liabilities growth. An economic reading of the scoreboard highlights 
the following relevant developments:  

  External  sustainability  concerns  abated  substantially  in  recent years.  The  external  sector is 
strongly inflated by the activities of multinational companies. The current account has recorded 
a strong surplus of 14.2% of GDP in 2021 and is forecast further increase in 2022. The current 
account surplus corrected for the impact of the multinational enterprises also remained high in 
2021. The net international investment position (NIIP) improved to  -145.5% of GDP in 2021. A 
continued improvement in the NIIP is forecast for the next two years.  

  Non-financial  corporate  debt  is  high,  but  on  a  declining  path.  It  declined  moderately,  to 
138%  of  GDP,  or  252%  of  modified  gross  national  income  (GNI)  in  2021.  The  non-financial 
corporate debt ratio decreased in the first half of 2022, but there are risk factors associated to 
the macroeconomic environment. It remains above both fundamental and prudential thresholds, 
although the high share of cross-border intra-group lending in corporate debt reduces risks. The 
share  of  corporate loans denominated in  foreign  currency  (12%)  is  one  of  the  highest  among 
the  euro  area  countries  but  is  related  to  the  presence  of  the  multinational  enterprises.  The 
household  debt-to-GDP  ratio  is  relatively  low  and  on  a  declining  path.  It  is  below  the 
benchmarks,  but  the  Irish  GDP  is  overstated  by  the  activities  of  multinationals.  As  a  share  of 
household  gross  domestic  income,  household  debt  declined  significantly  but  remains  close  to 
100%. The share of variable rate mortgage loans is relatively low, at 20% in 2021. 

  Concerns  associated  to  the  house  price  developments  are  increasing.  Nominal  house  price 
growth accelerated from 0.3% to 8.3% in 2021. Nominal year-on-year house price growth was 
at  14.4%  in  the  second  quarter  of  2022.  One  of  the  highest  price-to-income  ratios  in  the  EU 
raises affordability concerns. The Commission services’ valuation gap metrics do not show signs 
of potential overvaluation.  

  The  banking  sector is  overall  stable.  Banks  are  well-capitalised  and profitability  increased  in 
2021, though it remained low compared to the European peers. Non-performing loans continued 
to decline, even if underperforming (stage 2) loan exposures, in particular towards NFCs, remain 
relatively high. The Irish non-bank financial sector is very large, but only marginally interlinked 
with the domestic economy. 

  Risks related to the government debt-to-GDP ratio are rather low. It decreased to 55.4% in 
2021  and  is  forecast  to  continue  falling  strongly  in  2022.  In  contrast,  the  government  debt 
relative to GNI remains large, at about 100%. The government balance is forecast to turn into a 
slight surplus in 2022 and is forecast to continue improving. The long-term fiscal sustainability 
risks are medium. 

61 

 
 
Graph 3.7.1: Selected graphs: Ireland 

3.7. IRELAND 

Source: Eurostat, ECB (BSI) and European Commission services 

Table 3.7.1:  Key economic and financial indicators, Ireland 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

62 

-30-20-1001020304003Q404Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q4Rate of change y-o-y (%)a) House price and mortgage growthMFI loans for house purchase (y-o-y growth rate)House Price Index (y-o-y growth rate)050100150200250300350400080910111213141516171819202122f% of GDPb) Debt decomposition by sector, consolidatedGovernmentHouseholdNon financial corporationsPrivate sector     
 
 
  
 
3.8. GREECE 

In Greece, concerns related to government and external debt-to-GDP ratios remain, although they 
resumed their declining path after the COVID-19 crisis. The current account deficit has continued to 
increase and is forecast to remain large. Concerns about the banking sector, which is burdened by a 
high, albeit significantly reduced, stock of nonperforming loans, remain. Labour market weaknesses 
persist, despite notable improvements.  

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Greece  is  experiencing  excessive  macroeconomic  imbalances.  This  year,  the  Commission  finds  it 
opportune  to  examine  the  persistence  of  excessive  imbalances  or  their  unwinding  in  an  in-depth 
review for Greece. 

Real  GDP  growth  is  forecast  at  6%  in  2022  and  1%  in  2023.  Inflation  is  high.  Year-on-year,  it 
decreased to 9.8% in October, with core inflation estimated at 6.9%. Prices are set to rise faster 
than wages.  

The scoreboard reading for Greece shows that in 2021 six indicators were beyond their indicative 
thresholds, namely, the current account balance, net international investment position, real house 
price growth, government debt, change in unemployment and change in activity rate. An economic 
reading of the scoreboard highlights the following relevant developments:  

  External sustainability remains a concern. The current account deficit increased, to 6.8% of 
GDP in 2021. The strong tourist season is expected to improve the service balance and partially, 
but  should  not  fully  offset  the  deteriorating  balance  of  trade  in  goods,  including  energy.  The 
current account deficit is forecast to widen in 2022 and remain significantly larger than its pre-
pandemic  levels.  The  NIIP  stays  large  and  negative  at  -171.9%  of  GDP  in  2021,  slightly  less 
than  in  2020,  and  is  forecast  to  continue  improving.  A  large  share  of  the  NIIP  liabilities  is 
government debt extended at concessional terms and long maturities.  

  Concerns  related  to  household  and  non-financial  corporate  debt-to-GDP  ratios  remain.  
Both are above the prudential and fundamental benchmarks, but on a declining path. Household 
and  non-financial  corporate  debt  ratio  decreased  in  the  first  half  of  2022.  More  than  half  of 
mortgages have variable interest rates. 

  Government debt is very high. The government debt-to-GDP ratio is among the highest in the 
EU, although it decreased by 12 percentage points in 2021, to 194.5% of GDP and is forecast to 
decrease further in 2022, below the 2019 level, and 2023. The government deficit remains high, 
although it narrowed to 7.5% in 2021 and is forecast to continue narrowing. As Greece’s debt is 
predominantly held by official lenders, the favourable interest rates of these loans ensure that 
interest expenditure is contained in the short- and medium-term. In addition, Greece continues 
to  hold  a  sizeable  cash  buffer  which  allows  for  efficient  liquidity  management  and  reduces 
rollover  risks.  The  sovereign  bond  spreads  have  increased  but  have  now  stabilised  at  a  rate 
higher than the EA average. Short and medium-term fiscal sustainability risks are high, but are 
medium in the long-term. 

  Concerns  about  the  banking  sector  remain.  It  continues  to  be  burdened  by  a  high,  albeit 
significantly reduced, stock of non-performing loans (NPLs). Associated risks are present in the 
economy,  as  part  of  the  legacy  private  non-performing  debt  is  on  balance  sheets  of  financial 
institutions outside the banking sector. Over the past year, the net creation of new NPLs remains 
at a limited rate, but the underperforming (stage 2) loans and share of forborne loans are above 
the euro area average. Profitability turned deeply negative in 2021 and the common equity tier-
1 capital ratio remains one of the lowest in the EU. House price growth remains elevated, but 
moderate in early 2022. 

63 

 
 
  Labour  market  weaknesses  continue  being  a  concern,  despite  notable  improvements.  The 
unemployment rate declined substantially, but at 14,7% in 2021, it remains among the highest 
in the EU. It is set to continue decreasing in 2022 but remain broadly unchanged in 2023.  The 
activity rate is relatively low, although it increased in 2021. Youth and long-term unemployment 
rates declined but remain the highest in the EU. 

Graph 3.8.1: Selected graphs: Greece 

3.8. GREECE 

Source: European Commission services 

64 

-25-20-15-10-5051015151617181920212222*23*24*% of GDPa) Decomposition of current account Goods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing-250-200-150-100-500501001516171819202122% of GDPb) Decomposition of NIIPGeneral governmentPrivate sectorMFI (excluding central bank)Central bank (including reserves)Net international investment position (NIIP)     
 
Table 3.8.1:  Key economic and financial indicators, Greece 

3.8. GREECE 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

65 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-2.1 -3.7 -5.0 -6.9 -7.1 Current account balance, balance of payments (% of GDP)-1.1 (1)-2.6 (2)-1.5 -6.6 -6.8 -7.3 -7.4 Net international investment position (% of GDP)-35%-45.7 (3)-47.6 (4)-154.1 -173.8 -171.9 -147.3 -143.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-133.5 -155.1 -150.2 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)-1.1 6.2 p4.0 p5.3 1.4 Nominal unit labour cost index (% y-o-y change)0.0 7.2 p-3.1 p1.3 3.3 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.5 0.4 -3.1 -5.0 -9.9 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-2.1 0.4 -1.4 -3.9 -5.0 Export market share - % of world exports (5 year % change)-6%3.2 -10.7 9.6 13.3 6.7 Export market share - % of world exports (1 year % change)0.7 -19.7 20.1 8.5 1.2 Private sector debtPrivate sector debt, consolidated (% of GDP)133%110.3 124.9 p120.7 p107.6 102.0 Private sector credit flow, consolidated (% of GDP)14%-1.0 5.1 p-0.1 p3.1 4.0 Household debt, consolidated (% of GDP)33.8 (6)21.6 (7)55.9 59.5 55.2 47.343.9Non-financial corporate debt, consolidated (% of GDP)62.7 (6)47.0 (7)54.465.465.560.358.1Housing marketHouse price index, deflated (1 year % change)6%7.2 e5.7 e6.4 e-0.9 -1.5 House price index, nominal (1 year % change)5.0 (8)7.24.57.56.02.1Government debtGeneral government gross debt (% of GDP)60%180.6 206.3 194.5 171.1 161.9 General government balance (% of GDP)1.1-9.9-7.5-4.1-1.8Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%11.6 27.5 14.3 1.9 Return on equity (%)0.7-7.9-20.1Common Equity Tier 1 ratio10.6 (9)16.215.013.6Gross non-performing loans, domestic and foreign entities (% of gross loans)35.5e26.5e8.6p6.8Labour marketUnemployment rate (3 year average)10%19.8 18.4 16.7 15.0 13.3 Unemployment rate (year level)8.8 (10)17.9 17.6 14.7 12.6 12.6 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.3 -2.9 -0.8 -0.7 1.3 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-4.1 -3.8 -3.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-10.7 -6.5 -5.7 forecast 
  
 
 
 
3.9. SPAIN 

In Spain, concerns related to household and non-financial corporate, government and external debt-
to-GDP  ratios  remain,  although  they  resumed  their  declining  path  after  the  COVID-19  crisis  with 
external and private debt falling solidly in a context of strong nominal GDP growth. The government 
debt-to-GDP ratio is very high and the fiscal deficit is sizeable, despite a slight improvement. The 
unemployment rate, while still high, is already below pre-crisis levels and it is expected to remain 
stable next year. 

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Spain is experiencing macroeconomic imbalances. This year, the Commission finds it opportune to 
examine the persistence of imbalances or their unwinding in an in-depth review for Spain. 

Real  GDP  growth  is  forecast  at  4.5%  in  2022  and  1%  in  2023.  Inflation  is  high.  Year-on-year, it 
decreased to 7.3% in October, with core inflation estimated at 4.8% in September. Prices are set to 
rise faster than wages. 

The  scoreboard  reading  for  Spain  shows  that  in  2021  six  indicators  were  beyond  their  indicative 
thresholds,  namely  the  net  international  investment  position,  export  market  share,  nominal  unit 
labour  cost  growth,  private  sector  debt,  government  debt  and  change  in  unemployment.  An 
economic reading of the scoreboard highlights the following relevant developments: 

  External  sustainability  concerns  remain  despite  some  improvements.  The  negative  net 
international  investment  position  (NIIP)  improved  substantially,  to  -71.5%  of  GDP  in  2021, 
mainly due to strong positive valuation effects and high nominal GDP growth. The NIIP is set to 
continue  improving,  albeit  at  lower  pace.  The  improvement  was  mainly  related  to  the  NIIP 
excluding  non-defaultable  instruments,  which  moved  from  -52.1%  to  -39.7%  of  GDP.  The 
current account balance remained in a small surplus, at 1.2% of GDP in 2021, but is forecast to 
decrease  slightly.  The  strong  tourist  season  is  expected  to  improve  the  service  balance  and 
partially offset the deteriorating balance of trade in goods, including energy, in 2022. 

  Some  cost  competitiveness  concerns  remain  limited.  Nominal  unit  labour  costs  (ULC) 
increased slightly in 2021 and are forecast to increase further with the rise in core inflation. The 
HICP-based real effective exchange rate appreciated marginally in 2021. However, year-on-year, 
it depreciated by August 2022. 

  Concerns related to the non-financial corporate debt-to-GDP ratio remain, although it is on a 
declining  path.  It  declined  moderately,  to  80%  in  2021  and  continued  to  decrease  in  the  first 
half  of  2022,  but  there  are  risk  factors  associated  to  the  macroeconomic  environment.  It 
remains  above  both  prudential  and  fundamental  benchmarks  and  is  still  8  percentage  points 
higher  than  in  2019.  The  household  debt-to-GDP  ratio  is  still  above  but  close  to  both 
prudential and fundamentals-based benchmarks and back on a declining path.  

  Concerns  related  to  government  debt  remain  high.  It  decreased  slightly  in  2021,  reaching 
118.3%  of  GDP  and  is  forecast  to  decline  again  in  2022  and  2023.  The  government  deficit 
remained high, although it narrowed to 6.9% in 2021. It is projected to further decrease in 2022 
and 2023. Fiscal sustainability risks are high in the medium-term and medium in the long-term, 
also in part due to costs related to the ageing population. 

  Labour  market  weaknesses  remain  a  concern,  despite  marked 

improvements.  The 
unemployment rate declined substantially over the past decade, but remains among the highest 
in  the  EU,  at  14.8%  in  2021,  particularly  among  the  youth  and  long-term  segments.  It  is 
forecast  to  decrease  in  2022  but  remain  broadly  unchanged  afterwards. Youth  and long-term 
unemployment rates remain among the highest in the EU, despite the recent rapid falls. Labour 
market resilience benefits from the reforms undertaken as part of the Recovery and Resilience 
Plan, supporting the labour market in the context of a deteriorating economic outlook.  

66 

 
 
Graph 3.9.1: Selected charts: Spain 

3.9. SPAIN 

Source: Eurostat and European Commission services 

Table 3.9.1:  Key economic and financial indicators, Spain 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

67 

050100150200250300080910111213141516171819202122f% of GDPa) Debt decomposition, consolidatedNon financial corporationsHouseholdGeneral government-4-2024681007080910111213141516171819202122*23*24*Rate of change y-o-y (%)b) Unit labour costInflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU27ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%2.3 1.5 1.2 0.8 0.9 Current account balance, balance of payments (% of GDP)0.9 (1)-1.6 (2)2.1 0.6 1.0 0.9 0.8 Net international investment position (% of GDP)-35%-58.0 (3)-18.8 (4)-73.7 -85.7 -71.5 -60.2 -54.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-46.1 -52.1 -39.7 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)5.7 14.3 p12.3 p9.8 6.0 Nominal unit labour cost index (% y-o-y change)3.7 8.6 p-0.3 p1.4 4.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.7 1.1 -0.5 -3.2 -6.4 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.7 0.7 0.5 -4.3 -2.7 Export market share - % of world exports (5 year % change)-6%2.3 -7.2 -10.5 0.9 2.1 Export market share - % of world exports (1 year % change)-0.9 -10.5 2.0 12.8 0.0 Private sector debtPrivate sector debt, consolidated (% of GDP)133%129.3 148.1 p139.1 p131.8 129.4 Private sector credit flow, consolidated (% of GDP)14%1.5 4.7 p2.5 p3.2 7.2 Household debt, consolidated (% of GDP)40.8 (6)46.6 (7)56.8 62.7 58.4 56.555.2Non-financial corporate debt, consolidated (% of GDP)57.4 (6)56.6 (7)72.585.480.775.374.2Housing marketHouse price index, deflated (1 year % change)6%4.1 2.2 1.5 -2.3 -2.7 House price index, nominal (1 year % change)11.5 (8)5.22.23.76.00.8Government debtGeneral government gross debt (% of GDP)60%98.2 120.4 118.3 114.0 112.5 General government balance (% of GDP)-3.1-10.1-6.9-4.6-4.3Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%1.6 9.8 6.6 2.5 Return on equity (%)6.7-3.510.2Common Equity Tier 1 ratio10.6 (9)12.513.213.3Gross non-performing loans, domestic and foreign entities (% of gross loans)3.1e2.8e2.9p2.7Labour marketUnemployment rate (3 year average)10%15.5 15.0 14.8 d14.3 13.4 Unemployment rate (year level)11.8 (10)14.1 15.5 14.8 d12.7 12.7 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp-0.4 -1.7 0.0 d-0.5 1.8 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-4.2 -2.7 -0.2 dYouth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-11.9 -0.3 0.5 dforecast   
 
 
  
 
3.10. FRANCE 

In  France,  concerns  related  to  cost  competitiveness  and  the  high  government  debt-to-GDP  ratio 
remain.  In  addition,  high  private  debt  warrants  close  monitoring.  Core  inflation  is  lower  than  in 
many other euro area countries. Nonetheless, external sustainability and competitiveness concerns 
continue  to  warrant  close  monitoring.  Albeit  declining,  the  government  debt-to-GDP  ratio  and 
government  deficit  remain  high.  Non-financial  corporate  debt  is  on  a  declining  path  following  a 
sharp increase during the pandemic.  

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
France is experiencing macroeconomic imbalances. This year, the Commission finds it opportune to 
examine the persistence of imbalances or their unwinding in an in-depth review for France. 

Real GDP growth is forecast at 2.6% in 2022 and 0.4% in 2023. Inflation is high, albeit lower than 
in  most  euro  area  countries.  Year-on-year,  it  increased  to  7.1%  in  October,  with  core  inflation 
estimated at 4.1%. Prices are set to rise faster than wages.   

The scoreboard reading for France shows that in 2021 three indicators were beyond their indicative 
thresholds, namely the change in export market shares, private sector debt and government debt. 
An economic reading of the scoreboard highlights the following relevant developments:  

  External  sustainability  issues  warrant  close  monitoring.  The  current  account  turned  into  a 
slight surplus of 0.4% of GDP in 2021 and returned to pre-pandemic levels. A deficit is forecast 
for  2022  and  2023.  The  NIIP  continued  worsening  in  2021,  to  -32.1%  of  the  GDP,  driven  by 
negative current account balance and valuation effects. It is forecast to improve going forward. 

  Cost competitiveness concerns, which existed already before the COVID-19 pandemic, remain 
relevant. Nominal unit labour costs (ULC) edged up in 2021 and are forecast to increase more 
strongly going forward, in context of lower core inflation than in most other euro area countries. 
The  HICP-based  real  effective  exchange  rate  depreciated  marginally  in  2021.  Year-on-year,  it 
continued depreciating by August 2022.  

  Despite the decline to 101% in 2021, the non-financial corporate debt-to-GDP ratio remains 
high.  Non-financial  corporate  debt  continued  to  decrease  in  the  first  half  of  2022.  It  remains 
above  both  prudential  and  fundamental  benchmarks  and  is  still  10  percentage  points  higher 
than  in  2019.  Corporate  indebtedness  is  flanked  by  high  and  increasing  corporate  liquidity 
buffers, which mitigates risks.  

  Concerns  associated  to  house  price  developments  increase.  Nominal  house  price  growth 
accelerated from 5.2% to 6.3% in 2021. Nominal year-onyear house price growth increased to 
7.1%  in  the  second  quarter  of  2022.  House  prices  were  estimated  to  be  20%  overvalued  in 
2021.  Household  debt  as  a  ratio  to  GDP  is  above  both  prudential  and  fundamentals-based 
benchmarks and credit flows to households are high. However, risks are mitigated by the high 
share of loans at fixed rates, prudent lending standards and macro-prudential policy measures. 

  Concerns associated with government debt are significant. The already high government debt-
to-GDP ratio, exceeding the scoreboard threshold, decreased slightly in 2021 to 112.8% of GDP 
and  is  forecast  to  remain broadly  stable  over  the  forecast  horizon,  above  the 2019  level.  The 
government  deficit  remains  high,  although  it  narrowed  to  6.5%  in  2021  and  is  forecast  to 
continue narrowing in 2022. The fiscal sustainability risks remain high in the medium term and 
medium in the long-term. 

68 

 
 
Graph 3.10.1: Selected graphs: France 

3.10. FRANCE 

The ‘adverse interest-growth rate’ scenario assumes a less favourable snowball effect than in the baseline (i.e. the 
differential between market interest rates and nominal GDP growth is permanently 1 pp. higher). In the ‘financial stress’ 
scenario, the country tempora¬rily (one year) faces higher market interest rates in 2023 (i.e. market interest rates are 
assumed to increase temporarily by 1 pp. in 2023).  
Source: Eurostat and European Commission services 

Table 3.10.1:  Key economic and financial indicators, France 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

69 

050100150200250300350080910111213141516171819202122f% of GDPa) Debt decomposition by sector, consolidatedGovernmentHouseholdNon financial corporationsPrivate sector8090100110120130140201920202021202220232024202520262027202820292030203120322033% of GDPb) Public debt projectionsBaselineFinancial stress scenarioAdverse 'r-g' scenarioThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-0.4 -0.7 -0.3 -0.9 -0.4 Current account balance, balance of payments (% of GDP)0.3 (1)-1.7 (2)0.5 -1.8 0.4 -1.4 -0.1 Net international investment position (% of GDP)-35%-75.8 (3)9.4 (4)-24.6 -30.7 -32.1 -27.6 -27.5 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-35.2 -41.3 -37.2 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)0.9 p5.0 p4.6 p8.5 7.6 Nominal unit labour cost index (% y-o-y change)-0.7 p4.8 p0.5 p3.0 4.0 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.6 2.7 -0.4 -5.9 -9.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.4 1.5 -0.5 -6.8 -2.2 Export market share - % of world exports (5 year % change)-6%-0.7 -8.5 -11.4 -5.2 -5.1 Export market share - % of world exports (1 year % change)-1.0 -6.9 -1.1 3.7 0.4 Private sector debtPrivate sector debt, consolidated (% of GDP)133%153.1 p175.0 p167.8 p168.4 158.2 Private sector credit flow, consolidated (% of GDP)14%8.4 p13.5 p6.5 p9.2 7.3 Household debt, consolidated (% of GDP)49.1 (6)58.6 (7)62.2 68.6 66.7p67.467.0Non-financial corporate debt, consolidated (% of GDP)54.2 (6)72.5 (7)90.9106.4101.091.2Housing marketHouse price index, deflated (1 year % change)6%2.5 4.1 4.7 2.5 -0.5 House price index, nominal (1 year % change)19.6 (8)3.35.26.35.21.2Government debtGeneral government gross debt (% of GDP)60%97.4 115.0 112.8 111.7 110.8 General government balance (% of GDP)-3.1-9.0-6.5-5.0-5.3Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%6.0 b11.3 7.3 p4.3 Return on equity (%)6.04.17.1Common Equity Tier 1 ratio10.6 (9)15.216.016.2Gross non-performing loans, domestic and foreign entities (% of gross loans)2.5e2.2e1.9p1.8Labour marketUnemployment rate (3 year average)10%8.9 8.5 8.1 d7.9 7.9 Unemployment rate (year level)8.1 (10)8.4 8.0 7.9 d7.7 8.1 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.3 -0.4 0.2 d1.3 2.4 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.8 -1.0 -0.2 dYouth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-5.3 -2.0 -3.1 dforecast   
 
 
  
 
3.11. CROATIA 

In  Croatia,  the  government,  private  and  external  debt-to-GDP  ratios  continue  to  decline,  and 
associated risks appear to be limited. The government debt-to-GDP ratio remains high but the fiscal 
deficit  is  shrinking.  Nominal  house  price  growth  is  accelerating  but  valuation  gap  metrics  do  not 
show signs of potential overvaluation of house prices. 

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Croatia was no longer experiencing macroeconomic imbalances. This year, the Commission does not 
consider it necessary to carry out further in-depth analysis for Croatia. 

Real GDP growth is forecast at 6% in 2022 and 1% in 2023. Inflation is high and is set to remain 
above the EA average in 2022 and 2023. Year-on-year, it remained at 12.6% in September, with 
core inflation at 9.8%. Prices are set to rise faster than wages.   

The scoreboard reading for Croatia shows that in 2021 two indicators were beyond their indicative 
thresholds,  namely  the  net  international  investment  position  and  government  debt.  An  economic 
reading of the scoreboard highlights the following relevant developments:  

  External sustainability concerns have abated substantially. The current account increased to 
a  surplus  of  3.1%  of  GDP  in  2021.  The  moderately  negative  net  international  investment 
position (NIIP), at -35.1% of GDP in 2021, is forecast to continue improving in 2022. The NIIP 
excluding net of non-defaultable instruments turned positive and equalled 12% of GDP in 2021. 

  Cost competitiveness concerns seem limited. High inflation is a risk, although wage indexation 
is  not  prevalent.  Nominal  unit  labour  costs  decreased  in  2021  but  are  forecast  to  increase 
strongly in 2022 and 2023. The HICP-based real effective exchange rate appreciated marginally 
in 2021. Year-on-year, a mild depreciation has been observed by August 2022.  

  The household debt-to-GDP ratio is above its fundamentals-based benchmark, but well below 
prudential.  Net  credit  flows  to  households  have  been  moderate  in  2021  and  2022.  The 
household debt-to-GDP ratio continued to decline in the first half of 2022. The share of variable 
rate housing loans is relatively low.  

  Concerns associated to house price developments are increasing. Nominal house price growth 
decelerated to 7.3% in 2021, but year-on-year it increased to 13.6% in the second quarter of 
2022. Valuation gap metrics do not show signs of potential overvaluation. While  the banking 
sector is well capitalised and its profitability is high, it is also characterised by a relatively high, 
although  declining,  non-performing  loans  ratio.  Underperforming  (stage  2)  loans  increased 
significantly since the onset of the pandemic and have not substantially subsided since.  

  The  government  debt  related  risks  are  non-negligible.  The  government  debt-to-GDP  ratio 
decreased to 78.4%, in 2021, remaining beyond the 60% scoreboard threshold. It is forecast to 
decrease further, dipping below its 2019 level in 2022. The sovereign bond yield spreads have 
decreased  but  remain  above  the  euro  area  average.  The  exchange  rate  risk  related  to  the 
government  debt  will  be  eliminated  with  the  euro  adoption,  as  of  1  January  2023.  The 
government deficit narrowed to 2.6% of GDP in 2021 and is forecast to narrow further in 2022. 
Fiscal sustainability risks are medium in the short- and long-term. 

70 

 
 
Graph 3.11.1: Selected graphs: Croatia 

3.11. CROATIA 

The ‘adverse interest-growth rate’ scenario assumes a less favourable snowball effect than in the baseline (i.e. the 
differential between market interest rates and nominal GDP growth is permanently 1 pp. higher). In the ‘financial stress’ 
scenario, the country temporarily (one year) faces higher market interest rates in 2023 (i.e. market interest rates are 
assumed to increase temporarily by 1 pp. in 2023).  
Source: Eurostat and European Commission services 

Table 3.11.1:  Key economic and financial indicators, Croatia 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

71 

020406080100120140160180-15-10-505101516Q417Q418Q419Q420Q421Q42015=100Rate of change ,y-o-y (%)a) House price and mortgage growthMFI loans for house purchase (y-o-y growth rate)Real House Price Index (2015=100), right axisNominal House Price Index (2015=100), right axis5060708090100201920202021202220232024202520262027202820292030203120322033% of GDPb) Public debt projectionsBaselineFinancial stress scenarioAdverse 'r-g' scenarioThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%2.6 1.3 1.8 0.9 0.9 Current account balance, balance of payments (% of GDP)-0.2 (1)-4.0 (2)2.8 -0.5 3.1 0.2 -0.6 Net international investment position (% of GDP)-35%-46.7 (3)-18.5 (4)-47.0 -48.1 -35.1 -33.3 -26.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)1.2 3.0 12.0 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)2.8 13.7 p6.4 p12.4 8.8 Nominal unit labour cost index (% y-o-y change)0.0 9.8 p-3.1 p3.9 5.9 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.5 0.5 -1.5 -4.7 -7.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.5 -0.5 0.5 -4.6 -3.6 Export market share - % of world exports (5 year % change)-6%22.0 -1.3 7.9 27.8 25.2 Export market share - % of world exports (1 year % change)4.2 -16.1 19.1 21.2 -0.9 Private sector debtPrivate sector debt, consolidated (% of GDP)133%88.3 98.0 p88.5 p80.5 79.4 Private sector credit flow, consolidated (% of GDP)14%1.1 1.3 p3.0 p2.8 4.4 Household debt, consolidated (% of GDP)54.6 (6)18.3 (7)34.1 38.0 34.7 32.033.1Non-financial corporate debt, consolidated (% of GDP)65.2 (6)39.3 (7)54.260.053.848.546.3Housing marketHouse price index, deflated (1 year % change)6%7.8 7.3 4.5 0.8 -0.5 House price index, nominal (1 year % change)-3.4 (8)9.07.77.39.84.2Government debtGeneral government gross debt (% of GDP)60%71.0 87.0 78.4 70.0 67.2 General government balance (% of GDP)0.2-7.3-2.6-1.6-2.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%6.8 7.3 11.7 0.7 Return on equity (%)9.14.77.7Common Equity Tier 1 ratio10.6 (9)21.722.723.8Gross non-performing loans, domestic and foreign entities (% of gross loans)5.2e5.3e4.2p3.7Labour marketUnemployment rate (3 year average)10%8.8 7.5 7.2 7.1 6.7 Unemployment rate (year level)7.4 (10)6.6 7.5 7.6 6.3 6.3 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.9 0.7 2.4 2.6 2.3 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-4.2 -2.5 -0.6 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-14.7 -6.3 -1.8 forecast   
 
 
  
 
3.12. ITALY 

In  Italy,  concerns  related  to  the  high  government  debt-to-GDP  ratio  remain  unchanged.  Labour 
market weaknesses could increase again. Despite improvements in the banking sector, the risk of 
feedback loops is increasing due to the macroeconomic context and warrants close monitoring. 

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Italy  is  experiencing  excessive  macroeconomic  imbalances.  This  year,  the  Commission  finds  it 
opportune  to  examine  the  persistence  of  excessive  imbalances  or  their  unwinding  in  an  in-depth 
review for Italy.  

Real GDP growth is forecast at 3.8% in 2022 and 0.3% in 2023. Inflation is high. Year-on-year, it 
increased to 12.8% in October, with core inflation estimated at 4.5%. Prices are set to rise faster 
than wages. 

The scoreboard reading for Italy shows that in 2021 three indicators were beyond their indicative 
thresholds, namely the change in export market share, government debt and change in activity rate. 
An economic reading of the scoreboard highlights the following relevant developments:  

  Cost  competitiveness  concerns  seem  to  be  limited.  Nominal  unit  labour  costs  remained 
unchanged in 2021, but are forecast to increase going forward. The HICP-based real effective 
exchange rate depreciated marginally in 2021. Year on year, it continued depreciating by August 
2022. By contrast, productivity growth has been lagging behind EU peer countries for decades.  

  The  household  debt  -to-GDP  ratio  remains  close  to  benchmarks  and  net  credit  flow  to 
households remained moderate in 2021 and 2022. The household debt-to GDP ratio remained 
broadly stable in the first half of 2022. The share of variable rate loans is relatively low. 

  Government debt  remains  high despite  its  ratio  to  GDP having  declined to 150.3%  in  2021. 
While the debt ratio is forecast to continue decreasing, it is set to remain well above the 2019 
level.  The  government  deficit  remains  high,  although  it  narrowed  to  7.2%  in  2021  and  it  is 
forecast to continue narrowing. The sovereign bond yield spreads diverged significantly from the 
EA  average,  which  raises  funding  costs,  albeit  rather  gradually  given  the  increased  average 
maturity of outstanding debt. Fiscal sustainability risks are high in the medium-term, while the 
projected decline in ageing costs lowers the risk to medium in the long-term.  

  The banking sector experienced substantial improvements in recent years. The reduction of the 
non-performing loans  (NPLs)  ratio  continued,  having  reached  around  3.5%  in 2021.  While  this 
ratio  remains  only  slightly  above  the  euro  area  average,  the  underperforming  (stage  2)  loans 
increased  since  2020.  A  significant  sovereign  bank  nexus  and  the  link  with  some  corporate 
sector vulnerabilities can increase the risk of feedback loops.  

  Labour  market  weaknesses  continue  being  a  concern.  The  unemployment  rate  increased  to 
9.5% in 2021 and remains relatively high although it is below the 10% threshold. It is forecast 
to  decline  in  2022  but  increase  again  in  2023.  The  activity  rate  is  very  low,  especially  for 
women,  despite  having  increased  in  2021.  Youth  and  long-term  unemployment  rates  remain 
among the highest in the EU.  

72 

 
 
 
Graph 3.12.1: Selected graphs: Italy 

3.12. ITALY 

The ‘adverse interest-growth rate’ scenario assumes a less favourable snowball effect than in the baseline (i.e. the 
differential between market interest rates and nominal GDP growth is permanently 1 pp. higher). In the ‘financial stress’ 
scenario, the country temporarily (one year) faces higher market interest rates in 2023 (i.e. market interest rates are 
assumed to increase temporarily by 1 pp. in 2023).  
Source: Eurostat and European Commission services 

Table 3.12.1:  Key economic and financial indicators, Italy 

Notes: See Annex 1   
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

73 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%2.9 3.3 3.4 2.6 1.2 Current account balance, balance of payments (% of GDP)1.6 (1)0.2 (2)3.3 3.9 3.1 0.8 -0.2 Net international investment position (% of GDP)-35%-65.8 (3)14.7 (4)-1.2 1.4 8.1 7.2 7.4 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-0.1 1.2 6.4 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)3.2 6.6 4.6 6.1 5.3 Nominal unit labour cost index (% y-o-y change)1.3 3.2 0.0 2.8 2.4 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.2 0.6 -1.8 -5.7 -9.4 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-2.2 0.9 -0.5 -6.1 -3.2 Export market share - % of world exports (5 year % change)-6%-2.4 -2.9 -6.2 0.8 1.1 Export market share - % of world exports (1 year % change)-1.4 -2.8 -0.8 6.7 -0.4 Private sector debtPrivate sector debt, consolidated (% of GDP)133%106.0 118.5 113.5 109.7 106.4 Private sector credit flow, consolidated (% of GDP)14%0.3 4.0 3.3 4.0 4.5 Household debt, consolidated (% of GDP)43.8 (6)39.0 (7)41.1 44.9 43.4 42.642.5Non-financial corporate debt, consolidated (% of GDP)77.7 (6)58.4 (7)64.973.670.167.163.9Housing marketHouse price index, deflated (1 year % change)6%-0.7 1.8 0.9 -2.2 -3.5 House price index, nominal (1 year % change)-8.4 (8)-0.11.92.64.91.6Government debtGeneral government gross debt (% of GDP)60%134.1 154.9 150.3 144.6 143.6 General government balance (% of GDP)-1.5-9.5-7.2-5.1-3.6Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%4.7 7.3 6.2 0.9 Return on equity (%)4.91.05.7Common Equity Tier 1 ratio10.6 (9)13.915.515.1Gross non-performing loans, domestic and foreign entities (% of gross loans)6.7e4.5e3.5p3.0Labour marketUnemployment rate (3 year average)10%10.6 9.9 9.6 9.0 8.8 Unemployment rate (year level)9.6 (10)9.9 9.3 9.5 8.3 8.7 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.9 -1.8 -1.1 0.8 2.4 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.2 -1.8 -1.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-8.5 -4.8 -2.5 forecast   
 
 
  
 
3.13. CYPRUS 

In  Cyprus,  concerns  related  to  household  and  non-financial  corporate,  government  and  external 
debt-to-GDP  ratios  remain,  although  they  resumed  their  declining  path  after  the  COVID-19  crisis. 
Despite  improvements,  non-financial  corporate  and  household  debt-to-GDP  ratios  continue  to  be 
among the highest in the EU. The large current account deficit narrowed, but is forecast to increase 
again, amid the worsening external environment. The banking sector proved resilient, although risks 
remain, including those associated with non-performing loans. 

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Cyprus  is  experiencing  excessive  macroeconomic  imbalances.  This  year,  the  Commission  finds  it 
opportune  to  examine  the  persistence  of  excessive  imbalances  or  their  unwinding  in  an  in-depth 
review for Cyprus. 

Real  GDP  growth  is  forecast  at  5.6%  in  2022  and  1%  in  2023.  Inflation  is  high.  Year-on-year, it 
decreased to 8.6% in October, with core inflation estimated at 5.9%. Prices are set to rise faster 
than wages.   

The scoreboard reading for Cyprus shows that in 2021 four indicators were beyond their indicative 
thresholds, namely the current account balance, the net international  investment position, private 
sector debt and government debt. An economic reading of the scoreboard highlights the following 
relevant developments:  

  External sustainability remains a concern. The current account deficit remains large despite 
some narrowing to 6.8% of GDP in 2021. The improvement was driven by the partial recovery in 
travel balance, which more than offset the deterioration of balance of trade in energy goods. A 
negative  contribution  came  from  the  worsening  primary  income  balance.  The  current  account 
deficit  is  forecast  to  increase  in  2022,  before  falling  again  while  remaining  large,  and  is  not 
conducive to maintaining the net international investment position (NIIP) at prudent levels. While 
the NIIP remained substantial and negative at  -117.8% of GDP in 2021, it largely reflects the 
activities of special purpose entities with reportedly limited links to the domestic economy. The 
NIIP is forecast to continue decreasing. 

  Cost  competitiveness  concerns  are  limited.  Nominal  unit  labour  costs  slightly  declined  in 
2021, but are forecast  to somewhat increase, in light  of high core inflation. There is a partial 
indexation  of  wages  to  inflation.  The  HICP-based  real  effective  exchange  rate  depreciated 
marginally in 2021. Year-on-year, it continued depreciating by August 2022. 

  The non-financial corporate debt-to-GDP ratio remains among the highest in the EU, but it is 
on  a  declining path.  It  continued to  decrease in  the first  half  of  2022  but  remains  still  above 
both prudential  and fundamental benchmarks. The high share of foreign debt of non-financial 
ship-owning  special  purpose  entities  and  high  liquidity  buffers  mitigate  risks.  Corporate  non-
performing  loans  (NPLs)  of  banks  remain  elevated  and  there  are  also  NPLs  held  by  credit 
acquiring companies. The household debt-to-GDP ratio is also among the highest in the EU and 
it  is  above  its  estimated  prudential  benchmark.  However,  the  ratio  declined  in  2021  and 
continued to decrease in the first half of 2022. Part of the household debt is in form of non-
performing  loans  held  by  banks  or  credit  acquiring  companies.  The  repeated  suspension  of 
foreclosures undermines payment discipline. Higher interest rates are likely to put pressure on 
the debt servicing capacity of NFCs and households, as variable interest rate debt prevails. 

  Concerns  related  to  the  government  debt-to-GDP  ratio  remain.  The  government  debt  ratio 
decreased to 101% of GDP in 2021 and is forecast to decrease further, to below the 2019 level 
in 2022. Sovereign bond spreads tend to be higher than in other EA members. The fiscal balance 
is forecast to turn into a surplus in 2022 and the projected primary surpluses are expected to 
keep  government  gross  financing  needs  at  relatively  low  levels.  Furthermore,  Cyprus  has 

74 

 
 
3.13. CYPRUS 

sizeable cash buffers. The fiscal sustainability risks are medium both in the medium and long-
term. 

  The  banking  sector  proved  resilient,  albeit  remaining  challenges.  In  2021  the  stock  of  NPLs 
further declined to around 5.6% on the back of asset sales, while in 2022 it remains stable. The 
impact  of  the  pandemic  is  visible  in  the  increased  share  of  loans  classified  as  exhibiting 
increased  risk.  The  stage  2  loan  ratio  and  the  share  of  forborne  loans  are  well  above  the  EA 
average. Nevertheless, new defaults following the lifting of the moratoria have been limited so 
far. While the tier-1 capital ratio is close to the EU average, return on equity is one of the lowest 
in  the  EU  and  turned  only  marginally  positive  in  2021.  Higher  interest  rates  are  expected  to 
increase  banks  net  interest  income,  given  the  significant  amount  of  banks’  cash  holdings  and 
the  predominance  of  floating  rates  loans.  However,  asset  quality  could  deteriorate  with  the 
squeeze of private sector balance sheets. 

Graph 3.13.1: Selected graphs: Cyprus 

Source: Eurostat, Comext and European Commission services 

75 

-40-30-20-100102030151617181920212222*23*24*% of GDPa) Decomposition of current accountGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing02040608010012014011Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q222Q2% of GDPb) Debt liabilities, households, consolidatedLong-term bank loansShort-term bank loansLoans by OFIsOther domestic debt liab.ForeignTotal consolidated 
  
 
Table 3.13.1:  Key economic and financial indicators, Cyprus 

3.13. CYPRUS 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

76 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-4.9 -6.5 -7.5 -8.8 -7.9 Current account balance, balance of payments (% of GDP)-2.0 (1)-1.3 (2)-5.6 -10.1 -6.8 -9.7 -7.3 Net international investment position (% of GDP)-35%-59.4 (3)-40.1 (4)-115.4 -134.5 -117.8 -104.8 -108.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-155.3 -111.4 -76.4 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)5.2 6.9 4.1 p2.2 5.9 Nominal unit labour cost index (% y-o-y change)2.7 2.9 -1.4 p0.7 6.6 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.0 0.1 -2.4 -5.8 -8.8 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-2.2 0.5 -0.8 -5.8 -2.9 Export market share - % of world exports (5 year % change)-6%25.3 38.9 24.9 25.1 19.5 Export market share - % of world exports (1 year % change)5.3 13.6 -2.7 3.9 -1.2 Private sector debtPrivate sector debt, consolidated (% of GDP)133%265.5 269.8 248.4 p228.2 213.0 Private sector credit flow, consolidated (% of GDP)14%-0.5 -1.2 4.3 p3.4 -0.4 Household debt, consolidated (% of GDP)45.6 (6)93.1 (7)86.2 89.4 83.0 77.474.5Non-financial corporate debt, consolidated (% of GDP)81.2 (6)137.2 (7)179.3180.4165.4150.8138.5Housing marketHouse price index, deflated (1 year % change)6%3.4 0.7 -4.3 -5.5 -4.0 House price index, nominal (1 year % change)-13.7 (8)3.7-0.2-3.40.93.3Government debtGeneral government gross debt (% of GDP)60%90.4 113.5 101.0 89.6 84.0 General government balance (% of GDP)1.3-5.8-1.71.11.1Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%7.5 -7.1 -0.8 -0.2 Return on equity (%)3.5-3.30.6Common Equity Tier 1 ratio10.6 (9)17.417.617.6Gross non-performing loans, domestic and foreign entities (% of gross loans)18.1e11.0e5.6p5.6Labour marketUnemployment rate (3 year average)10%8.9 7.7 7.4 7.4 7.3 Unemployment rate (year level)8.9 (10)7.1 7.6 7.5 7.2 7.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.6 1.9 1.7 -0.9 0.1 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-3.7 -2.4 -0.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-12.5 -6.5 -3.1 forecast 
  
 
3.14. LATVIA 

In Latvia, concerns related to cost competitiveness and house price developments existed already 
before  the  COVID-19  pandemic  and  are  increasing. Nominal  unit  labour  costs  are  set  to  continue 
increasing driven by weakening productivity growth. Nominal house price growth remains rapid and 
has picked up more recently, leading to a slight overvaluation, although household debt is low. The 
surge in energy prices has spilled over to core inflation, which is among the highest in the EU and 
has contributed to a weakening of the current account.   

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Latvia.  This  year,  the  Commission  finds  it  opportune  to 
examine newly emerging vulnerabilities and their implications in an in-depth review for Latvia.   

Real GDP growth is forecast at 1.9% in 2022 and -0.3% in 2023. Inflation is among the highest in 
the  euro  area.  Year-on-year,  it  decreased  to  21.8%  in  October,  with  core  inflation  estimated  at 
8.9% in September. Prices are set to rise faster than wages.   

The scoreboard reading for Latvia shows that in 2021 four indicators were beyond their indicative 
thresholds, namely nominal unit labour cost growth, real house price growth, change in activity rate 
and  change  in  youth  unemployment.  An  economic  reading  of  the  scoreboard  highlights  the 
following relevant developments:  

  External  sustainability  risks  are  limited  despite the  worsening  outlook.  The  current  account 
turned negative in 2021, reaching -4.2%, and is forecast to deteriorate further in 2022, mainly 
due to  rising  costs  of  energy imports. The government deficit widened significantly during the 
COVID-19  crisis,  having  reached  7%  in  2021,  and  is  forecast  to  remain  at  about  this  level  in 
2022  before  narrowing  in  2023.  However,  the  net  international  investment  position  (NIIP) 
continued  improving  and  reached  -27.4%  of  GDP  in  2021.  Since  Latvia’s  liabilities  largely 
consist of government bonds and foreign direct investment, the NIIP excluding non-defaultable 
instruments is positive.  

  Cost  competitiveness  concerns  existed  already  before  the  COVID-19  pandemic  and  remain 
pertinent. Nominal unit labour cost growth decelerated to 4% in 2021, but is forecast to pick up 
again strongly in 2022 and remain high in 2023. The high inflation may put additional pressure 
on wage growth and the worsening economic outlook is expected to reduce productivity growth. 
While  inflation  has  been  particularly  high,  the  HICP-based  real  effective  exchange  rate 
appreciated marginally in 2021, and year-on-year also appreciated by August 2022.   

  High  house  price  growth  continues  being  of  concern.  Nominal  house  price  growth  stood  at 
10.9%  in  2021  and  accelerated  significantly  in  the  first  half  of  2022.  Nominal  year-on-year 
house  price  growth  was  at  16.5%  in  the  second  quarter  of  2022.  This  acceleration  follows  a 
decade where house price growth remained broadly in step with wage growth. In 2021, house 
prices were estimated to be 10% overvalued. Mortgage lending is moderate and household debt 
low and decreasing. 

  The banking sector is sound and well capitalised. Profitability improved in 2021 above the EU 
average and the non-performing loans ratio declined by more than 2 percentage points to 2.1%. 
Credit dynamics have been muted and the private sector debt has continued declining. 

  The  labour  market  deteriorated  during  the  COVID-19  crisis  and  has  not  fully  recovered.  The 
unemployment  rate  decreased  to  7.6%  in  2021  and  is  forecast  to  decrease  in  2022  before 
increasing again in 2023. The activity rate fell significantly in 2021 breaking an almost decade 
long  trend  of  improvement,  but  it  is  forecast  to  start  increasing  again  in  2022.  Youth 
unemployment has failed to improve after the increase in 2020.  

77 

 
 
Graph 3.14.1: Selected graphs: Latvia 

3.14. LATVIA 

Source: Eurostat and European Commission services 

Table 3.14.1:  Key economic and financial indicators, Latvia 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

78 

020406080100120140160180200-15-10-5051012Q413Q414Q415Q416Q417Q418Q419Q420Q421Q42015=100Rate of change ,y-o-y (%)a) House price and mortgage growthMFI loans for house purchase (y-o-y growth rate)Real House Price Index (2015=100), right axisNominal House Price Index (2015=100), right axis969810010210410610811018192021222019=100b) Real effective exchange ratevs. 42 partners, based on headline inflationvs. EA19, based on headline inflationvs. EA19, based on core inflationThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.2 0.6 -0.7 -3.2 -6.9 Current account balance, balance of payments (% of GDP)-0.4 (1)-3.8 (2)-0.6 2.6 -4.2 -8.1 -8.4 Net international investment position (% of GDP)-35%-50.5 (3)-13.3 (4)-40.3 -34.1 -27.4 -24.4 -25.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)5.8 14.1 18.9 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)15.3 16.1 14.5 22.4 25.5 Nominal unit labour cost index (% y-o-y change)5.0 4.8 4.0 12.3 7.4 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)3.8 5.9 2.3 -2.9 -7.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.0 2.0 0.3 -5.2 -2.8 Export market share - % of world exports (5 year % change)-6%3.3 19.7 13.4 15.6 10.0 Export market share - % of world exports (1 year % change)-1.3 11.8 -1.8 3.7 -2.1 Private sector debtPrivate sector debt, consolidated (% of GDP)133%66.2 64.7 58.0 53.1 51.4 Private sector credit flow, consolidated (% of GDP)14%1.1 -1.9 0.9 1.8 3.0 Household debt, consolidated (% of GDP)61.9 (6)18.2 (7)20.2 20.3 19.4 18.118.1Non-financial corporate debt, consolidated (% of GDP)83.5 (6)68.9 (7)46.044.438.635.033.3Housing marketHouse price index, deflated (1 year % change)6%5.8 2.7 7.3 -2.5 -2.2 House price index, nominal (1 year % change)10.3 (8)9.03.510.911.1-0.4Government debtGeneral government gross debt (% of GDP)60%36.5 42.0 43.6 42.4 44.0 General government balance (% of GDP)-0.6-4.3-7.0-7.1-3.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%4.6 10.8 13.2 1.8 Return on equity (%)9.65.24.5Common Equity Tier 1 ratio10.6 (9)22.025.729.2Gross non-performing loans, domestic and foreign entities (% of gross loans)3.9e4.6e2.1p1.8Labour marketUnemployment rate (3 year average)10%7.5 7.3 7.3 7.6 7.6 Unemployment rate (year level)7.4 (10)6.3 8.1 7.6 7.1 8.1 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.1 1.1 -1.8 2.0 2.5 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.7 -1.2 -1.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-4.8 -2.1 2.6 forecast     
 
 
  
 
3.15. LITHUANIA 

In Lithuania, concerns related to cost competitiveness existed before the COVID-19 pandemic and 
current developments bring them to the fore. Nominal unit labour cost growth has been strong in 
recent  years  and  is  set  to  remain  high,  while  core  inflation  has  also  been  high  compared  with 
Lithuania’s euro area peers. Nominal house price growth is among the highest in the EU, and loan 
growth continues.  

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify macroeconomic imbalances for Lithuania. This year,  the Commission finds it opportune to 
examine newly emerging vulnerabilities and their implications in an in-depth review for Lithuania.   

Real  GDP  growth  is  forecast  at  2.5%  in  2022  and  0.5%  in  2023.  Inflation  is  high,  including 
compared to Lithuania’s euro area trading partners. Year-on-year, it decreased to 22% in October 
2022,  with  core  inflation  estimated  at  11.9%  in  September.  Prices  are  set  to  rise  faster  than 
wages.   

The  scoreboard  reading  for  Lithuania  shows  that  in  2021  five  indicators  were  beyond  their 
indicative  thresholds,  namely  nominal  unit  labour  cost  growth,  real  house  price  growth,  financial 
sector liabilities growth, change in long-term unemployment and change in youth unemployment. 
An economic reading of the scoreboard highlights the following relevant developments:  

  External sustainability concerns remain contained despite the worsening outlook. The current 
account surplus narrowed to 1.1% in 2021, undoing its temporary increase during the pandemic 
and driven by a worsening balance of trade in both energy and other goods. A deterioration of 
the  current  account  balance  to  a  sizeable  deficit  is  forecast  for  2022.  After  having  narrowed 
substantially in 2021, the government deficit is forecast to widen to 1.9% in 2022 and continue 
widening  in  2023.  The  net  international  investment  position  (NIIP)  is  nearly  balanced  and 
projected to continue improving. As its liabilities largely consist of foreign direct investment, the 
NIIP net of non-defaultable instruments is positive.  

  Cost competitiveness concerns, which existed before the COVID-19 pandemic, remain acute. 
Nominal  unit  labour  costs  have  been  increasing  strongly  in  recent  years  and  their  growth  is 
forecast  to  accelerate  in  2022,  in  the  context  of  Lithuania’s  strong  nominal  wage  increases. 
Further  rises,  though  considerably  less  pronounced,  are  forecast  for  the  rest  of  the  forecast 
horizon.  The  HICP-based  real  effective  exchange  rate  appreciated  in  2021.  However,  year-on-
year, it had remained broadly unchanged by August 2022.  

  High house price growth continues being of concern. Nominal house price growth accelerated 
from 7.3% in 2020 to 16.1% in 2021, among the highest paces in the EU. Nominal year to year 
house price growth increased to 22.1% in the second quarter of 2022. For 2021, house prices 
metrics  do  not  point  to  potential  signs  of  overvaluation.  Household  loans  have  picked  up  in 
recent months. 

  The unemployment rate resumed its decreasing trend, reaching 7.1% in 2021 and is forecast 
to  decrease  also  in  2022  before  increasing  again  in  2023.  The  unemployment  rate  remains 
higher  than  in  many  other  EU  countries,  whereas  the  vacancy  rate  increased  to  a  historically 
high  level.  The  long-term  unemployment  rate  slightly  increased  in  2021.  The  youth 
unemployment rate decreased in 2021.  

79 

 
  
 
Graph 3.15.1: Selected graphs: Lithuania 

3.15. LITHUANIA 

Source: Eurostat and European Commission services 

Table 3.15.1:  Selected economic and financial indicators, Lithuania 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

80 

0501001502002500246810121415Q416Q417Q418Q419Q420Q421Q42015=100Rate of change y-o-y (%)a) House priceMFI loans for house purchase (y-o-y growth rate)Real House Price Index (2015=100), right axisNominal House Price Index (2015=100), right axis9610010410811211618192021222019=100b) Real effective exchange ratevs. 42 partners, based on headline inflationvs. EA19, based on headline inflationvs. EA19, based on core inflationThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%1.5 3.7 4.0 1.5 -1.8 Current account balance, balance of payments (% of GDP)0.7 (1)-2.5 (2)3.5 7.3 1.1 -3.9 -2.8 Net international investment position (% of GDP)-35%-61.2 (3)1.5 (4)-23.5 -15.6 -7.4 -3.4 -4.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)5.6 15.2 22.2 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)16.6 17.4 19.2 26.0 24.2 Nominal unit labour cost index (% y-o-y change)6.3 4.9 6.8 12.4 3.4 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)3.8 6.9 4.4 -0.7 -8.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.7 3.3 1.8 -5.5 -5.2 Export market share - % of world exports (5 year % change)-6%16.4 38.7 37.9 30.0 21.7 Export market share - % of world exports (1 year % change)6.5 8.9 3.4 3.3 -1.7 Private sector debtPrivate sector debt, consolidated (% of GDP)133%55.2 54.4 53.9 51.1 46.8 Private sector credit flow, consolidated (% of GDP)14%2.6 0.3 5.9 6.0 5.6 Household debt, consolidated (% of GDP)63.9 (6)14.9 (7)23.0 24.2 23.6 22.622.7Non-financial corporate debt, consolidated (% of GDP)86.7 (6)48.8 (7)32.230.230.328.524.1Housing marketHouse price index, deflated (1 year % change)6%4.5 6.1 11.0 -1.6 -2.8 House price index, nominal (1 year % change)-7.0 (8)6.87.316.114.12.8Government debtGeneral government gross debt (% of GDP)60%35.8 46.3 43.7 38.0 41.0 General government balance (% of GDP)0.5-7.0-1.0-1.9-4.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%6.2 28.5 25.2 8.1 Return on equity (%)14.510.010.4Common Equity Tier 1 ratio10.6 (9)19.521.523.2Gross non-performing loans, domestic and foreign entities (% of gross loans)1.7e2.2e1.2p1.0Labour marketUnemployment rate (3 year average)10%6.5 7.0 7.3 7.2 6.7 Unemployment rate (year level)6.4 (10)6.3 8.5 7.1 6.0 7.1 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.5 2.6 0.9 1.0 -1.2 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.1 -0.2 0.6 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-2.6 6.3 3.2 forecast  
 
 
  
 
3.16. LUXEMBOURG 

In  Luxembourg,  concerns  related  to  house  price  developments  and  high  household  debt  have 
increased.  Nominal  house  price  growth  is  among  the  highest  in  the  EU,  raising  concerns  about 
overvaluation  and  high  household  debt.  Household  debt  as  a  percentage  of  household  gross 
disposable income is declining but remains very high. The banking sector is stable but faces some 
risks. Some competitiveness concerns may be emerging, amid continued unit labour cost growth.  

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify macroeconomic imbalances for Luxembourg. This year,  the Commission finds it opportune 
to  examine  newly  emerging  vulnerabilities  and  their  implications  in  an  in-depth  review  for 
Luxembourg.  

Real  GDP  growth  is  forecast  at  1.5%  in  2022  and  1%  in  2023.  Inflation  is  high.  Year-on-year, it 
remained at 8.8% in October, while core inflation is estimated at 4.9% in September, which is lower 
than in many other euro area countries. Prices are set to rise faster than wages.   

The  scoreboard  reading  for  Luxembourg  shows  that  in  2021  five  indicators  were  beyond  their 
indicative  thresholds,  namely  nominal  unit  labour  cost  growth,  real  house  price  growth,  private 
sector credit flow, private sector debt and change in youth unemployment. An economic reading of 
the scoreboard highlights the following relevant developments:  

  Cost competitiveness may become a concern. Nominal unit labour costs increased by 3.9% in 
2021  and  are  forecast  to  continue  increasing  more  strongly  over  2022  and  2023.  The  broad 
package of measures adopted to curb inflation is expected to moderate nominal wage increases 
going  forward.  The  HICP-based  real  effective  exchange  rate  appreciated  marginally  in  2021. 
Year-on-year, it depreciated by August 2022. 

  The non-financial corporate debt-to-GDP ratio is the highest in the EU, although it declined 
moderately,  to  274%  of  GDP  in  2021.  It  remains  above  both  prudential  and  fundamental 
benchmarks and is still 31 p.p. higher than in 2019. The high share of cross-border intra-group 
lending in corporate debt reduces these risks. At 11%, the share of corporate loans denominated 
in foreign currency is one of the highest among euro area countries. The non-financial corporate 
debt  ratio  decreased  in  the  first  half  of  2022,  but  there  are  risk  factors  associated  to  the 
macroeconomic environment. Credit flows to non-financial corporates declined, but also remain 
very high, at 16.7% of GDP.  

  Household debt as a percentage of household gross disposable income is declining, although it 
remains one of the highest in the EU. Net credit flows to households moderated in the second 
quarter of 2022. The debt stock has declined on account of nominal GDP growth and continued 
to decline in the first half of 2022. Financing costs for households started to increase, partly due 
to the high share of variable rate mortgages and in line with the increase for the EA and lending 
standards for mortgage loans have tightened.  

  Very  high  house  price  growth  continues  being  of  concern.  Nominal  house  price  growth 
remained  very  high,  at  13.9%  in  2021,  compared  to  14.5%  in  2020 being  one  of  the  highest 
paces in the EU. Nominal year-on-year house price growth was at 11.5% in the second quarter 
of  2022.  One  of  the  highest  price-to-income  ratios  in  the  EU  raises  affordability  concerns.  At 
61%,  house  prices  were  estimated  to  be  the  most  overvalued  according  to  the  Commission 
valuation model in 2021, among the EU Member States. The risk of a sharp correction in house 
prices  is  limited  given  supply  constraints,  but  has  increased  in  view  of  tighter  financing 
conditions and lower growth.  

  The  banking  sector  is  stable  but  faces  some  risks.  Banks  are  well  capitalised  and  liquid. 
Profitability  increased  in  2021  but  remained  well  below  the  EU  average.  The  ratio  of  non-
performing  loans  is  the  lowest  in  the  EU.  Dynamic  mortgage  growth,  despite  a  recent 

81 

 
 
deceleration,  represents  a  main  risk  for  the  banking  sector,  amid  already  high  household 
indebtedness and overvalued house prices. 

Graph 3.16.1: Selected graphs: Luxembourg 

3.16. LUXEMBOURG 

Source: Eurostat and European Commission services 

Table 3.16.1:  Selected economic and financial indicators, Luxembourg 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

82 

3336394210012014016018006070809101112131415161718192021% of total financial assets% of disp. incomeb) Household indebtedenessDebt / disposable income, HouseholdsDebt / Total financial assets, Households (rhs)-505101520051015202504Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q4Rate of change ,y-o-y (%)Rate of change, y-o-y (%)a) House price and mortgage growth MFI loans for house purchase (y-o-y growth rate)Real House Price Index (y-o-y growth rate), right axisThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%4.0 3.9 4.2 4.0 3.4 Current account balance, balance of payments (% of GDP)5.5 (1)3.0 (2)3.4 4.6 4.7 2.9 2.5 Net international investment position (% of GDP)-35%-171.4 (3)53.7 (4)67.8 55.7 30.6 33.9 35.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-4153.8 -4172.4 -4766.5 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)14.7 13.0 11.2 p15.0 17.4 Nominal unit labour cost index (% y-o-y change)3.1 3.8 3.9 p6.7 5.9 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.0 1.5 0.6 -1.9 -4.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.6 0.4 0.8 -3.0 -2.5 Export market share - % of world exports (5 year % change)-6%7.0 17.6 13.1 13.9 14.2 Export market share - % of world exports (1 year % change)3.1 15.2 -1.4 -1.2 -1.3 Private sector debtPrivate sector debt, consolidated (% of GDP)133%310.8 320.3 340.6 p329.7 309.9 Private sector credit flow, consolidated (% of GDP)14%24.9 42.9 53.9 p12.2 8.0 Household debt, consolidated (% of GDP)91.7 (6)88.5 (7)67.2 68.5 66.0 67.267.6Non-financial corporate debt, consolidated (% of GDP)104.6 (6)89.7 (7)243.6251.8274.6262.5242.3Housing marketHouse price index, deflated (1 year % change)6%8.3 13.1 12.4 3.9 2.2 House price index, nominal (1 year % change)60.9 (8)10.114.513.910.03.1Government debtGeneral government gross debt (% of GDP)60%22.4 24.5 24.5 24.3 26.0 General government balance (% of GDP)2.2-3.40.8-0.1-1.7Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%3.7 -2.6 11.4 0.2 Return on equity (%)5.24.45.5Common Equity Tier 1 ratio10.6 (9)18.819.518.3Gross non-performing loans, domestic and foreign entities (% of gross loans)0.6e0.7e0.6p0.7Labour marketUnemployment rate (3 year average)10%5.6 6.0 5.9 5.6 5.0 Unemployment rate (year level)5.7 (10)5.6 6.8 5.3 4.7 5.1 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.0 2.0 2.1 -1.2 -2.3 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.9 -0.4 0.4 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-1.9 7.8 2.7 forecast   
 
 
  
 
3.17. HUNGARY 

In  Hungary,  concerns  related  to  external  sustainability,  cost  competitiveness,  fiscal  sustainability 
and house price developments continue increasing. The current account deficit widened in 2021 and 
is forecast to rise further, and the exchange rate has been on a depreciating trend. Unit labour costs 
increases have been very large for years and continue  to be strong, with cost competitiveness so 
far maintained through nominal depreciation. Nominal house price growth has recently been among 
the highest in the EU, amidst limited supply and an estimated overvaluation of  house prices. The 
government deficit remains high.  

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify macroeconomic  imbalances  for  Hungary.  This  year,  the  Commission  finds  it  opportune  to 
examine newly emerging vulnerabilities and their implications in an in-depth review for Hungary.   

Real  GDP  growth is  forecast  at  5.5%  in  2022  and  0.1%  in  2023.  Inflation  is  very  high,  including 
compared  to  Hungary’s  euro  area  trading  partners.  Year-on-year,  it  increased  to  20.7%  in 
September, with core inflation estimated at 13.2%. Prices are set to rise faster than wages.   

The scoreboard reading for Hungary shows that in 2021 five indicators were beyond their indicative 
thresholds, namely the net international investment position, nominal unit labour cost growth, real 
house price growth, government debt and change in youth unemployment. An economic reading of 
the scoreboard highlights the following relevant developments:  

  External  sustainability  risks  have  increased  amid  deteriorating  external  flows.  The  current 
account deficit widened to 4% of GDP in 2021, with a clear further widening underway in 2022. 
Hungary’s large net energy imports make the external balance sensitive to international energy 
price developments. The negative net international investment position (NIIP) remained broadly 
unchanged in 2021. The NIIP net of non-defaultable instruments is nearly balanced. The foreign 
exchange reserves cover slightly more than 3 months of imports and exceed short-term external 
debt.  

  Cost competitiveness concerns, which existed already before the COVID-19 pandemic, persist. 
Continued  nominal  depreciations  of  the  forint  have  partially  offset  the  large  increases  in 
nominal unit labour costs (ULCs) in recent years. ULCs increased again in 2021, in context of a 
tight  labour market,  and  are  forecast  to increase  strongly  in  2022  and  2023. The  HICP-based 
real effective exchange rate remained broadly unchanged in 2021 then strongly depreciated by 
August 2022. 

  Very  high  house  price  growth  remains  of  concern.  Nominal  house  price  growth  accelerated 
from 4.9% to 16.5% in 2021 and grew at one of the highest paces in the EU. Nominal year-on-
year house price growth accelerated to 22.8% in the second quarter of 2022. House prices were 
estimated to be 17% overvalued in 2021. At the same time, dwelling investment was well below 
the EU average at 3.9% of GDP in 2021. 

  The  government  debt  decreased  slightly  in  2021,  to  76.8%  of  GDP,  on  the  back  of  marked 
nominal  GDP  growth,  and  is  forecast  to  stabilise  at  around  that  level.  The  government  deficit 
narrowed  to  7.1%  of  GDP  in  2021  and  is  forecast  to  continue  moderating  on  the  back  of 
measures announced by the government. The share of government debt denominated in foreign 
currencies  or  held  by  non-residents  is  elevated.  Sovereign  bond  yields  have  increased  for  all 
maturities  especially  since  summer  last  year.  At  the  same  time,  government  gross  financing 
needs are high. Fiscal sustainability risks are medium in the medium term and high in the long 
term, also due to population ageing.  

  The banking sector remains overall sound but faces challenges ahead. Profitability  is one of 
the highest in the EU, the tier-1 capital ratio is close to the EU average and the non-performing 
loans ratio has remained low, although there was an increase in forborne debt in 2021. A just-

83 

 
 
introduced windfall tax for 2022 and 2023 and a regulatory cap on flexible mortgage rates until 
mid-2023  are  likely  to  significantly  reduce  banks'  profits.  The  holdings  of  government  debt 
accounts  for  almost  one  fifth  of  bank  assets.  The  private  sector  debt-to-GDP  ratio  is  low  but 
borrowing  by  households  and  corporations  has  increased  strongly  since  2020  and  loans  in 
foreign currency have significance, notably for commercial real estate. 

3.17. HUNGARY 

Graph 3.17.1: Selected graphs: Hungary 

Source: Eurostat, Comext and European Commission services 

84 

85909510010511018192021222019=100b) Real effective exchange rate vs. 42 partners, based on headline inflationvs. EA19, based on headline inflationvs. EA19, based on core inflation-15-10-5051015151617181920212222*23*24*% of GDPa) Current accountGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing 
     
 
Table 3.17.1:  Selected economic and financial indicators, Hungary 

3.17. HUNGARY 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

85 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.5 -0.5 -1.9 -4.2 -6.0 Current account balance, balance of payments (% of GDP)0.0 (1)-6.1 (2)-0.8 -1.1 -4.0 -7.6 -6.3 Net international investment position (% of GDP)-35%-52.0 (3)-14.4 (4)-49.8 -52.2 -53.1 -46.1 -44.7 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-2.6 -2.4 -1.5 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)11.5 13.7 12.4 p20.6 27.8 Nominal unit labour cost index (% y-o-y change)3.1 6.7 2.1 p10.7 13.0 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.4 -4.9 -4.1 -13.1 -13.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.8 -3.6 0.3 -10.0 -4.2 Export market share - % of world exports (5 year % change)-6%5.0 7.4 0.0 2.0 3.3 Export market share - % of world exports (1 year % change)1.1 2.6 -3.8 2.6 0.9 Private sector debtPrivate sector debt, consolidated (% of GDP)133%67.3 76.8 80.5 p75.9 65.5 Private sector credit flow, consolidated (% of GDP)14%4.2 8.1 12.7 p6.0 2.0 Household debt, consolidated (% of GDP)46.4 (6)26.0 (7)18.5 20.8 21.0 19.718.6Non-financial corporate debt, consolidated (% of GDP)63.4 (6)35.1 (7)48.856.059.556.246.9Housing marketHouse price index, deflated (1 year % change)6%11.8 1.5 10.0 p4.5 -15.3 House price index, nominal (1 year % change)16.8 (8)17.04.916.517.13.5Government debtGeneral government gross debt (% of GDP)60%65.3 79.3 76.8 76.4 75.2 General government balance (% of GDP)-2.0-7.5-7.1-6.2-4.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%36.8 55.0 16.4 0.0 Return on equity (%)14.37.612.7Common Equity Tier 1 ratio10.6 (9)15.815.917.7Gross non-performing loans, domestic and foreign entities (% of gross loans)4.2e3.6e3.2p3.4Labour marketUnemployment rate (3 year average)10%3.6 3.7 3.8 3.9 4.0 Unemployment rate (year level)3.3 (10)3.3 4.1 4.1 3.6 4.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.6 2.0 2.1 3.4 3.8 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.2 -0.5 -0.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-1.5 2.0 3.6 forecast 
  
 
3.18. MALTA 

In  Malta,  the  current  account  deficit  remains  sizeable  and  non-financial  corporate  debt  elevated, 
although associated risks appear to be limited. The high non-financial corporate debt to GDP ratio 
remains on a declining path. Nominal house prices are estimated to be moderately overvalued. 

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Malta.  This  year,  the  Commission  does  not  consider  it 
necessary to carry out further in-depth analysis for Malta. 

Real GDP growth is forecast at 5.7% in 2022 and 2.8% in 2023. Inflation is high, albeit lower than 
in  most  other  EU  countries.  Year-on-year,  it  increased  to  7.5%  in  October,  with  core  inflation 
estimated at 6.7%. Prices are set to rise faster than wages.   

The  scoreboard  reading  for  Malta,  shows  that  in  2021  one  indicator  was  beyond  its  indicative 
threshold,  namely  nominal  unit  labour  cost  growth.  An  economic  reading  of  the  scoreboard 
highlights the following relevant developments:  

  The  external  sustainability  outlook  is  worsening.  The  current  account  deficit  expanded  to 
4.6%  in  2021  and  is  expected  to  deteriorate  further  in  2022. (46)  Improvements  in  travel 
balances were offset by the deteriorating balance of trade in energy goods. The overall decline 
was  mostly  driven  by  the  trade  deficit  in  non-energy  goods.  The  net  international  investment 
position remains large and positive, reflecting the country’s position as an international financial 
centre. It is forecast to stay at similar level despite high current account deficits. 

  Cost  competitiveness  concerns  seem  to  be  limited.  Nominal  unit  labour  costs  declined  in 
2021, after the strong increase in 2020, but are forecast to increase again slightly in 2022. Unit 
labour  cost  growth  remains  below  the  euro  area  average.  The  HICP-based  real  effective 
exchange rate depreciated in 2021. Year-on-year, it continued depreciating by August 2022.  

  Vulnerabilities related to the non-financial corporate debt-to-GDP ratio remain, although it is 
on a declining path. It declined moderately, to 78.4% in 2021. The non-financial corporate debt 
ratio continued to decrease in the first half of 2022, but there are risk factors associated to the 
macroeconomic  environment.  It  remains  above  both  prudential  and  fundamental  benchmarks 
and is 3 percentage points higher than in 2019. Credit flows to non-financial corporates remain 
high in % of GDP.  

  Concerns  associated  to  house  price  developments  remain.  Nominal  house  price  growth 
accelerated to 5.1% in 2021. Nominal year-on-year house price growth increased to 7.7% in the 
second  quarter  of  2022.  House  prices  were  estimated  to  be  9%  overvalued  in  2021.  The 
banking sector remains overall sound with high levels of capitalisation, but low profitability. The 
exposure of banks to real estate sector is still very high.  

  The  government  debt  ratio  increased  to  56.3%  of  GDP  and  is  forecast  to  increase  further, 
approaching  the  60%  of  GDP  threshold.  The  government  deficit  narrowed  to  7.8%  of  GDP  in 
2021  and  it  is  forecast  to  continue  narrowing.  Fiscal  sustainability  risks  are  medium  in  the 
medium-term and high in the long-term due to population ageing and high initial fiscal deficit. 

(46)  There is a big discrepancy between Balance of Payments (BoP) and National Account (NA) data on the current account, with 

the latter displaying a considerable surplus in 2021, though considerably lower than in the pre-pandemic years. The 
scoreboard and assessments in the AMR are based on the BoP data. 

86 

 
 
 
                                                 
 
Graph 3.18.1: Selected graphs: Malta 

3.18. MALTA 

Source: Eurostat, Comext and European Commission services 

Table 3.18.1:  Selected economic and financial indicators, Malta 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

87 

050100150200250080910111213141516171819202122f% of GDPb) Decomposition of debt by sectorGovernmentHouseholdNon financial corporationsPrivate sector-40-20020401516171819202122222324% of GDPa) Current accountGoods, fcstServices, fcstGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc balanceSecondary inc balanceCurrent account balanceThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%5.7 2.8 -0.8 -4.2 -4.8 Current account balance, balance of payments (% of GDP)-2.4 (1)3.2 (2)5.0 -2.9 -4.6 -5.1 -4.8 Net international investment position (% of GDP)-35%-71.1 (3)-15.8 (4)53.5 51.0 52.8 50.3 52.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)234.8 254.6 259.4 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)7.2 19.6 12.9 9.7 0.6 Nominal unit labour cost index (% y-o-y change)3.6 11.4 -2.2 0.7 2.1 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.8 2.1 -1.2 -4.8 -8.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.2 1.4 -1.3 -5.0 -2.2 Export market share - % of world exports (5 year % change)-6%20.0 12.5 -0.9 -1.4 2.2 Export market share - % of world exports (1 year % change)4.0 4.1 -8.9 3.2 0.4 Private sector debtPrivate sector debt, consolidated (% of GDP)133%124.1 138.6 131.8 129.9 120.9 Private sector credit flow, consolidated (% of GDP)14%12.7 6.6 9.4 11.0 9.8 Household debt, consolidated (% of GDP)56.4 (6)54.8 (7)48.5 55.1 53.4 53.053.6Non-financial corporate debt, consolidated (% of GDP)47.8 (6)52.6 (7)75.683.578.476.967.3Housing marketHouse price index, deflated (1 year % change)6%4.2 2.2 3.8 p0.5 -1.5 House price index, nominal (1 year % change)8.6 (8)6.13.45.17.07.0Government debtGeneral government gross debt (% of GDP)60%40.7 53.3 56.3 57.4 59.9 General government balance (% of GDP)0.6-9.4-7.8-6.0-5.7Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%7.5 1.7 7.7 0.2 Return on equity (%)6.00.33.5Common Equity Tier 1 ratio10.6 (9)20.221.320.6Gross non-performing loans, domestic and foreign entities (% of gross loans)3.2e3.6e3.0p2.8Labour marketUnemployment rate (3 year average)10%3.8 3.9 3.8 3.7 3.2 Unemployment rate (year level)3.8 (10)3.6 4.4 3.4 3.2 3.1 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp5.3 4.9 3.5 1.5 0.9 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.5 -0.9 -0.9 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-1.4 0.3 0.3 forecast     
 
 
  
 
3.19. THE NETHERLANDS 

In the Netherlands, the current account surplus, household and non-financial corporate debt-to-GDP 
ratios and house price overvaluation remain sizeable. The current account surplus and recent cost 
competitiveness  developments  warrant  close  monitoring,  including  from  the  perspective  of  euro 
area rebalancing. Nominal house price growth was among the highest in the EU in 2021, amidst an 
estimated overvaluation of house prices.  

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
the  Netherlands  is  experiencing  macroeconomic  imbalances.  This  year,  the  Commission  finds  it 
opportune  to  examine  the  persistence  of  imbalances  or  their  unwinding in an  in-depth  review for 
the Netherlands. 

Real GDP growth is forecast at 4.6% in 2022 and 0.6% in 2023. Inflation is high. Year-on-year, it 
decreased to 16.8% in October, with core inflation estimated at 6.8%. Inflation is set to rise faster 
than wages.   

The scoreboard reading for the Netherlands shows that in 2021 four indicators were beyond their 
indicative thresholds, namely, the current account balances, nominal unit labour cost growth, real 
house price growth and private sector debt. An economic reading of the scoreboard highlights the 
following relevant developments:  

  External sector issues relate to the high and long-standing current account surplus, even if it 
has been revised downwards. It increased in 2021 to 7.2% of GDP, mainly due to higher income 
balances. It is forecast to narrow in 2022, due to worsening terms of trade and the impact of 
the relocation of Shell to the United Kingdom, but remains above indicative thresholds. The net 
international investment position as a share of GDP, at 93% in 2021, remains the largest in the 
EU,  despite  a  strong  decline  mainly  driven  by  negative  valuation  effects.  It  is  forecast  to 
continue declining in 2022. 

  Cost competitiveness developments may impede euro area rebalancing. Nominal unit labour 
costs slightly declined in 2021, despite a further tightening labour market, but  are forecast to 
increase,  although  below  the  euro  area  average.  The  HICP-based  real  effective  exchange  rate 
remained broadly unchanged in 2021 and, year-on-year, by August 2022. 

  The  non-financial  corporate  debt-to-GDP  ratio  remains  among  the  highest  in  the  EU, 
although it is on a declining path. It decreased moderately in 2021, to 129%. The non-financial 
corporate debt ratio continued to decrease in the first half of 2022, but there are risk factors 
associated  to  the  macroeconomic  environment.  It  remains  above  both  prudential  and 
fundamental  benchmarks.  The  high  share  of  cross-border  intra-group  lending  and  high 
corporate liquidity buffers mitigate risks. Credit flows to non-financial corporates increased as a 
share of GDP in 2021.  

  The household debt-to-GDP ratio remains the highest in the EU and was at 100% of GDP in 
2021,  above  both  prudential  and  fundamentals-based  benchmarks.  However,  the  ratio 
decreased in 2021, despite a positive contribution of credit flows, and continued to do so in the 
first half of 2022. Household non-performing debt remains low. 

  High house price growth continues being of concern. Nominal house price growth accelerated 
from 7.6% in 2020 to 15% in 2021 and grew at one of the highest paces in the EU. It reached 
18.2%  year-on-year  in  the  second  quarter  of  2022.  House  prices  were  estimated  to  be  21% 
overvalued  in  2021.  Risks  associated  with  price  corrections  warrant  monitoring,  even  if  the 
banking  sector  is  stable  and  well-capitalised  and  its  profitability  increased  in  2021.  The  non-
performing loans ratio is low. Mortgage growth also remains low. 

88 

 
 
Graph 3.19.1: Selected graphs: The Netherlands 

3.19. THE NETHERLANDS 

Source: Eurostat, Ameco and European Commission services 

Table 3.19.1:  Key economic and financial indicators, the Netherlands 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

89 

-8-6-4-2024681012140607080910111213141516171819202122*23*24*% of GDPa) Net lending/borrowing by sectorCorporationsGeneral governmentHouseholds and NPISHTotal economyNLEA1905101520251819202122% growth year on yearb) House price growth, year-on-yearThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%8.4 7.1 6.4 6.0 6.1 Current account balance, balance of payments (% of GDP)2.3 (1)5.6 (2)6.9 5.1 7.2 5.7 5.3 Net international investment position (% of GDP)-35%-88.8 (3)35.0 (4)89.6 113.0 93.0 82.7 85.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-0.3 12.9 26.0 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)6.0 14.4 p11.2 p9.5 5.3 Nominal unit labour cost index (% y-o-y change)3.2 8.5 p-0.6 p1.6 4.3 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.4 3.8 2.2 -2.4 -5.6 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.4 1.8 0.0 -4.2 -1.5 Export market share - % of world exports (5 year % change)-6%-0.3 6.8 1.1 0.7 -2.1 Export market share - % of world exports (1 year % change)-1.3 5.0 -5.0 0.7 -1.2 Private sector debtPrivate sector debt, consolidated (% of GDP)133%229.9 233.1 p229.3 p218.7 213.8 Private sector credit flow, consolidated (% of GDP)14%-0.3 -0.7 p11.7 p6.9 13.4 Household debt, consolidated (% of GDP)63.5 (6)73.4 (7)99.7 103.8p100.4p95.992.7Non-financial corporate debt, consolidated (% of GDP)94.1 (6)113.5 (7)130.2122.8121.1Housing marketHouse price index, deflated (1 year % change)6%4.6 6.2 11.2 p8.4 -0.7 House price index, nominal (1 year % change)20.7 (8)7.37.615.016.83.3Government debtGeneral government gross debt (% of GDP)60%48.5 54.7 52.4 50.3 52.4 General government balance (% of GDP)1.8-3.7-2.6-1.1-4.0Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%7.9 1.4 p-0.3 p3.4 Return on equity (%)7.73.18.3Common Equity Tier 1 ratio10.6 (9)16.917.917.8Gross non-performing loans, domestic and foreign entities (% of gross loans)1.8e1.9e1.4p1.3Labour marketUnemployment rate (3 year average)10%5.1 4.7 4.5 4.3 4.1 Unemployment rate (year level)4.7 (10)4.4 4.9 4.2 3.7 4.3 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.2 1.2 1.0 1.9 2.5 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.4 -1.0 -0.4 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-3.6 0.2 0.4 forecast     
 
 
  
 
3.20. AUSTRIA 

In  Austria,  house  price  growth  accelerated  and  non-financial  corporate  and  government  debt-to-
GDP  ratios  remain  elevated,  although  associated  risks  appear  to  be  limited.  Nominal  house  price 
growth  has  increased  at  a  marked  pace  for  years,  amidst  a  sizeable  estimated  overvaluation  of 
house  prices.  The  corporate  debt-to-GDP  ratio  rose  and  remains  above  both  prudential  and 
fundamental benchmarks. Government debt is decreasing, albeit being still higher than in 2019.  

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Austria.  This  year,  the  Commission  does  not  consider  it 
necessary to carry out further in-depth analysis for Austria.  

Real GDP growth is forecast at 4.6% in 2022 and 0.3% in 2023. Inflation is high. Year-on-year, it 
increased to 11.5% in October, with core inflation estimated at 5.7% in September. Prices are set to 
rise faster than wages.   

The  scoreboard  reading  for  Austria  shows  that  in  2021  three  indicators  were  beyond  their 
indicative  thresholds,  namely  nominal  unit  labour  cost  growth,  real  house  price  growth  and 
government  debt.  An  economic  reading  of  the  scoreboard  highlights  the  following  relevant 
developments:  

  Concerns  about  non-financial  corporate  debt  have  increased.  The  corporate  debt-to-GDP 
ratio  increased  to  78%  in  2021  and  remains  above  both  prudential  and  fundamental 
benchmarks.  It  is  still  6  percentage  points  higher  than  in  2019.  At  the  same  time,  the  non-
financial corporate debt ratio decreased in the first half of 2022, despite an increase in credit 
flows in % of GDP. Cost competitiveness concerns are limited. Nominal unit labour cost growth 
has moderated substantially in 2021 but  is forecast to increase in future years slightly  faster 
than in other euro area countries.  

  The  household  debt-to-GDP  ratio  is  at  the  prudential  and  below  the  fundamentals-based 
benchmark. It has declined in 2021 and remained broadly unchanged in the first half of 2022. 
Household non-performing debt remains low. 

  Very  high  house  price  growth  continues  being  of  concern.  Nominal  house  price  growth 
accelerated from 7.7% in 2020 to 12.4% in 2021 and grew at one of the highest paces in the 
EU. Nominal year-on-year house price growth declined slightly but remained very high, at 12.4% 
in  the  second  quarter  of 2022.  House prices  were estimated  to be  27%  overvalued. However, 
low  variable  interest  rate  exposure,  a  low  household  debt-to-GDP  ratio,  the  low  ownership  to 
rental rate, a healthy financial sector and low non-performing loans (NPLs) limit macroeconomic 
risks. 

  Concerns  associated  with  government  debt  are  limited.  The  government  debt  decreased 
slightly in 2021, to 82.3% of GDP, and is forecast to decrease further, but remains higher than 
in 2019. The government deficit remains high, although it narrowed to 5.9% of GDP in 2021 and 
is  forecast  to  continue  narrowing.  Fiscal  sustainability  risks  are  medium  both  in  the  medium- 
and long-term. 

  The  banking  sector  is  overall  sound.  While  the  tier-1  capital  ratio  has  been  below  the  EU 
average, the profitability has been above. The NPL ratio has been also very low but the share of 
underperforming  (stage  2)  loans  is  very  elevated.  The  exposure  of  the  Raiffeisen  Bank 
International (RBI) towards Russia represents a moderate source of risk.  

90 

 
 
 
Graph 3.20.1: Selected graphs: Austria 

3.20. AUSTRIA 

Source: Eurostat, ECB and European Commission services 

Table 3.20.1:  Key economic and financial indicators, Austria 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

91 

5055606570758085050709111315171921% GDPb) Fundamental-based and prudential benchmarks and NFC debtNFC debt, consolidated,  % of GDPFundamentals-based benchmark, % of GDPPrudential benchmark, % of GDP-10-50510152002040608010012014016018004Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q4Rate of change y-o-y (%)2015 = 100a) House priceNominal House Price Index (2015=100), right axisNominal House Price Index (y-o-y growth rate), right axisThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%1.6 2.1 1.9 1.2 0.1 Current account balance, balance of payments (% of GDP)1.5 (1)0.5 (2)2.4 3.0 0.4 0.2 -0.1 Net international investment position (% of GDP)-35%-82.1 (3)12.3 (4)14.4 11.5 14.7 16.8 16.1 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-0.6 -4.6 -4.2 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)5.6 12.0 9.9 9.6 9.5 Nominal unit labour cost index (% y-o-y change)2.3 7.1 0.3 2.1 6.9 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.1 3.2 1.2 -2.9 -6.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.0 2.1 0.1 -5.0 -2.0 Export market share - % of world exports (5 year % change)-6%1.2 5.4 -2.7 4.9 1.5 Export market share - % of world exports (1 year % change)-0.1 0.5 -3.8 6.4 -1.2 Private sector debtPrivate sector debt, consolidated (% of GDP)133%121.5 130.4 129.7 125.1 115.6 Private sector credit flow, consolidated (% of GDP)14%5.1 4.4 7.4 8.3 5.4 Household debt, consolidated (% of GDP)50.7 (6)77.4 (7)49.6 53.2 52.1 49.548.7Non-financial corporate debt, consolidated (% of GDP)69.9 (6)76.5 (7)71.977.277.675.666.9Housing marketHouse price index, deflated (1 year % change)6%4.0 6.1 9.9 2.1 1.3 House price index, nominal (1 year % change)26.7 (8)5.87.712.48.9-0.1Government debtGeneral government gross debt (% of GDP)60%70.6 82.9 82.3 78.5 76.6 General government balance (% of GDP)0.6-8.0-5.9-3.4-2.8Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%3.6 11.4 8.0 3.9 Return on equity (%)7.84.16.4Common Equity Tier 1 ratio10.6 (9)15.616.116.0Gross non-performing loans, domestic and foreign entities (% of gross loans)2.2e2.0e1.8p1.8Labour marketUnemployment rate (3 year average)10%5.3 5.3 5.7 5.7 5.5 Unemployment rate (year level)5.4 (10)4.8 6.0 6.2 5.0 5.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.7 -0.4 0.1 1.9 3.0 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.0 -0.6 0.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-2.9 1.2 1.0 forecast     
 
 
  
 
 
 
3.21. POLAND 

In Poland, unit labour costs and house prices are increasing, although associated risks appear to be 
limited.  Nominal  unit  labour  cost  growth  is  set  to  increase,  with  the  very  high  core  inflation  and 
labour shortages. Nominal house price growth is among the highest in the EU, amidst an estimated 
limited overvaluation of house prices. The depreciation of the exchange rate puts some pressure on 
inflation and the current account has turned to a deficit due to one-off factors.  

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Poland.  This  year,  the  Commission  does  not  consider  it 
necessary to carry out further in-depth analysis for Poland.   

Real  GDP  growth  is  forecast  at  4%  in  2022  and  0.7%  in  2023.  Inflation  is  currently  very  high, 
including compared to Poland’s euro area trading partners, but is projected to decelerate. Year-on-
year, it increased to 15.7% in September, with core inflation estimated at 11.5%. Prices are set to 
rise faster than wages. 

The  scoreboard  reading  for  Poland  shows  that  in  2021  one  indicator  was  beyond  its  indicative 
threshold, namely the net international investment position. An economic reading of the scoreboard 
highlights the following relevant developments:  

  External sustainability concerns are not yet strongly pronounced. In view of strong demand 
and  unfavourable  terms  of  trade,  the  current  account  turned  into  a  deficit  of  1.4%  of  GDP  in 
2021  and  is  forecast  to  further  deteriorate  in  2022.  Nonetheless,  the  net  international 
investment  position  (NIIP)  is  forecast  to  improve  further  and  remain  within  the  indicative  MIP 
threshold  of  -35%  from  2022  onwards.  The  bulk  of  the  NIIP  is  characterised  by  direct 
investment, which limits immediate concerns related to the external position. 

  High  inflation  and  strong  nominal  wage  growth  could  give  rise  to  cost-competitiveness 
concerns if they persist. Nominal unit labour costs declined in 2021 but are forecast to increase 
markedly going forward. The real effective exchange rate vis-à-vis Poland’s trading partners has 
depreciated. 

  Nominal  house  prices  had  been  rising  fast  in  recent  years,  but  remain  broadly  in  line  with 
fundamentals  in  a  context  of  strong  income  growth.  The  2021/22  monetary  tightening  had 
triggered  the  sharpest  mortgage  rate  increase  in  the  EU,  as  well  as  a  strong  reduction  in 
household  credit  flows.  The  prevalence  of  floating-rate  mortgages  is  likely  to  transmit  such 
interest  costs  directly  to  both  new  and  existing mortgage  holders.  However,  Poland’s  banking 
sector  continues  to  be  well  capitalised  in  a  context  of  low  household  indebtedness  and 
relatively low loan-to-value ratios. The level of non-performing loans remains low and continues 
to decline.  

  Labour  shortages  exacerbate  inflationary  pressures.  Nominal  wage  growth  reached  12.4% 
year on year in August 2022. The unemployment rate remains among the lowest in the EU, at 
3.4%  in  2021,  and  is  forecast  decrease  in  2022  before  edging  up  in  2023.  The  activity  rate 
increased further. The boost to labour supply provided by the inflow of displaced persons from 
Ukraine is expected to ease labour shortages, as already reflected in some sectors like services. 

92 

 
 
 
Graph 3.21.1: Selected graphs: Poland 

3.21. POLAND 

Source: Eurostat and European Commission services 

Table 3.21.1:  Key economic and financial indicators, Poland 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

93 

PLEA19-20246810121819202122%, y-o-y a) Core inflation, year-on-yearPLEA190123456789101819202122%, y-o-y b) Average interest rate for new household mortgage businessThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-1.1 0.1 0.3 -1.0 -3.0 Current account balance, balance of payments (% of GDP)0.3 (1)-4.4 (2)-0.2 2.5 -1.4 -4.1 -3.5 Net international investment position (% of GDP)-35%-52.7 (3)-4.1 (4)-48.8 -43.9 -39.5 -29.4 -27.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-10.7 -4.5 0.8 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)8.0 14.0 9.9 b14.4 16.9 Nominal unit labour cost index (% y-o-y change)3.9 7.5 -1.6 b8.1 9.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.8 1.1 -0.4 -0.7 -0.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.9 1.1 -0.6 -1.2 1.5 Export market share - % of world exports (5 year % change)-6%22.0 33.6 24.9 19.1 15.2 Export market share - % of world exports (1 year % change)3.8 11.3 -0.7 0.3 0.1 Private sector debtPrivate sector debt, consolidated (% of GDP)133%74.2 76.1 71.6 63.5 57.8 Private sector credit flow, consolidated (% of GDP)14%3.6 1.8 4.0 2.4 2.8 Household debt, consolidated (% of GDP)54.3 (6)22.2 (7)34.4 34.6 32.3 26.824.3Non-financial corporate debt, consolidated (% of GDP)82.4 (6)34.5 (7)39.841.539.336.733.5Housing marketHouse price index, deflated (1 year % change)6%6.4 6.7 3.7 -2.6 -5.8 House price index, nominal (1 year % change)-1.9 (8)8.710.59.29.95.0Government debtGeneral government gross debt (% of GDP)60%45.7 57.2 53.8 51.3 52.9 General government balance (% of GDP)-0.7-6.9-1.8-4.8-5.5Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%4.3 11.6 13.6 0.1 Return on equity (%)6.93.14.8Common Equity Tier 1 ratio10.6 (9)15.917.516.1Gross non-performing loans, domestic and foreign entities (% of gross loans)6.1e6.0e5.0p4.7Labour marketUnemployment rate (3 year average)10%4.1 3.5 3.3 3.1 3.0 Unemployment rate (year level)3.4 (10)3.3 3.2 3.4 2.7 3.0 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.1 1.4 3.4 1.7 1.2 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.5 -0.9 -0.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-7.9 -4.0 0.1 forecast   
 
 
  
 
3.22. PORTUGAL 

In  Portugal,  concerns  related  to  household  and  non-financial  corporate,  government  and  external 
debt-to-GDP  ratios remain,  although  debt  ratios  resumed  their  declining  path after  the  COVID-19 
crisis. Nominal house price growth is accelerating, and signs of overvaluation of house prices have 
emerged. Risks associated with financial and public sector feedback loops remain.  

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Portugal is experiencing macroeconomic imbalances. This year, the Commission finds it opportune 
to examine the persistence of imbalances or their unwinding in an in-depth review for Portugal. 

Real GDP growth is forecast at 6.6% in 2022 and 0.7% in 2023. Inflation is high and is projected to 
move broadly in line with the euro area average. Year-on-year, it increased to 10.6% in October, 
with core inflation estimated at 6.5% in September. Prices are set to rise faster than wages. 

The scoreboard reading for Portugal, shows that in 2021 six indicators were beyond their indicative 
thresholds, namely the net international investment position, nominal unit labour cost growth, real 
house price growth, private sector debt, government debt and change in the youth unemployment 
rate. An economic reading of the scoreboard highlights the following relevant developments:  

  External sustainability remains an issue. While the net international investment position has 
improved strongly and reached the highest levels in 15 years, it is still large and negative, with 
further improvements projected until 2024. The current account deficit widened to 1.2% of GDP 
in 2021, as improvements in the travel balance and goods exports were more than offset by the 
deteriorating  balance  of  trade  in  energy  goods.  The  deficit  is  projected  to  slightly  expand  in 
2022 due to price effects. Nominal unit labour cost growth was moderate in 2021 and is set to 
turn negative in 2022. The HICP-based real effective exchange rate depreciated in 2021. Year-
on-year, it also depreciated by August 2022. 

  Vulnerabilities related to the non-financial corporate debt-to-GDP ratio remain, although it is 
on  a  declining  path.  It  declined  to  90.5%  in  2021,  but  is  still  more  than  4  percentage  points 
higher  than  in  2019.  The  non-financial  corporate  debt  ratio  continued  to  decrease  in  the  first 
half  of  2022,  but  there  are  risk  factors  associated  with  the  macroeconomic  environment.  It 
remains  above  both  prudential  and  fundamental  benchmarks.  Non-performing  loans  of 
corporates in percent of corporate loans of banks continued to decline. The household debt-to-
GDP ratio remains above both prudential and fundamentals-based benchmarks, although it has 
declined in 2021 and continued to decline in the first half of 2022. 

  Concerns  related  to  house  price  developments  are  increasing.  Nominal  house  price  growth 
accelerated from 8.8% to 9.4% in 2021. Nominal year-on-year house price growth accelerated 
to 13.2% in the second quarter of 2022. House prices were estimated to be 23% overvalued in 
2021. Over two thirds of mortgages have interest rates fixed for only up to one year. 

  Concerns related to government debt remain significant. In 2021 it decreased by 9 percentage 
points, to 125.5% of GDP, and is forecast to fall further, reaching below pre-pandemic levels in 
2022.  The  government  deficit  narrowed  to  2.9%  of  GDP  in  2021  and  is  forecast  to  continue 
decreasing over the forecast horizon. Fiscal sustainability risks are high in the medium-term and 
medium in the long-term. 

  Concerns  related  to  the  banking  sector  diminished,  but  some  weakness  remain.  Profitability 
picked  up  and  solvency  ratios  remained  resilient.  However,  the  tier-1  capital  ratio  is  above 
regulatory  requirements  but  low  compared  to  European  peers,  while  profitability  remains 
relatively  low.  The  non-performing  loans  ratio  continued  its  downward  trajectory  but  remains 
above  the  EU  average,  and  underperforming  (stage  2)  loans  are  also  elevated.  Moreover,  the 
risks associated with financial and public sector feedback loops remain. 

94 

 
 
Graph 3.22.1: Selected graphs: Portugal 

3.22. PORTUGAL 

Source: Eurostat and European Commission services 

Table 3.22.1:  Key economic and financial indicators, Portugal 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

95 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.8 0.0 -0.6 -1.2 -1.1 Current account balance, balance of payments (% of GDP)0.0 (1)-2.4 (2)0.4 -1.0 -1.2 -1.4 -0.8 Net international investment position (% of GDP)-35%-52.3 (3)-15.7 (4)-100.0 -104.6 -94.7 -85.2 -79.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-46.7 -46.7 -36.1 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)8.5 15.6 12.5 p8.4 3.4 Nominal unit labour cost index (% y-o-y change)2.8 8.7 0.6 p-0.9 3.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)-0.3 0.0 -2.8 -5.3 -7.3 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.9 0.8 -1.8 -4.4 -1.4 Export market share - % of world exports (5 year % change)-6%8.3 -1.5 -5.3 3.3 1.3 Export market share - % of world exports (1 year % change)0.8 -10.2 0.1 12.2 -0.3 Private sector debtPrivate sector debt, consolidated (% of GDP)133%149.5 163.7 156.9 p147.8 137.6 Private sector credit flow, consolidated (% of GDP)14%2.6 4.4 4.0 p5.7 3.5 Household debt, consolidated (% of GDP)40.4 (6)31.5 (7)63.5 69.1 66.4 63.061.4Non-financial corporate debt, consolidated (% of GDP)64.4 (6)62.0 (7)86.094.690.584.876.2Housing marketHouse price index, deflated (1 year % change)6%9.0 8.1 7.9 5.7 2.0 House price index, nominal (1 year % change)22.5 (8)10.08.89.410.92.1Government debtGeneral government gross debt (% of GDP)60%116.6 134.9 125.5 115.9 109.1 General government balance (% of GDP)0.1-5.8-2.9-1.9-1.1Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%-0.2 6.6 7.1 1.8 Return on equity (%)4.30.04.9Common Equity Tier 1 ratio10.6 (9)14.115.415.5Gross non-performing loans, domestic and foreign entities (% of gross loans)6.1e4.9e3.6p3.4Labour marketUnemployment rate (3 year average)10%7.7 7.0 6.8 6.5 6.1 Unemployment rate (year level)6.2 (10)6.7 7.0 6.6 5.9 5.9 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.2 0.0 0.7 0.3 1.4 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-3.6 -2.3 -0.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-9.7 -1.4 3.1 forecast     
 
 
  
 
3.23. ROMANIA 

In  Romania,  concerns  related  to  external  sustainability  and  the  government  deficit  continue 
increasing.  The  current  account  deficit  widened  in  2021  and  a  further  increase  is  underway.  The 
government deficit has improved and is forecast to continue narrowing, but remains high. Nominal 
unit labour costs are forecast to increase, in a context of high inflation, labour shortages and strong 
nominal wage increases, resulting in some competitiveness concerns.  

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Romania is experiencing macroeconomic imbalances. This year, the Commission finds it opportune 
to examine the persistence of imbalances or their unwinding in an in-depth review for Romania. 

Real GDP growth is forecast at 5.8% in 2022 and 1.8% in 2023. Inflation is high. Year-on-year, it 
increased to 13.4% in September, with core inflation estimated at 6.5%. Prices are set to rise faster 
than wages.   

The  scoreboard  reading  for  Romania  shows  that  in  2021  three  indicators  were  beyond  their 
indicative thresholds, namely the current account balance, net international investment position and 
nominal  unit  labour  cost  growth.  An  economic  reading  of  the  scoreboard  highlights  the  following 
relevant developments:  

  External  sustainability  concerns  have  further  aggravated.  The  current  account  deficit 
increased  to  7.3%  of  GDP  in  2021  and  a  further  deterioration  is  forecast  for  2022.  The  net 
international investment position (NIIP) improved somewhat to  -47.2% of GDP in 2021, on the 
account of strong nominal GDP growth and some positive valuation effects, and is forecast to 
further  improve  in  2022,  but  to  decline  again  in  2023.  The  NIIP  net  of  non-defaultable 
instruments remained negative but close to balance.  

  Cost  competitiveness  concerns,  which  existed  already  before  the  COVID-19  pandemic,  are 
increasing  further.  Nominal  unit  labour  costs  increased  mildly  in  2021  and  are  forecast  to 
increase more markedly in 2022 and beyond, in context of high inflation, labour shortages and 
strong nominal wage increases. The HICP-based real effective exchange rate remained broadly 
unchanged in 2021 and year-on-year continued to remain broadly stable by August 2022. 

  Concerns  related  to  house  price  developments  continue  being  limited.  Nominal  house  price 
growth  decelerated  slightly  from  4.7%  to  4.4%  in  2021.  Nominal  year-on-house  price  growth 
accelerated to 8.5% in the second quarter of 2022. Valuation gap metrics do not show signs of 
potential overvaluation of house prices. 

  The risks related to the government debt are increasing. The government deficit has improved, 
but remains high, at 7.1% of GDP in 2021. It is forecast to further narrow. Government debt has 
increased  to  48.9%  of GDP  in  2021  and is  forecast  to  slightly decrease this year  and  next.  It 
continues to exceed largely the pre-COVID levels. Sovereign bond yields are among the highest 
in  the  EU.  Currency  risks  are  high,  with  around  half  of  central  government  debt  being 
denominated in foreign currencies, and about half of the government debt held by non-residents 
in  end-2021.  Fiscal  sustainability  risks  are  high in the medium-term  and medium in the long-
term. 

  The banking sector is stable. The non-performing loans ratio declined to 3.4% of total loans in 
2021. While the tier-1 ratio is close to the EU average, the profitability is very high. Following 
the monetary tightening, interest rates have significantly increased in 2021 and 2022. 

96 

 
 
Graph 3.23.1: Selected graphs: Romania 

3.23. ROMANIA 

Source: Eurostat, Comext and European Commission services 

Table 3.23.1:  Key economic and financial indicators, Romania 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

97 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-4.2 -4.8 -5.7 -7.2 -8.7 Current account balance, balance of payments (% of GDP)0.3 (1)-5.0 (2)-4.9 -4.9 -7.3 -9.5 -9.2 Net international investment position (% of GDP)-35%-47.5 (3)-8.0 (4)-43.4 -47.6 -47.2 -39.8 -42.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-4.0 -7.0 -6.5 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)24.0 20.7 14.4 p10.0 9.4 Nominal unit labour cost index (% y-o-y change)6.9 5.8 1.2 p2.8 5.2 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.2 3.4 1.0 2.8 0.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.3 1.4 0.0 1.5 -0.9 Export market share - % of world exports (5 year % change)-6%17.4 19.9 10.6 12.1 9.2 Export market share - % of world exports (1 year % change)1.5 1.9 0.5 4.1 0.8 Private sector debtPrivate sector debt, consolidated (% of GDP)133%46.5 48.0 48.1 p45.8 39.5 Private sector credit flow, consolidated (% of GDP)14%2.0 1.3 3.8 p5.0 3.1 Household debt, consolidated (% of GDP)59.8 (6)20.4 (7)15.4 16.1 15.8 14.814.2Non-financial corporate debt, consolidated (% of GDP)97.9 (6)39.9 (7)31.131.932.331.025.3Housing marketHouse price index, deflated (1 year % change)6%-1.9 2.3 -1.1 -4.5 -5.8 House price index, nominal (1 year % change)-19.8 (8)3.44.74.48.91.4Government debtGeneral government gross debt (% of GDP)60%35.1 46.9 48.9 47.9 47.3 General government balance (% of GDP)-4.3-9.2-7.1-6.5-5.0Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%10.3 13.4 14.3 0.8 Return on equity (%)12.39.013.1Common Equity Tier 1 ratio10.6 (9)19.021.819.9Gross non-performing loans, domestic and foreign entities (% of gross loans)4.3e3.9e3.4p3.1Labour marketUnemployment rate (3 year average)10%5.4 5.4 5.5 5.7 5.6 Unemployment rate (year level)5.5 (10)4.9 6.1 5.6 5.4 5.8 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp3.1 2.3 3.2 2.2 2.2 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.4 -0.6 -0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-4.9 -1.4 0.5 forecast     
 
 
  
 
3.24. SLOVENIA 

In Slovenia, some concerns related to house price developments and the government deficit remain, 
although associated risks appear to be limited. Nominal house price growth is among the highest in 
the EU, but house prices do not show signs of potential overvaluation. Supply side constraints and 
high  inflation  may  weigh  on  medium  term  competitiveness  and  growth.  The  government  deficit 
remains high. 

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Slovenia.  This  year,  the  Commission  does  not  consider  it 
necessary to carry out further in-depth analysis for Slovenia. 

Real GDP growth is forecast at 6.2% in 2022 and 0.8% in 2023. Inflation is high. Year-on-year, it 
decreased to 10.3% in October, with core inflation estimated at 6.6% in September. Prices are set 
to rise faster than wages.  

The  scoreboard  reading  for  Slovenia,  shows  that  in  2021  four  indicators  were  beyond  their 
indicative thresholds, namely nominal unit labour cost growth, real house price growth, government 
debt  and  change  in  youth  unemployment.  An  economic  reading  of  the  scoreboard  highlights  the 
following relevant developments:  

  External  sustainability  concerns  are  not  pronounced.  After  several  years  of  recording  very 
large surpluses, the current account balance declined to 3.8% of GDP in 2021. The main driver 
was  the  declining  balance  of  trade  in  goods,  including,  to  smaller  extent,  energy  goods.  The 
current  account  balance  is  forecast  to  further  decrease  and  turn  negative  in  2022.  The  net 
international investment position (NIIP) continued its steady increase, reaching -6.8% of GDP in 
2021 and is forecast to move to balance by 2024. The NIIP net of non-defaultable instruments 
is mildly positive. 

  Cost  competitiveness  does  not  raise  substantial  concerns  yet.  Nominal  unit  labour  cost 
growth  substantially moderated  in  2021  and  is  forecast  to  turn  negative in  2022.  Unit labour 
costs are forecast to increase in 2023. The HICP-based real effective exchange rate depreciated 
marginally in 2021. Year-on-year, it depreciated by August 2022.  

  Very  high  house  price  growth  continues  being  of  concern.  Nominal  house  price  growth 
accelerated from 4.6% in 2020 to 11.5% in 2021, one of the highest paces in the EU. Nominal 
year-on-year  house  price growth  was  at  15.6%  in  the  second  quarter  of  2022.  Valuation  gap 
metrics  do  not  show  signs  of  potential  overvaluation  of  house  prices.  Recent transaction  data 
points to a possible market slowdown.  

  Government  debt  dynamics  remain  of  concern,  despite  improvements.  Government  debt 
decreased  to  74.5%  of  GDP  in  2021  and  is  forecast  to  continue  declining  gradually.  The 
government  deficit  remains  high  but  decreased  to  4.7%  of  GDP  in  2021.  It  is  forecast  to  fall 
further in 2022, but to increase in 2023. Fiscal sustainability risks are high both in the medium- 
and long-term due to the unfavourable initial budgetary position as well as population ageing. 

  The banking sector remains stable. While capitalisation is below the EU average, profitability 
increased  in  2021  and  is  well  above  it.  The  non-performing  loans  ratio  has  significantly 
decreased over the last years and remains low. 

98 

 
 
Graph 3.24.1: Selected graphs: Slovenia 

3.24. SLOVENIA 

Source: Eurostat, Ameco and European Commission services 

Table 3.24.1:  Selected economic and financial indicators, Slovenia 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

99 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%6.0 6.5 5.8 3.5 0.8 Current account balance, balance of payments (% of GDP)0.8 (1)-1.1 (2)5.9 7.6 3.8 -0.7 -0.6 Net international investment position (% of GDP)-35%-63.0 (3)5.1 (4)-16.2 -15.6 -6.8 -2.0 0.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)0.8 1.6 9.7 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)8.0 14.5 12.8 7.4 5.8 Nominal unit labour cost index (% y-o-y change)3.9 7.3 1.1 -1.0 5.7 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.0 1.9 -0.4 -4.5 -6.6 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.5 0.6 -0.5 -4.5 -1.8 Export market share - % of world exports (5 year % change)-6%15.8 19.5 11.6 9.1 5.8 Export market share - % of world exports (1 year % change)0.7 1.7 -0.5 3.1 0.7 Private sector debtPrivate sector debt, consolidated (% of GDP)133%68.6 69.5 66.4 64.4 59.0 Private sector credit flow, consolidated (% of GDP)14%0.8 -0.9 3.5 5.8 4.3 Household debt, consolidated (% of GDP)43.9 (6)37.2 (7)26.8 27.8 26.4 25.525.4Non-financial corporate debt, consolidated (% of GDP)65.9 (6)57.3 (7)41.841.740.038.933.6Housing marketHouse price index, deflated (1 year % change)6%5.3 5.2 7.8 2.5 1.9 House price index, nominal (1 year % change)0.4 (8)6.74.611.510.53.3Government debtGeneral government gross debt (% of GDP)60%65.4 79.6 74.5 69.9 69.6 General government balance (% of GDP)0.6-7.7-4.7-3.6-5.2Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%9.9 14.0 14.1 1.5 Return on equity (%)10.311.39.5Common Equity Tier 1 ratio10.6 (9)17.816.716.9Gross non-performing loans, domestic and foreign entities (% of gross loans)3.4e3.0e2.1p1.9Labour marketUnemployment rate (3 year average)10%5.4 4.8 4.7 4.6 4.4 Unemployment rate (year level)6.0 (10)4.4 5.0 4.8 4.1 4.3 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp3.5 0.2 0.6 2.1 2.8 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-2.4 -1.2 -0.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-7.2 3.0 3.9 forecast     
 
 
  
 
3.25. SLOVAKIA 

In Slovakia, concerns related to cost competitiveness and house price developments existed already 
before  the  COVID-19  pandemic  and  are  increasing.  Nominal  unit  labour  cost  growth  is  set  to 
accelerate, and core inflation is very high compared with Slovakia’s euro area peers. Strong house 
price growth continues and is accompanied with sustained increases in household debt over recent 
years. The current account deficit is increasing strongly. The high government deficit warrants close 
monitoring. 

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify macroeconomic  imbalances  for  Slovakia.  This  year,  the  Commission  finds  it  opportune  to 
examine newly emerging vulnerabilities and their implications in an in-depth review for Slovakia.   

Real  GDP  growth is  forecast  at  1.9%  in  2022  and  0.5%  in  2023.  Inflation  is  very  high,  including 
compared to many euro area trading partners. Year-on-year, it increased to 14.5% in September, 
with core inflation estimated at 9.3%. Prices are set to rise faster than wages.   

The  scoreboard  reading  for  Slovakia,  shows  that  in  2021  five  indicators  were  beyond  their 
indicative  thresholds,  namely  the  net  international  investment  position,  nominal  unit  labour  cost 
growth, government debt, financial sector liabilities growth and change in youth unemployment. An 
economic reading of the scoreboard highlights the following relevant developments:  

  The  external  sustainability  outlook  has  worsened.  The  current  account  balance  moved to a 
deficit  of  -2.5%  of  GDP  in  2021.  It  is  forecast  to  deteriorate  markedly  this  year,  and  remain 
strongly negative, due to both the energy balance and strong reduction in the non-energy goods 
balance. The small improvement in the net international investment position (NIIP), which stood 
at -61% of GDP in 2021, was driven by the GDP growth and some positive valuation effects. A 
slight  deterioration  is  forecast  in  2022  before  improvement  resumes.  The  bulk  of  the  NIIP 
consists of direct investment, limiting concerns related to the external position. 

  Cost  competitiveness  concerns,  which  existed  already  before  the  COVID-19  pandemic,  are 
increasing  further.  Nominal  unit  labour  costs  increased  in  2021,  albeit  less  than  in  previous 
years,  but  are  forecast  to  continue  increasing  strongly  in  2022  and  2023,  in  the  context  of 
Slovakia’s high core inflation and strong nominal wage increases. The HICP-based real effective 
exchange rate remained broadly unchanged in 2021 and, year-on-year, also remained broadly 
stable by August 2022.  

  The  household  debt-to-GDP  ratio  is  above  the  fundamentals-based  benchmark  and  close  to 
prudential.  Household  debt  is  considerably  higher  than  among  Slovakia’s  peers  and  stands  at 
nearly 50% of GDP. Net credit flows to households were relatively dynamic in 2021, around 4% 
of  GDP,  and  are  forecast  to  increase  in  2022.  The  household  debt-to-GDP  ratio  remained 
broadly  unchanged  in  the  first  half  of  2022.  Household  non-performing  loans  are  low  and 
continued declining in 2021. 

  House price developments continue being of concern. Nominal house price growth decelerated 
from  9.6%  in  2020  to  6.4%  in  2021.  Nominal  year  to  year  house  price  growth  increased  to 
16.6%  in  the  second  quarter  of  2022.  House  prices  were  estimated  to  be  14%  overvalued  in 
2021. Mortgage credit has been very dynamic and represents a source of risk. The increase in 
real estate prices was sharp especially since the second half of 2021.  

  The risks related to  the government debt are contained in the short-term. Government debt 
increased to 62.2% of GDP in 2021, exceeding the scoreboard threshold for the first time. It is 
forecast to continue decreasing slightly, returning to below 60% of GDP in 2022, which is still 
12  percentage  points  higher  than  in  2019.  The  government  deficit  has  deteriorated  since  the 
pandemic and reached 5.5% in 2021. The government deficit is forecast to narrow in 2022, but 

100 

 
 
to widen again in 2023. Fiscal sustainability risks are high both in the medium- and long-term 
due to long term debt developments and increasing ageing costs.  

Graph 3.25.1: Selected graphs: Slovakia 

3.25. SLOVAKIA 

Source: Eurostat, Ameco and European Commission services 

Table 3.25.1:  Key economic and financial indicators, Slovakia 

Notes: See Annex 1  
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

101 

ThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-2.5 -1.7 -1.8 -2.7 -4.7 Current account balance, balance of payments (% of GDP)0.1 (1)-3.2 (2)-3.3 0.6 -2.5 -6.3 -5.4 Net international investment position (% of GDP)-35%-47.9 (3)-1.5 (4)-65.6 -64.8 -61.0 -62.6 -57.4 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-14.1 -14.8 -14.7 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)14.2 15.4 14.1 16.6 16.6 Nominal unit labour cost index (% y-o-y change)5.3 5.5 2.8 7.6 5.5 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.6 5.3 3.1 1.2 -0.8 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.6 2.5 -0.1 -1.2 0.5 Export market share - % of world exports (5 year % change)-6%1.3 7.4 -2.9 -6.8 -9.3 Export market share - % of world exports (1 year % change)-2.3 3.3 -4.2 -5.4 -0.8 Private sector debtPrivate sector debt, consolidated (% of GDP)133%91.0 94.5 95.0 94.8 79.3 Private sector credit flow, consolidated (% of GDP)14%4.5 2.5 5.5 8.0 2.3 Household debt, consolidated (% of GDP)49.5 (6)30.0 (7)43.4 46.6 47.8 49.347.5Non-financial corporate debt, consolidated (% of GDP)75.3 (6)47.4 (7)47.647.947.245.531.8Housing marketHouse price index, deflated (1 year % change)6%6.2 7.2 3.0 -0.5 -4.0 House price index, nominal (1 year % change)13.9 (8)9.19.66.410.05.9Government debtGeneral government gross debt (% of GDP)60%48.0 58.9 62.2 59.6 57.4 General government balance (% of GDP)-1.2-5.4-5.5-4.2-5.8Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%5.8 10.2 24.0 3.0 Return on equity (%)8.35.38.4Common Equity Tier 1 ratio10.6 (9)15.816.816.7Gross non-performing loans, domestic and foreign entities (% of gross loans)2.9e2.5e2.0p1.9Labour marketUnemployment rate (3 year average)10%6.8 6.3 6.4 6.6 6.5 Unemployment rate (year level)7.4 (10)5.7 6.7 6.8 6.3 6.4 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.8 0.4 0.2 1.0 1.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-2.9 -2.2 -0.8 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-6.3 0.4 4.8 forecast  
 
 
  
 
3.26. FINLAND 

In Finland, household debt is high, although associated risks appear to be limited. Almost all loans 
for house purchase are at variable interest rates, which exposes households to the risks of possible 
higher  rates.  The  banking  system  appears  strong  and  resilient,  despite  significant  cross-border 
exposures, especially with other Nordic countries. 

In the previous round of the MIP, the Commission did not carry out an in-depth review and did not 
identify  macroeconomic  imbalances  for  Finland.  This  year,  the  Commission  does  not  consider  it 
necessary to carry out further in-depth analysis for Finland.  

Real GDP growth is forecast at 2.3% in 2022 and 0.2% in 2023. Inflation is high, albeit lower than 
in many other euro area countries. Year-on-year, inflation decreased to 8.3% in October, with core 
inflation estimated at 4.4%. Prices are set to rise faster than wages.   

The scoreboard reading for Finland shows that in 2021 two indicators were beyond their indicative 
thresholds,  namely  private  sector  debt  and  government  debt.  An  economic  reading  of  the 
scoreboard highlights the following relevant developments:  

  Cost  competitiveness  concerns  are  limited.  Nominal  unit  labour  costs  increased  further  in 
2021  and  are  forecast  to  continue  increasing,  although  Finland  is  experiencing  lower  core 
inflation  than  many  other  euro  area  countries.  The  HICP-based  real  effective  exchange  rate 
marginally depreciated in 2021. Year on year, it depreciated by August 2022.  

  The  household  debt-to-GDP  ratio  remains  above  both  prudential  and  fundamentals-based 
benchmarks, however, it has declined in 2021 and remained broadly stable in the first half of 
2022, as net credit flows are expected to remain moderate. Nominal GDP growth is still forecast 
to support deleveraging in 2022. Household non-performing debt remains low. Virtually all loans 
for house purchase are at variable rates. 

  House  price  developments  continue  to  be  of  limited  concern.  Nominal  house  price  growth 
accelerated  to  4.6%  in  2021.  Nominal  year-on-year  house  price  growth  was  at  2.2%  in  the 
second quarter of 2022. Valuation gap metrics do not show signs of potential overvaluation of 
house prices. 

  Risks associated to government debt are limited. It decreased to 72.4% of GDP in 2021 and is 
forecast to stabilise at around that level, but remained above the 2019 level. The government 
deficit  declined  to  2.7%  of  GDP  in  2021  and  is  forecast  to  continue  declining.  Fiscal 
sustainability risks are medium both in the medium- and long-term. 

  The  banking  sector  remains  stable  and  resilient.  The  tier-1  capital  was  well  above  the  EU 
average in 2021, and profitability was high. The non-performing loans ratio is very low and has 
further decreased in 2021. Risks to financial stability remain limited, despite significant cross-
border exposures, especially with other Nordic countries. 

102 

 
 
 
 
Graph 3.26.1: Selected graphs: Finland 

3.26. FINLAND 

Source: Eurostat, Ameco and European Commission services 

Table 3.26.1:  Key economic and financial indicators, Finland 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

103 

-6-4-2024681007080910111213141516171819202122*23*24*Rate of change, y-o-y (%)b) Decomposition of rate of change of unit labour costInflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU27050100150200250080910111213141516171819202122f% of GDPa) Debt decomposition by sector GovernmentHouseholdNon financial corporationsPrivate sectorThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-1.0 -0.5 0.3 0.4 0.1 Current account balance, balance of payments (% of GDP)-0.5 (1)-0.2 (2)-0.3 0.7 0.6 -0.2 -0.3 Net international investment position (% of GDP)-35%-79.3 (3)2.0 (4)4.0 -4.0 -1.4 4.7 4.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)6.9 5.8 15.8 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)1.3 5.3 6.0 7.4 10.0 Nominal unit labour cost index (% y-o-y change)1.9 0.7 3.3 3.2 3.1 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.1 2.3 -0.7 -5.4 -10.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-1.5 1.6 -0.8 -6.2 -3.6 Export market share - % of world exports (5 year % change)-6%3.1 11.6 4.9 -1.5 -2.8 Export market share - % of world exports (1 year % change)2.7 1.0 -3.5 -2.4 -0.4 Private sector debtPrivate sector debt, consolidated (% of GDP)133%146.1 152.6 150.1 143.5 140.9 Private sector credit flow, consolidated (% of GDP)14%6.6 6.1 6.1 4.2 6.9 Household debt, consolidated (% of GDP)55.1 (6)59.4 (7)65.8 69.0 67.8 64.763.5Non-financial corporate debt, consolidated (% of GDP)65.7 (6)89.0 (7)80.383.682.378.877.4Housing marketHouse price index, deflated (1 year % change)6%-0.6 1.3 2.8 -3.5 -1.9 House price index, nominal (1 year % change)-2.5 (8)0.41.84.62.42.0Government debtGeneral government gross debt (% of GDP)60%64.9 74.8 72.4 70.7 72.0 General government balance (% of GDP)-0.9-5.5-2.7-1.4-2.3Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%7.8 8.0 9.4 9.2 Return on equity (%)4.95.89.2Common Equity Tier 1 ratio10.6 (9)17.618.117.8Gross non-performing loans, domestic and foreign entities (% of gross loans)1.4e1.5e1.2p1.0Labour marketUnemployment rate (3 year average)10%7.7 7.3 7.4 7.5 7.3 Unemployment rate (year level)6.7 (10)6.8 7.7 7.7 7.0 7.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.3 1.5 1.8 2.8 3.4 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.4 -1.1 -0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-2.8 1.0 -0.2 forecast   
 
 
  
 
3.27. SWEDEN 

In  Sweden,  concerns  related  to  persistently  high  house  price  growth  and  high  household  and 
corporate  debt  remain.  Nominal  house  price  growth,  albeit  declining  remains  high,  amidst  an 
estimated overvaluation of house prices.   

In the previous round of the MIP, the Commission carried out an in-depth review and concluded that 
Sweden is experiencing macroeconomic imbalances. This year, the Commission finds it opportune to 
examine the persistence of imbalances or their unwinding in an in-depth review for Sweden.  

Real GDP growth is forecast at 2.9% in 2022 and -0.6% in 2023. Inflation is high, albeit somewhat 
lower  than  in  many  other  EU  countries,  alongside  significant  monetary  policy  tightening.  Year  on 
year, it increased to 10.3% in September, with core inflation at 5.8%. Prices are set to rise faster 
than wages.   

The scoreboard reading for Sweden shows that in 2021 four indicators were beyond their indicative 
thresholds, namely real house price growth, private sector credit flows, private sector debt and the 
change  in  youth  unemployment.  An  economic  reading  of  the  scoreboard  highlights  the  following 
relevant developments:  

  Cost competitiveness developments do not appear concerning at present. Nominal unit labour 
costs  increased  only  slightly  in  2021,  but  are  forecast  to increase more  strongly  in  2022  and 
2023. Still, the HICP-based real effective exchange rate appreciated in 2021. However, year-on-
year,  it  had  depreciated  markedly  by  August  2022.  The  nominal  exchange  rate  depreciated  in 
2022.  The  solid  current  account  surplus  mitigates  risks  of  large  currency  fluctuations.  The 
surplus  declined  to  5.4%  of  GDP  and  is  forecast  to  continue  declining  in  2022.  The  net 
international investment position is positive and forecast to increase. 

  The  non-financial  corporate  debt-to-GDP  ratio  remains  among  the  highest  in  the  EU  and 
increased to 123% in 2021. It remains above both prudential and fundamental benchmarks and 
is 11 percentage points higher than in 2019. The high share of cross-border intra-group lending 
in  corporate  debt  reduces  risks.  Corporate  indebtedness  is  flanked  by  high  and  increasing 
corporate  liquidity  buffers,  which  mitigates  risks  further,  even  though  parts  of  the  corporate 
sector  are  exposed  to  energy  price  and  interest  rate  increases.  Credit  flows  to  non-financial 
corporates, in % of GDP, are high. Commercial real estate is a particular source of concern, also 
because of how they are funded.  

  The household debt-to-GDP ratio remains among the highest in the EU, above both prudential 
and fundamentals-based benchmarks. It has declined as a ratio to GDP in 2021 and continued 
to decline slightly in the first half of 2022 on account of dynamic net credit flows. As a ratio to 
household GDI, household debt has been increasing steadily since 2013 to reach close to 190% 
of GDP in 2021. Household non-performing debt remains low, but debt service costs are rising 
rapidly with interest rates. Over two thirds of mortgages have variable interest rates fixed only 
up to one year. 

  Very  high  house  price  growth  continues  being  of  concern.  Nominal  house  price  growth 
accelerated  from  4.2%  to  10.1%  in  2021  and  grew  at  one  of  the  highest  paces  in  the  EU. 
Nominal  year-on-year house price growth decelerated to 7.1% in the second quarter of 2022. 
House prices were estimated to be 35% overvalued in 2021, one of the highest in the EU. House 
prices  started  to  decrease  markedly  from  the  middle  of  2022  following  rises in  interest  rates 
and energy prices, putting pressure on household finances as debt levels remain high. 

  The  banking  sector  remains  healthy.  The  tier-1  capital  ratio  is  close  to  the  EU  average  and 
profitability  is  very  high.  The  non-performing  loans  ratio  is  very  low.  Credit  provision  both  for 
corporation and households is the highest in the EU and has further accelerated in 2021. The 
unfolding correction of housing prices and changes in conditions for CRE represent a challenge 

104 

 
 
for  the  financial  sector.  The  sector  also  relies  heavily  on  international  markets  and  interbank 
lending  between  Swedish  banks  for  its  funding,  exposing  the  banking  sector  to  global  market 
risks.  

Graph 3.27.1: Selected graphs: Sweden 

3.27. SWEDEN 

Source: Eurostat, ECB (BSI) and European Commission services 

Table 3.27.1:  Key economic and financial indicators, Sweden 

Notes: See Annex 1 
Source: Commission services, Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2022) 

105 

020406080100120140160-10-505101520253007Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q42015=100Rate of change, y-o-y (%)a) House priceMFI loans for house purchase (y-o-y growth rate)Real House Price Index (2015=100), right axisNominal House Price Index (2015=100), right axis05010015020025030035007Q208Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q222Q2% of GDPb) Debt decompositionGovernmentHouseholdNon financial corporationsPrivate non-financial sectorThresholdsBenchmark IBenchmark II20192020202120222023External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%3.7 4.7 5.6 4.9 4.0 Current account balance, balance of payments (% of GDP)0.7 (1)0.3 (2)5.5 5.9 5.4 3.3 3.4 Net international investment position (% of GDP)-35%-87.4 (3)4.1 (4)13.2 9.4 21.2 37.9 39.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-11.4 -10.9 -2.0 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)7.2 8.7 5.5 6.9 8.5 Nominal unit labour cost index (% y-o-y change)1.5 3.4 0.5 2.8 4.9 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)-8.3 -4.8 2.1 -2.4 -8.6 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-3.8 3.0 3.0 -8.0 -3.5 Export market share - % of world exports (5 year % change)-6%-2.9 3.1 -1.0 1.8 1.5 Export market share - % of world exports (1 year % change)2.9 4.1 -3.2 0.4 -2.5 Private sector debtPrivate sector debt, consolidated (% of GDP)133%200.0 212.8 215.2 211.8 200.2 Private sector credit flow, consolidated (% of GDP)14%9.7 14.4 16.6 15.0 12.0 Household debt, consolidated (% of GDP)70.3 (6)78.3 (7)88.5 93.7 92.5 90.288.8Non-financial corporate debt, consolidated (% of GDP)82.0 (6)94.6 (7)111.5119.1122.7121.6111.4Housing marketHouse price index, deflated (1 year % change)6%0.4 3.3 8.1 -5.9 -8.3 House price index, nominal (1 year % change)34.6 (8)2.54.210.16.51.9Government debtGeneral government gross debt (% of GDP)60%35.2 39.5 36.3 32.1 29.4 General government balance (% of GDP)0.6-2.8-0.10.20.2Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%11.5 10.7 10.9 0.9 Return on equity (%)10.98.410.0Common Equity Tier 1 ratio10.6 (9)17.719.219.2Gross non-performing loans, domestic and foreign entities (% of gross loans)1.1e1.0e1.0p0.8Labour marketUnemployment rate (3 year average)10%6.8 b7.3 b8.1 8.2 7.9 Unemployment rate (year level)6.7 (10)7.0 8.5 8.8 7.2 7.6 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.8 0.0 0.6 b1.0 1.2 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.5 -0.2 0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp1.1 6.3 7.9 forecast     
 
 
  
 
ANNEX 1: NOTE TO THE TABLES OF THE COUNTRY SECTION 

Table A1.1: Notes to the tables of the Country section 

Source: European Commission services 

106 

 
 
  
 
 
ANNEX 2: FORECASTS AND NOWCASTS OF SCOREBOARD INDICATORS 

To enhance the forward-looking elements in the scoreboard reading, the AMR analysis builds also, 
whenever possible, on forecasts for 2022 and beyond. Whenever available, such figures are based 
on the Commission autumn 2022 forecast. Otherwise, figures mostly display forecasts prepared by 
Commission services for this AMR.  

The  table  below  summarises  the  assumptions  used  for  the  forecasts  figures  of  headline 
scoreboard  indicators.  The  GDP  figures  used  as  denominators  in  some  ratios  stem  from  the 
Commission autumn 2022 forecast.  

In case of multi-annual rates of change (e.g., the five-year change of export market shares), only 
the  2022  and  2023  component  is  based  on  forecasts,  whereas  components  related  to  2021  or 
earlier years use the Eurostat data underlying the MIP scoreboard.  

Table 1: 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 2022 forecast of the current 
account balance (Balance of Payments concept) 

AMECO 

Net 
international 
investment  position  (%  of 
GDP) 

Real  effective  exchange 
rate  –  42  trading  partners, 
HICP  deflator  (3  year  % 
change) 

Export market share – % of 
world  exports  (5  year  % 
change) 

Nominal  unit  labour  cost 
index, 2010=100 (3 year % 
change) 

price 

House 
(2015=100),  deflated 
year % change) 

index 
(1 

Private  sector  credit  flow, 
consolidated (% of GDP) 

Private 
consolidated (% of GDP) 

sector 

debt, 

General  government  gross 
debt (% of GDP) 

Unemployment rate (3 year 
average) 

Total 
sector 
financial 
liabilities,  non-consolidated 
(1 year % change) 

Activity  rate  -  %  of  total 
population  aged  15-64  (3 
year change in pp) 

Forecast made by Commission services based on the Commission 
autumn 2022 forecasts for total economy net lending/borrowing  

Commission 
services 

Values based on the Commission autumn 2022 forecast 

Figures are based on the Commission autumn 2022 forecast of: i) 
nominal goods and services (G&S) exports for 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 2022 forecast 

Forecast made by Commission services 

Forecast made by Commission services 

Forecast made by Commission services  

Values from the Commission autumn 2022 forecast 

Values from the Commission autumn 2022 forecast 

Forecast made by Commission services 

Forecast made by Commission services 

AMECO 

AMECO 

AMECO 

Commission 
services 

Commission 
services 

Commission 
services 

AMECO 

AMECO 

Commission 
services 

Commission 
services 

107 

 
 
ANNEX 3: MIP SCOREBOARD 

108 

Current account balance - % of GDP (3 year average)Net international investment position (% of GDP)Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)Export market share - % of world exports(5 year % change)Nominal unit labour cost index (2015=100)(3 year % change)House price index (2015=100), deflated (1 year % change) Private sector credit flow, consolidated (% of GDP)Private sector debt, consolidated (% of GDP)General government gross debt (% of GDP)Unemployment rate (3 year average)Total financial sector liabilities, non-consolidated(1 year % change)Activity rate - % of total population aged 15-64(3 year change in pp)Long-term unemployment rate - % of active population aged 15-74(3 year change in pp)Youth unemployment rate - % of active population aged 15-24(3 year change in pp)Thresholds-4%/+6%-35%±5% (EA)±11% (Non-EA)-6%9% (EA) 12% (Non-EA)6%14%133%60%10%16.5%-0.2 pp0.5 pp2 ppBE0.5 59.9 0.6 2.4 5.4p4.5 3.8p169.0p109.2 5.9 7.5 1.1 0.0 2.2 BG0.5 -18.4 3.8 12.2 16.4 2.5p4.4 84.4 23.9 5.5 9.5 0.6 -1.0 -0.1 CZ0.5 -15.6 5.0 -1.1 13.9 16.4 2.9 78.8 42.0 2.5 7.9 0.0 0.1 1.5 DK8.5 77.0 -1.1 6.5 6.1 9.5 12.3 214.7 36.6 5.2 11.7 1.4 0.0 0.3 DE7.3 70.7 0.5 -5.9 7.4p8.2p5.7p120.4p68.6 3.4b7.2 1.2 -0.2 0.3 EE-0.1 -13.0 1.9 17.8 10.7 10.4 6.5 95.3 17.6 5.9 17.5 -0.2 0.3 4.7 IE-4.2 -145.5 -2.6 39.9 -7.9 4.2 2.6p168.1p55.4 5.7 18.8p1.8 -0.3 0.7 EL-5.0 -171.9 -3.1 9.6 4.0p6.4e-0.1p120.7p194.5 16.7 14.3 -0.8 -3.3 -5.7 ES1.2 -71.5 -0.5 -10.5 12.3p1.5 2.5p139.1p118.3 14.8d6.6 0.0d-0.2d0.5dFR-0.3 -32.1 -0.4 -11.4 4.6p4.7 6.5p167.8p112.8 8.1d7.3p0.2d-0.2d-3.1dHR1.8 -35.1 -1.5 7.9 6.4p4.5 3.0p88.5p78.4 7.2 11.7 2.4 -0.6 -1.8 IT3.4 8.1 -1.8 -6.2 4.6 0.9 3.3 113.5 150.3 9.6 6.2 -1.1 -1.1 -2.5 CY-7.5 -117.8 -2.4 24.9 4.1p-4.3 4.3p248.4p101.0 7.4 -0.8 1.7 -0.1 -3.1 LV-0.7 -27.4 2.3 13.4 14.5 7.3 0.9 58.0 43.6 7.3 13.2 -1.8 -1.1 2.6 LT4.0 -7.4 4.4 37.9 19.2 11.0 5.9 53.9 43.7 7.3 25.2 0.9 0.6 3.2 LU4.2 30.6 0.6 13.1 11.2p12.4 53.9p340.6p24.5 5.9 11.4 2.1 0.4 2.7 HU-1.9 -53.1 -4.1 0.0 12.4p10.0p12.7p80.5p76.8 3.8 16.4 2.1 -0.1 3.6 MT-0.8 52.8 -1.2 -0.9 12.9 3.8p9.4 131.8 56.3 3.8 7.7 3.5 -0.9 0.3 NL6.4 93.0 2.2 1.1 11.2p11.2p11.7p229.3p52.4 4.5 -0.3p1.0 -0.4 0.4 AT1.9 14.7 1.2 -2.7 9.9 9.9 7.4 129.7 82.3 5.7 8.0 0.1 0.3 1.0 PL0.3 -39.5 -0.4 24.9 9.9b3.7 4.0 71.6 53.8 3.3 13.6 3.4 -0.1 0.1 PT-0.6 -94.7 -2.8 -5.3 12.5p7.9 4.0p156.9p125.5 6.8 7.1 0.7 -0.3 3.1 RO-5.7 -47.2 1.0 10.6 14.4p-1.1 3.8p48.1p48.9 5.5 14.3 3.2 -0.2 0.5 SI5.8 -6.8 -0.4 11.6 12.8 7.8 3.5 66.4 74.5 4.7 14.1 0.6 -0.3 3.9 SK-1.8 -61.0 3.1 -2.9 14.1 3.0 5.5 95.0 62.2 6.4 24.0 0.2 -0.8 4.8 FI0.3 -1.4 -0.7 4.9 6.0 2.8 6.1 150.1 72.4 7.4 9.4 1.8 -0.2 -0.2 SE5.6 21.2 2.1 -1.0 5.5 8.1 16.6 215.2 36.3 8.1 10.9 0.6b0.2 7.9 Table 3.1: MIP Scoreboard 2021Year2021External 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. 1)Foremploymentindicators,seepage2oftheAMR2016.2)Housepriceindexe=estimatebyNCBforEL.3)Employmentindicators,d=SpainandFrancehaveassessedtheattachmenttothejobandincludedinemploymentthosewhohadanunknowndurationofabsencefromwork,butareexpectedtoreturntothesamejobonce COVID-19 health measures allow it.Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective Exchange Rate), and International Monetary Fund data, WEO (for world volume exports of goods and services) 
 
 
 
2.6. Financial sector 

109 

Year2021Real GDP (1 year % change) Gross fixed capital formation (% of GDP)Gross domestic expenditure on R&D (% of GDP)Current plus capital account (Net lending-borrowing)(% of GDP)Net international investment position excluding non-defaultable instruments (% 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 year % change)Export performance against advanced economies(5 year % change)Terms of trade(5 year % change)Export market share in volume(1 year % change)Labour productivity(1 year % change)Gross non-performing loans of domestic and foreign entities  (% of gross loans)Unit labour cost performance relative to EA(10 year % change)House price index (2015=100) - nominal (3 year % change)Residential construction (% of GDP)Household debt, consolidated (incl. NPISH, % of GDP)Consolidated banking leverage, domestic and foreign entities (total assets/total equity)BE6.1p24.2pna0.6 37.3 4.0 166.7 -3.3p0.4 7.1 -1.2p1.0p4.2p1.6p-3.3 16.1 6.3p62.1 13.8pBG7.6 16.3 0.8p0.2 49.8 2.6 80.8 -3.4 2.3 17.4 8.2 0.7 7.4 4.8p54.2 20.5p2.8 24.9 8.0pCZ3.5 26.0 2.0p0.7 36.4 2.7 82.1 -2.5 4.5 3.4 0.8 -3.4 3.2 1.7p15.1 41.7 4.6 34.4 12.3pDK4.9 22.6 2.8p9.1 32.1 3.3 56.6 -0.5 -1.3 11.3 1.9 -2.3 2.3 1.8p-6.6 20.2 6.0 104.3 16.2pDE2.6p21.8p3.1p7.3 54.6 1.7 49.6 -1.9p0.6 -1.6 -1.6p-0.6p2.5p1.1p12.9 27.1p7.2p56.7 14.1pEE8.0 28.9 1.7p7.1 39.9 19.6 125.9 -0.3 1.4 23.2 1.4 9.6 7.9 1.1p21.7 30.5 4.9 37.8 9.4pIE13.6 23.3 1.3p15.1 -335.1 16.5 418.6 -1.2 -1.7 46.3 -4.4 3.8 7.1 2.4p-37.6 11.2 2.1 29.7p8.8pEL8.4p13.3p1.4p-4.6 -150.2 3.1 23.4 -3.1p-4.3 14.6 -5.2p13.8p5.6p8.6p-22.5 20.4e1.3p55.2 17.0pES5.5p19.8pna1.9 -39.7 3.0 76.4 -2.1p-0.7 -6.4 0.0p4.1p3.0p2.9p-8.5 11.5 5.4p58.4 15.8pFR6.8p24.2 2.2 0.8 -37.2 3.0 51.9 -1.7 -0.5 -7.4 -1.0 -1.5p4.2p1.9p-5.2 15.6 6.7p66.7p15.8pHR10.2p21.6p1.3p5.5 12.0 6.9 63.4 -2.5p-2.3 12.8 -1.8p23.0p8.9p4.2p-16.6 25.9 3.1p34.7 7.8pIT6.7 20.0 1.5p3.0 6.4 0.9 30.8 -2.5 -2.1 -1.9 -2.0 3.1 6.1 3.5p-6.1 4.5 4.8 43.4 14.3pCY6.6p19.5pna-6.4 -76.4 -123.3 1595.5 -4.4p-2.4 30.6 -1.6p3.3p5.3p5.6p-16.3 0.0 7.6p83.0 16.0pLV4.1 22.3 0.7p-2.8 18.9 9.5 67.1 -2.5 1.1 18.5 7.7 -4.4 6.8 2.1p35.8 25.0 2.2 19.4 10.3pLT6.0 21.4 1.1p2.6 22.2 4.5 55.5 -4.8 3.2 44.2 -4.3 6.7 4.7 1.2p30.7 33.0 3.0 23.6 15.7pLU5.1p16.5pna5.9 -4766.5 -269.1 5498.4 -2.8p0.6 18.2 2.0p-0.6p2.1p0.6p9.8 43.6 3.3p66.0 15.2pHU7.1p27.2p1.6 -1.5 -1.5 16.1 323.0 -4.4p-4.4 4.6 -2.2p0.0p6.0p3.2p14.9 43.0p3.9p21.0 10.8pMT10.3 22.1p0.7 -3.6 259.4 25.1 1481.5 -4.4 -1.2 3.6 1.6 -1.3 7.2 3.0p14.8 15.3p3.7p53.4 12.6pNL4.9p21.6pna7.3 26.0 -14.4 549.9 -1.5p2.4 5.7 -0.8p-5.1p2.8p1.4p1.6 32.8p5.5p100.4p16.3pAT4.6 26.5 3.2p0.4 -4.2 2.6 60.1 -2.4 1.1 1.7 -2.6 -0.7 2.5 1.8p7.2 28.1 5.3 52.1 11.7pPL6.8 17.0 1.4p-0.8 0.8 5.5 50.1 -2.0 -0.6 30.6 1.1 2.2 5.3b5.0p5.1 31.1 2.3 32.3 12.9pPT5.5p20.3p1.7p0.6 -36.1 3.1 85.6 -2.7p-3.0 -1.0 -0.5p3.2p3.5p3.6p2.3 30.9 3.8p66.4 12.0pRO5.1p24.1p0.5p-5.1 -6.5 4.1 46.6 -2.0p0.2 15.7 5.6p2.2p3.2p3.4p35.4 13.0 2.6p15.8 10.2pSI8.2 20.3 na3.9 9.7 3.4 43.3 -2.8 -1.0 16.7 -1.5 4.2 6.8 2.1p-0.4 24.5 2.4 26.4 9.6pSK3.0 18.9 1.0 -1.2 -14.7 0.8 66.5 -3.6 3.1 1.5 -2.6 0.3 3.6 2.0p11.9 27.2 3.9 47.8 10.4pFI3.0 23.7 3.0 0.7 15.8 8.0 51.6 -1.9 -1.0 9.7 1.3 -4.9 -0.3 1.2p-5.9 6.9 7.2 67.8 16.2pSE5.1 25.6 3.4 5.5 -2.0 9.2 91.7 -0.7 1.7 3.5 -0.1 -2.4 3.8 1.0p4.2 17.6 5.3 92.5 16.4pTable 3.2.1: Auxiliary indicators, 2021Flags:b:Break in series. e:Estimated. p:Provisional. 1) The official transmission deadline for 2021 data on Gross domestic expenditure on R&D is 31 October 2022 while data were extracted on 21 October 2022. 2) House price index e = estimate by NCB for EL.Source:EuropeanCommission,EurostatandDirectorateGeneralforEconomicandFinancialAffairs(forRealEffectiveExchangeRate),EuropeanCentralBank(forConsolidatedbankingleverageandGrossnon-performingloans,domesticandforeignentities),andInternationalMonetaryFunddata,WEO(forworldvolume exports of goods and services)2.6. Financial sector 

110