COMMISSION STAFF WORKING DOCUMENT Alert Mechanism Report 2024 Prepared in accordance with Article 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances Accompanying the document Communication to the European Parliament, the Council and the European Economic and Social Committee Alert Mechanism Report 2024
Date: 2023-11-21
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: economic disparity, economic growth, economic recovery, economic statistics, euro area, inflation, macroeconomics, multilateral surveillance, national accounts, public debt

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 21.11.2023  SWD(2023) 901 final  COMMISSION STAFF WORKING DOCUMENT Alert Mechanism Report 2024                Prepared in accordance with Article 3 and 4 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances         Accompanying the document Communication to the European Parliament, the Council and the European Economic and Social Committee Alert Mechanism Report 2024 {COM(2023) 902 final} - {SWD(2023) 901 final} - {SWD(2023) 902 final}  
 
 
  Current  

Alert Mechanism Report 2024 

 
 
 
 
 
 
 
 
 
 
CONTENTS 

Introduction 

1.  Macroeconomic context 

2. 

External sector 

Imbalances, risks and adjustment: main developments 
2.1. 
2.2. 
Competitiveness 
2.3.  Non-financial corporations 
2.4. 
2.5. 
2.6. 
2.7. 

Household debt and saving 

Government sector 

Housing markets 

Financial sector 

3.      Country sections 

LIST OF GRAPHS 

1 

3 

10 
10 
17 
27 
34 
39 
45 

52 

57 

4 
1.1. 
GDP growth in EU countries 
8 
1.2. 
Selected graphs on the labour market 
9 
1.3. 
Selected graphs on the macroeconomic context 
12 
2.1.1. 
Current account and net international investment position over time 
13 
2.1.2. 
Current account and trade balance of the Euro Area 
16 
2.1.3. 
Selected graphs on the external sector 
18 
2.2.1.  Unit labour costs decomposition and evolution 
23 
2.2.2.  Headline and core inflation and differentials with EA20 in selected countries 
24 
2.2.3. 
Inflation differentials decomposition with respect to the euro area, 2022-2024, cumulated 
26 
2.2.4. 
Selected graphs on competitiveness 
29 
2.3.1.  Non-financial corporate debt and unit profits 
31 
2.3.2. 
33 
2.3.3. 
34 
2.4.1.  House price evolution, over/undervaluation and household debt 
2.4.2. 
Borrowing capacity change (%), vis-a-vis 2019 
36 
Selected graphs on the housing market                                                                                                                        38 
2.4.3. 
39 
Household debt-to-GDP ratios 
2.5.1. 
40 
2.5.2.  Net credit flows to households 
Contributions to changes in household debt-to-GDP ratios 
2.5.3. 
41 
Selected graphs on household savings and debt                                                                                                           44 
2.5.4. 
46 
2.6.1. 
Banks: profitability, capital ratios and non-performing loans 
49 
2.6.2.  Mortgages and bank loans for house purchase, 2022 
51 
2.6.3. 
Selected graphs on the financial sector 
Government debt and government balance 
2.7.1. 
54 
Selected graphs on the government sector                                                                                                                   56 
2.7.2. 

Corporate loan growth contributions and bankruptcies, by industry 
Selected graphs on non-financial corporations 

 
 
 
 
 
 
INTRODUCTION 

This  Alert  Mechanism  Report  (AMR) 
initiates  the  thirteenth  annual  round  of 
implementation  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  EU  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).  

This  staff  working  document  presents  the  underlying  analysis  as  part  of  the  Alert 
Mechanism  Report.  It  is  accompanied  by  a  Commission  Communication (1)  which  puts  the 
analysis  in  this  staff  working  document  into  context.  It  provides  an  overview  of  the  economic 
developments that are taking place, and gives  an overall assessment of the economic reading of 
the scoreboard. It 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  within  the  Council  and  the 
Eurogroup, the Commission will then prepare IDRs for the Member States concerned. The IDRs will 
be  published  in  early  2024  and  will  provide  the  basis  for  the  Commission  assessment  of  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  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 first sight evidence of possible 
risks and vulnerabilities. Under 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 (2).  The  AMR 
also builds on analytical tools and assessment frameworks, and additional published data, notably 
in-year data (3).  

Building on the approach taken in recent 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  2023  and 
subsequent years have been estimated using Commission forecast data and nowcasts are based 

(1)  Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European  Economic  and  Social 

Committee, Alert Mechanism Report 2024, COM(2023) 902. 

(2)  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.  

(3)  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 31 October 2023. For any other data, the cut-off date was also 31 October 2023.  

1 

 
 
 
Introduction 

on in-year data (4). 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 (5). 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  the  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. 

(4)  For details, see Annex 2 of the Alert Mechanism Report 2023, COM(2022) 781 final. 

(5)  “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. 

2 

 
 
 
1. MACROECONOMIC CONTEXT 

This Alert Mechanism Report is prepared against a backdrop of high but falling inflation 
and subdued economic momentum. In 2022, the year started with a solid expansion of activity 
that  followed  the  recovery  from  the  COVID-19  pandemic  as  supply  bottlenecks  vanished  further 
and  demand  was  expanding  markedly  amid  still  the  post-pandemic  reopening.  That  momentum 
was challenged by the energy price shock following Russia’s invasion of Ukraine, which unleashed 
unprecedented  inflation  aggravating  price  pressures  in  a  context  of  buoyant demand.  The  broad-
based recession that had been widely expected over last autumn and winter did not materialise on 
account  of  diversification  of  energy  sourcing  and  a  marked  reduction  of  energy  consumption. 
Despite this overall resilience, the lagged effects of much higher energy prices and high inflation, 
reduced  purchasing  power,  and  marked  monetary  tightening,  resulted  in  a  noticeable  slowdown 
throughout  the  year.  Export  performance  weakened  against  a  backdrop  of  subdued  global  trade, 
some  lingering  supply  bottlenecks  and  rising  energy  costs,  which  weighed  heavily  on  energy-
intensive manufacturing sectors in European countries. Overall, the momentum softened over the 
course  of  the  year  and  the  EU  economy  has  grown  more  modestly  since  late  2022,  and  a  few 
countries  have  already  recorded  contractions  in  activity.  In  2022  as  a  whole,  real  GDP  growth 
reached 3.4% in both the EU and the euro area. Combined with high inflation, this has resulted in 
nominal  GDP  growth  of  8.7%  in  the  EU  and  of  8.2%  in  the  euro  area,  with significant variations 
across countries, ranging from 5.5% in France to 20.7% in Bulgaria and 19.7% in Hungary (Graph 
1.1).  

Growth has been lacklustre in 2023 and the outlook is for a mild rebound in 2024, but 
possible headwinds remain as inflation continues to correct slowly and tighter monetary 
conditions  may  be  felt  with  a  lag.  By  early  2023,  headline  inflation  had  peaked  in  most  EU 
economies and has since been coming down, sometimes markedly, as energy prices started to fall, 
but still remain clearly higher than before Russia’s invasion of Ukraine. Core inflation, which started 
to  rise  with  a  lag,  is  now  more  persistent  and  is  just  marginally  down  from  its  peak (6).  In  the 
future, the fall in inflation, together with rising wages and a continued strong labour market, should 
help support purchasing power, leading to an expansion of consumption in the future. However, the 
effects of the cumulated monetary and financial tightening may have not yet fully filtered through 
and could have a lagged effect, dampening demand. Global trade is expected to pick up somewhat 
next year but to remain below long-term averages. In addition, export performance of EU countries 
may be further hampered by energy costs that increased by more than for other main competitors, 
and which may become permanently higher (7). 

Uncertainty remains high, centred on the extent and speed of normalisation of inflation 
rates.  The  extent  of  pass-through  of  lower  energy  prices  and  of  recent  wage  increases  on  core 
inflation  are  sources  of  uncertainty.  The  lagged  impact  of  the  historically  unprecedented  fast 
tightening of monetary and financial conditions, even if from very supportive levels, can be further 
impacted by prospective inflation developments and reactions to it. Uncertainty also remains high 
around  the  state  of  the  global  economy,  and  its  implications  for  trade  and  external  demand. 

(6)  In  this  report,  headline  inflation  refers  to  the  ‘All-items  inflation’  as  provided  by  Eurostat;  core  inflation  is  defined  as 

inflation excluding energy, food, alcohol and tobacco, as supplied by Eurostat too. 

(7)  See  also  ECB,  Economic  Bulletin,  Issue  03/2023,  Box  3,  ‘The  energy  shock,  price  competitiveness  and  euro  area  export 

performance’. 

3 

 
 
 
1. Macroeconomic context 

According to the Commission autumn 2023 forecast, real GDP growth is expected at 0.6% in the EU 
and the euro area in 2023 and to advance by 1.3% in the EU and 1.2% in the euro area in 2024. In 
a few Member States, GDP is forecast to contract in real terms, even if only mildly, in 2023, while 
in 2024 almost all EU countries are expected to grow again. Price pressures are expected to abate 
gradually, but to remain significant for some time, resulting in nominal  GDP growth of 6.6% and 
4.4% in the EU in 2023 and 2024 respectively, with 6.5% and 4.3% in the euro area (Graph 1.1) (8). 

Graph 1.1: GDP growth in EU countries 

Countries are presented in decreasing order of real GDP % change in 2022. 
Source: AMECOAMECO and Commission autumn 2023 forecast 

The labour market has been strong with unemployment at record low levels. Employment 
has increased steadily and unemployment has reached historical lows in the course of 2023 (Graph 
1.3  e).  A  range  of  indicators  point  to  tight  labour  markets.  This  labour  market  resilience  has 
occurred  against  a  backdrop  of  increasing  participation  and  higher  employment  rates,  benefiting 
from  long-term  trends  of  rising  labour  market  participation  of  women,  older  workers,  EU  mobile 
workers, and non-EU nationals (9). Moreover, the weakened economic momentum since late 2022 
has not had a visible bearing on the labour market. Shortages of workers have been a lasting issue 
in a number of countries, often being already relevant before the outbreak of the pandemic crisis. 
There are risks that the labour market may weaken if the sluggish economic momentum lasts; job 
creation  has  already  fallen  in  recent  quarters  even  if  remaining  positive  but  continued  labour 
market tightness and labour hoarding due to skills and labour shortages are expected to limit the 
labour market’s response to the subdued economic momentum (Graph 1.3 e; Box 1.1). Productivity 
per worker has often been sluggish, amid increasing employment rates and a drop in the average 
number of hours worked per employee. 

Nominal  wages  are  now  growing  faster  than  inflation  after  lagging  behind  it  in  2022. 
That  is  undoing  some  of  the  reduction  in  real  incomes  and  underpinning  consumption.  In  2022, 
nominal wages grew strongly by historical standards, but still did not keep up with inflation across 
the EU and euro area, resulting in falling wages in real  terms by -3.7%. In 2023, nominal wages 
have  been  accelerating  as  labour  markets  remain  tight,  which  together  with  somewhat  receding 

(8)  European Commission, European Economic Forecast. Autumn 2023, Institutional Paper 258, November 2023. See also IMF 

(2023), World Economic Outlook, October 2023.  

(9)  See  Labour  Market  and  Wage  Developments  Report  in  Europe,  Annual  Review  2023;  ECB,  Economic  Bulletin,  Issue 

06/2023, Box 3, ‘The euro area labour force: recent developments and drivers’. 

4 

-20246810121416182022242224222422242224222422242224222422242224222422242224222422242224222422242224222422242224222422242224222422242224IEMTPTHRESELPLCYATROHUNLBGITLVBESEDKSIFRLTCZDESKFILUEEEAEU%Real GDP % changeGDP Deflator, % change 
  
 
1. Macroeconomic context 

inflation, is leading to real wage growth in several countries. That, together with rising headcount 
employment,  has  added  resilience  to  household  consumption  and  is  expected  to  continue 
underpinning  spending,  while  inflation  recedes  further.  Nonetheless,  cumulatively,  households  in 
many countries will still have experienced a reduction in real incomes over 2022 and 2023 and this 
may continue muting consumption in the near future.   

While  the  peak  in  headline  inflation  seems  to  have  passed,  core  inflation  is  displaying 
both persistence and continued divergence across countries. While headline inflation peaked 
in EU countries in late 2022 and early 2023, it remains well above central banks’ targets. At the 
same time, inflation has broadened even if energy prices are now contributing to reducing inflation 
nearly  everywhere;  instead,  inflation  is  now  primarily  driven  by  price  increases  in  services  and  in 
non-energy  industrial  goods  (Graph  1.3  a  and  b).  Core  inflation  took  longer  to  rise  than  headline 
inflation  as  the  costs  of  higher  energy  fed  into  the  prices  of  other  goods  and  services  only 
gradually.  It  has  not  been  reducing  to  the  same  extent  after  reaching  a  peak  in  early  2023. 
Domestic inflationary pressures have increased, with unit labour costs and profit margins edging up 
markedly (Graph 1.3 c). Unit profits seem to have accounted for most of the inflation in many EU 
countries in 2022, which may have reflected the fact  that firms adjusted their prices faster than 
wages on the impact of the cost shock and in a backdrop of strong demand (Graph 1.3 d) (10). In the 
future, some unwinding of the accumulated profits could allow firms to absorb higher costs rather 
than pass them onto prices, but the strength of demand and the pricing power of firms will be key 
determinants of the extent to which profits evolve. While further reductions in core inflation should 
be  expected,  as  falling  input  prices  feed  through,  core  inflation  may  remain  elevated  due  to 
persistent marked rises in labour costs. Unit labour costs have recently been clearly accounting for 
inflation, which is consistent with the more gradual reaction of wages described above (Graph 1.3 
f). However, large cross-country differences have been recorded first in headline, and later, in core 
inflation. Those differentials have declined in recent months but remain clearly high. The cumulated 
effect  of  continued  significant  divergences  in  inflation  can  have  serious  implications  for  cost 
competitiveness (see Section 2.2). 

Central banks have been tightening their stances and increasing their key interest rates 
from very low levels. Throughout the past year and a half, central banks, including the European 
Central Bank (ECB) and other EU central banks, have tightened their stances, mainly by a series of 
increases  in  their  key  interest  rates  from  very  low  levels.  In  addition,  euro  area  banks  repaid 
maturing  Targeted  Longer-term  Refinancing  Operations  III  loans  and the  ECB stopped  reinvesting 
the proceedings of securities maturing under its Asset Purchase Programme. The earlier stages of 
the  tightening  represented  a  monetary  policy  normalisation  following  the  extraordinary  support 
provided  immediately  after  the  breakout  of  the  COVID-19  pandemic.  It  was  followed  by  an 
historically very  fast tightening of rates since mid 2022. Most EU central  banks  in non-euro area 
Member  States,  notably  those  with  a  floating  exchange  rate,  have  tightened  their  stance  more 
markedly  and  earlier  than  the  ECB,  in  response  to  much  higher  inflation  rates  domestically.  At 
present, indications are that the tightening cycle may have largely ended, but some countries still 
remain  marked  by  above  the  target  inflation  rates,  which  may  mean  that  tight  monetary  and 
financial  conditions  may  linger  for  long.  At  the  same  time,  the  interplay  between  the  monetary 
stance and high inflation differentials remains a concern for the near future, as some economies 
experiencing  below  average  inflation  could  see  their  credit  and  economic  activity  being 
asymmetrically affected by the sensibly higher real interest rates.  

(10)  See  also  European  Commission,  SWD(2023)  903,  Commission  staff  working  document,  2024  Report  on  the  euro  area 
accompanying the Recommendation for a Council Recommendation on the economic policy of the euro area. See also ECB, 
Economic  Bulletin,  Issue  04/2023,  Box  3,  ‘How  have  unit  profits  contributed  to  the  recent  strengthening  of  euro  area 
domestic price pressures?’ 

5 

 
1. Macroeconomic context 

Borrowing and lending dynamics have been clearly moderating. The higher monetary policy 
rates  have  quickly  been  passed  on,  resulting  in  higher  interest  rates  charged  to  borrowers.  That 
speed of transmission may have varied across countries reflecting also the structure of financing. 
In  the  euro  area,  credit  standards  have  tightened  substantially  for  households  and  non-financial 
corporations since early 2022 with higher risk perceptions owed to the economic outlook, lower risk 
tolerance, and higher cost of funds. In parallel, demand for loans has decreased strongly owing to 
lower  investment  needs,  weaker  housing  markets,  and  lower  consumer  confidence.  Surveys 
suggests  that  banks  expect  to  tighten  standards  somewhat  further  and  a  further  net  decline  in 
credit demand (11). As a result, lending dynamics have been moderating. Until early autumn 2023, 
yields increased visibly for euro area sovereigns. Yields and spreads have declined in most of the 
central and eastern European countries outside the euro area in the course of this year after more 
marked increases until late last year. 

The  EU  banking  sector  is  resilient  amid  sufficient  capital  buffers  while  profitability 
increased significantly in 2022, yet uncertainties continue to linger. Following an extended 
period  of  low  interest  rates  and  abundant liquidity,  the  ongoing tightening  of  financial  conditions 
has significant implications for indebted households, non-financial corporations, and sovereigns, all 
of which can in turn have an effect on the financial system. The economic backdrop puts pressure 
on  asset  valuations,  including  real  estate,  which  accounts  for  a  significant  share  of  bank  lending 
and is widely used as collateral  for loans. At present, investors are expecting a rapid decrease in 
inflation, which could contribute to easing financial conditions (12). Non-performing loans have been 
overall stable. The bankruptcies of some banks in the US and Switzerland in the first half of 2023 
shook the global financial system. Although the markets have gradually calmed down, uncertainties 
about hidden vulnerabilities in the financial system persist. These vulnerabilities may be related to 
high  leverage,  mismatches  between  asset  and  liabilities,  and  increased  interconnectedness 
between banks and non-banks (13). 

Risks  to  the  outlook  are  two-sided  and  affect  imbalances.  The  new  conflict  in  the  Middle 
East, Russia’s continued war against Ukraine and a generally changing geopolitical context, which 
may  impinge  on  global  trade  and  make  external  conditions  difficult,  are  major  factors  of 
uncertainty. Inflation could surprise on both sides. It could turn out to be more persistent leading to 
tighter-for-longer  financial  conditions.  Continued  or  further  stress  in  global  energy  supply  would 
drive  energy  prices  higher,  and  marked  wages  and  unit  labour  cost  dynamics  could  lead  to  a 
renewed  push  on  prices,  particularly  if  profits  are  not  adjusted  to  act  as  a  buffer.  Global  supply 
chains  are  being  re-shaped  and  that  may  lead  to  higher  costs  and  compound  price  pressures. 
Conversely, inflation may recede faster than forecast, particularly if energy prices fall further and 
there is strong pass-through of those prices to other goods and services, and that would bode well 
for  demand.  Conversely,  monetary  and  financial  tightening  may  continue  to  have  lagged  effects, 
reducing demand and limiting current account deficits and external borrowing needs.  Risks on the 
EU economy are closely related to the outlook for its key trade partners. The risks in China are on 
the  downside,  related  to  the  downturn  in  the  property  sector  and  to  high  debt  imbalances.  Risks 
stemming from the US appear more balanced, as the disinflation process has progressed without a 
major  dent  in  activity.  Overall,  global  growth  could  also  surprise  on  the  downside,  leading  to  a 
slower  recovery  in  exports  for  EU  countries,  which  may  also  be  affected  by  global  economic 
fragmentation  and  permanently  higher  energy  prices.  Global  shifts,  including  technological  ones 
and slow take up of them, can also harm growth prospects. Demographics and the green transition 
are  other  structural  challenges  that  have  to  be  dealt  with.  A  surge  in  risk  aversion  in  global 

(11)  ECB, the euro area bank lending survey – up to the third quarter of 2023. 

(12)  IMF (2023): World Economic Outlook Update: Near-term Resilience, Persistent Challenges, July 2023. 

(13)  IMF  (2023):  Global  Financial  Stability  Report:  Safeguarding  Financial  Stability  amid  High  Inflation  and  Geopolitical  Risks, 

April 2023. 

6 

 
financial  markets,  possibly  associated  or  triggered  by  some  of  the  issues  above,  could  add  to 
volatility and test the financial systems. 

1. Macroeconomic context 

Box 1.1: Employment developments 

In  2023,  the  EU  labour  market  continued  to  perform  strongly  and  is  set  to  remain 
resilient despite the economic slowdown. Even though economic growth started to weaken in 
the  course  of  2022,  the  EU  labour  market  proved  to  be  particularly  resilient.  The  unemployment 
rate edged further down to about 6%, and employment kept growing steadily (by 2% on an annual 
basis). In the first half of 2023, employment in the EU further rose by 1.3% on a yearly basis. This 
is higher than the 1% average increase experienced during the pre-pandemic period of economic 
expansion  (2000-2019),  despite  much  weaker  economic  growth.  With  the  unemployment  rate 
hovering  at  historical  low  in  2023,  reaching  5.9%  in  May,  and  many  firms  reporting  labour 
shortages, the EU labour market remains tight (Graph 1.2 a). The exceptional measures put in place 
to  stabilise  gas  and  electricity  prices  and  reduce  the  EU’s  dependency  on  Russia  have  played  an 
important  role  in  avoiding  a  sizeable  reduction  in  labour  demand.  Employment  growth  has  also 
been supported by the increase in the participation rates.  

The  positive  developments  observed  after  the  energy  shock  hide  some  differences  in 
employment growth across sectors. Supply chain disruptions caused by the pandemic, Russia’s 
war of aggression against Ukraine and the rise in the cost of energy have dampened employment 
growth in energy-intensive industries and transport. In the second quarter of 2023 employment in 
energy-intensive industries was about 4.5% lower than before the pandemic. By contrast, after a 
brief decline during the pandemic, employment in sectors with low energy intensity grew steadily 
(Graph  1.2  b  and  c).  This  difference  across  sectors  also  translated  into  different  employment 
growth across Member States due to their specific industrial specialisation.  

Looking  forward,  the  labour  market  reaction  to  the  subdued  current  and  expected 
economic momentum  is  set to be mild.  According  to  the Commission  Autumn  2023  forecast, 
economic  activity  is  expected  to  pick  up  only  gradually.  After  the  improvements  registered  until 
January  2023,  employers’  hiring  intentions  fell  again  in  the  subsequent  6  months.  Nonetheless, 
continued  labour  market  tightness  and  labour  hoarding  due  to  skills  and  labour  shortages  are 
expected to limit the labour market’s response to the subdued economic momentum, as employers 
would first close unfilled vacancies before dismissing workers (Graph 1.2 d). Yet a prolonged period 
of low economic growth would most likely result in lower employment growth. 

7 

 
Graph 1.2: Selected graphs on the labour market 

1. Macroeconomic context 

(1) In Panel b), the figures included after the series names refer to the respective share in total employment in 2020. In 
panels b) and c), the following sectors are excluded: mining and quarrying; manufacture of coke and refined petroleum 
products; electricity, gas, steam and air conditioning supply; public administration and defence; compulsory social security; 
education. 
Source: Eurostat, Commissioncalculations.  

8 

5.7.9.11.13.0.1.2.3.2010-Q12010-Q42011-Q32012-Q22013-Q12013-Q42014-Q32015-Q22016-Q12016-Q42017-Q32018-Q22019-Q12019-Q42020-Q32021-Q22022-Q12022-Q4Job vacancy rate, Industry and construction (lhs)Job vacancy rate, market services (lhs)Unemployment rate (rhs)a) Job vacancy rate and unemployment,EU04812162024HighMidhighMidlowLowc) Share of employment by energy intensityOther servicesArtsHealthAdministratives activitiesProfessional activitiesFinanceInformation and communicationAccomodationTransportWholesale and retail tradeConstructionWater supplyManufacturingAgriculture90929496981001021041061081102019 Q42020 Q12020 Q22020 Q32020 Q42021 Q12021 Q22021 Q32021 Q42022 Q12022 Q22022 Q32022 Q42023 Q12023 Q2High (12.5%)Midhigh (21.2%)Midlow (21.6%)Low (23%)b) Employment by energy intensity (2019Q4=100)2020Q12021Q12022Q12022Q3​2023Q12023Q20.00.51.01.52.02.53.057911Vacancy rate Unemployment rate 2005Q1-2007Q42008Q1-2013Q22013Q3-2019Q42020Q1-2023Q2d)Beveridge curve for the EU   
 
Graph 1.3: Selected graphs on the macroeconomic context 

1. Macroeconomic context 

Source: AMECO, Eurostat, Commission calculations. Panel d: data missing for Romania and Greece. Panel e: 2023 data 
for core inflation refers to the period January to September 

9 

-50510152025FRMTFIIELUESCYITPTSESIDEATDKBEELHRROSKBGPLNLCZHULVLTEE% change, contribution in pps.a) Inflation rate and its drivers, September 2022Core inflationEnergyFoodHICP headline-50510152025NLDKBEELFIESLULVSEEELTCYDEPTMTIEITFRATBGSIHRPLCZSKROHU% change, contribution in pps.b) Inflation rate and its drivers, September 2023Core inflationEnergyFoodHICP headline456789-15-10-5051015201820192020202120222023%% change, y-o-ye) Labour market developments Employment, personsEmployment, hoursGDPUnemployment rate (rhs)BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISE261014-2261014Core inflation, y-o-yULC, % changef) Core inflation and ULC20222023-2-10123456720172018201920202021202220234-quarter, % change, contribution in pps.c) EU GDP deflator decompositionULC contributionNet unit tax contributionUnit profit contributionGDP deflator-2024681012141618FRITESPTDEMTATFINLLUBESECYSIIESKDKCZHRPLLVHUEEBGLT% change, contribution in pps.d) GDP deflator and its composition, 2022ULC contributionNet unit tax contributionUnit profit contributionGDP deflator 
      
2. IMBALANCES, RISKS AND ADJUSTMENT: MAIN 
DEVELOPMENTS 

2.1. EXTERNAL SECTOR 

Current  account  balances  of  almost  all  Member  States  declined  significantly  in  2022, 
primarily  due  to  soaring  energy  prices.  The  current  accounts  of  several  net-debtor  countries 
further plunged into deep negative territory, significantly below current account norms and below 
their pre-pandemic levels (Graph 2.1.1 a). Similarly, nearly all net-creditor countries experienced a 
decline in their current account balances, which nevertheless remained above levels suggested by 
the fundamentals of those economies (14). The surge in energy prices, which started in the second 
half  of  2021  with  rebounding  economic  activity  and  escalated  strongly  in  2022  amid  Russia’s 
aggression against Ukraine, greatly exacerbated energy goods deficits across most of the Member 
States  (Graph  2.1.3  a) (15).  Several  Member  States  also  witnessed  notable  deteriorations  in  their 
non-energy  trade  balances  driven  by  resilient  domestic  demand  sustained  in  part  by  gradually 
normalising savings rates (16). In addition, primary income balances declined in some EU countries, 
owing  to  lower  investment  income.  The  gradual  recovery  of  international  travel,  particularly 
benefiting some net-debtor countries heavily reliant on the tourism sector, only slightly mitigated 
the negative effects in most cases.  

Data  for  the  first  half  of  2023  point  to  improving  current  accounts.  This  shift  can  be 
mainly attributed to an improvement in energy balances on account of a decline in energy prices, 
as  well  as  the  near-complete  recovery  of  international  tourism  (Graph  2.1.3  b).  Some  countries 
heavily  reliant  on  tourism  have  surpassed  pre-pandemic  travel  balance  levels,  while  others  are 
steadily approaching them (Graph 2.1.3 e). Furthermore, for most countries, the balance of trade in 
goods excluding energy has also increased, driven mainly by volumes rather than price effects. In 
some Member States, a slowdown in domestic demand has played an important role. At the same 
time,  the  export  performance  has  remained  relatively  robust  in  some  countries,  likely  benefiting 
from the dissipation of supply bottlenecks. 

Current  account  balances  are  projected  to  increase  in  nearly  all  Member  States 
compared to 2022, but only a few countries will likely see their current account return 
to pre-pandemic levels. Improvements in trade balances are projected to drive current accounts 
in 2023 and 2024 (Graph 2.1.1 a). While these improvements are set to be driven mainly by price 

(14)  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. 

(15)  Energy  balance  corresponds  to  balance  of  trade  in  energy  goods,  recorded  under  item  3  Mineral  fuels,  lubricants  and 

related materials in the Standard International Trade Classification (SITC). 

(16)  For some Member States, persistent supply chain disruptions, caused by the pandemic, may have contributed to declining 

trade balances, especially during the first half of 2022. 

10 

 
 
 
 
 
 
 
2.1. External sector 

effects,  volumes  are  expected  to  contribute  in  some  Member  States.  The  expected  decline  in 
domestic demand in 2023 will contribute to higher balances, particularly in countries with relatively 
resilient  export  sectors.  Nevertheless,  current  account  deficits  are  expected  to  remain  sizeable  in 
some  cases  despite  the  projected  improvements.  On  the  other  hand,  net-creditor  countries  are 
likely to see their current account balances increase  again, remaining  above the levels suggested 
by their economic fundamentals.    

The reversal in current account developments is underway as major shocks of the past 3 
years seem to be dissipating. Energy prices have fallen substantially from their 2022 highs but 
are expected to remain above the levels seen before the pandemic (17). As a result, energy balances 
will keep current account balances lower, especially in countries heavily reliant on energy imports. 
In addition, the pandemic had a lasting impact on tourism sectors, but the 2023 summer season 
hints  at  a  full  recovery  of  the  sector (18).  In  addition,  supply  chain  disruptions  continue  to  mend, 
supporting trade, but the net effect on trade balances is unclear (19). High inflation and tightening 
financing conditions have decelerated real domestic demand with a mild contraction seen in nearly 
half of Member States further supporting the pick-up in trade balances.  

In 2022, the net international investment positions (NIIP) continued to narrow in nearly 
all EU countries. The narrowing can be attributed to robust nominal GDP growth in most countries 
and,  to  a  lesser  extent,  valuation  effects,  which  dwarfed  the  impact  of  the  increased  current 
account  deficits  (Graph  2.1.3  f).  Net-debtor  countries  seem  to  have  reduced  their  NIIPs  slightly 
more than net-creditor countries reduced theirs also thanks to their lower reliance on energy and a 
rebound in the services sector. The gap between the aggregate net positions of net-creditors and 
net  debtors  returned  to  close  to  its  2019  level.  For  most  of  the  large  net-debtor  countries,  the 
recent  current  account  outcomes  remained below  the  levels  necessary  for  the  correction  of  their 
negative stocks, as estimated by prudential or fundamental benchmarks (20) (Graph 2.1.1 b). On the 
other  hand,  the  NIIPs  of  several  net-creditor  countries  have  remained  considerably  higher  than 
what can be explained by economic fundamentals. NIIP-to-GDP ratios are projected to increase in 
nearly all Member States for 2023 and 2024 while remaining below prudential levels in many large 
net-debtor countries. 

From  a  sectoral perspective,  the  net  external lending/borrowing position  experienced a 
decline across nearly all countries in 2022 mainly due to a decreasing net position of the 
private sector. The worsening in net positions of households and corporations largely outweighed 
the  improvements  in  government  sectors.  Increased  household  spending,  also  fuelled  by  rising 
living  costs,  accelerated  the  continued  correction  of  elevated  savings.  Despite  increasing  unit 
profits, corporations further contributed to the decline in the private sector’s net position, owing to 
an  increase  in  investment  and  a  pronounced  fall  in  property  income.  On  the  other  hand, 
governments clearly reduced their negative net positions, as the cost of energy support measures 
was lower compared to those related to the COVID-19 pandemic (Graph 2.1.3 d). In 2023, nearly all 

(17)  The price of natural gas and electricity is expected to remain over 270% above the average 2019 levels, while the price of 

oil is expected to be about a third above its 2019 average price in 2024. 

(18)  The performance of tourism sectors can be gauged by the number of nights spent by foreign tourists. 

(19)  See  EC  (2023),  External  Sustainability  Analysis:  Thematic  Note  to  Support  In-Depth  Reviews,  European  Commission, 

Institutional Paper No. 196 and references therein. 

(20)  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. The 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. 

11 

 
Member  States  are  forecast  to  witness  an  increase  in  the  net  positions  primarily  driven  by  the 
private sector. In some cases, the government is expected to increase its net borrowing, which will 
worsen the total net borrowing/lending positions of those economies. 

Graph 2.1.1: Current account and net international investment position over time 

2.1. External sector 

Countries are ranked in increasing order of current account balances in 2022, 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  14.  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 20.  
Source: Eurostat and European Commission calculations 

Persistent  economic  and  geopolitical  uncertainties,  along  with  global  monetary 
tightening, may lead to tighter external borrowing constraints in case of increased risk 
aversion.  Countries  with  substantial  current  account  deficits  and  significant  negative  NIIPs, 
particularly outside the euro area, may experience tighter external borrowing constraints if there is 
heightened  risk  aversion  in  global  financial  markets.  Even  though  recent  currency  developments 
have shown appreciating trends for most of non-euro area Member States, financial market stress 
could  lead  to  capital  outflows  and  currency  depreciations,  exacerbating  pre-existing  economic 
vulnerabilities.  Increasing  geopolitical  tensions  risk  economic  fragmentation  impacting  trade  and 
capital flows.  

The euro area's current account underwent a significant decline in 2022, falling from a 
surplus of 2.8% of GDP in 2021 to a deficit of 0.6%. The key driver was the fall in the trade 
balance  resulting  from  unfavourable  price  developments,  as  the  trade  balance  in  real  terms 
remained broadly  stable  from  2021  (Graph  2.1.2.  b).  Specifically,  the  energy balance  plummeted 

12 

-15-10-505101520IENLLUDEESATBESIPTITFRFIHRMTEELVLTSKCYELROHUCZPLBGSEDKEuro areaNon-euro area% of GDPa) Current account balances and benchmarks CA balance 2019CA balance 2020CA balance 2021CA balance 2022CA balance 2023, forecastReq. CA for NIIP target 2022CA norm 2022NIIP-stab. CA 2022-200-150-100-50050100MTNLDEBELUATITSIFILTEEFRHRLVESSKPTCYIEELDKSEBGCZPLROHUEuro areaNon-euro area% of GDPb) NIIPs and benchmarksNIIP 2019NIIP 2020NIIP 2021NIIP 2022NIIP 2023, forecastNENDI 2022NIIP norm 2022Prudential NIIP 2022 
     
2.1. External sector 

from -2.0% in 2021 to -4.4% of GDP in 2022. The worsening extended beyond energy goods, with 
the balances of trade in non-energy goods falling to  3.8% of GDP in 2022 from 4.3% of GDP in 
2021, amid relatively strong domestic demand (Graph 2.1.2 a). The balance of primary income fell 
by 0.8 percentage points (pps), owing to lower investment income. While most euro area countries 
experienced declines in their current account balances, the reduction of the euro area surplus was 
primarily driven by Germany,  whose contribution to the euro area current account balance nearly 
halved  compared  to  2021.  France  and  Italy  made  substantial  negative  contributions  while  the 
positive contributions of the Netherlands and Ireland decreased slightly. 

In 2023, the euro area current account has returned to a small surplus, as the negative 
shocks abate. The euro area has seen an increase in its trade balance driven by both energy and 
non-energy  goods  (Graph  2.1.2  a).  On  a  four-quarter-moving-sum  basis,  the  energy  balance 
increased by 0.7 pp in the first half of 2023 compared to 2022, and the non-energy goods balance 
increased  by  0.3  pps.,  owing  to  both  nominal  and  real  effects.  Terms  of  trade  have  improved 
slightly while domestic demand seems to have eased somewhat faster than global demand in real 
terms. Primary and secondary income balances have not changed materially in the same period. As 
a  result,  the  current  account  returned  to  surplus,  posting  0.2%  of  GDP  in  the  second  quarter  of 
2023.  In  the  future,  the  euro  area  trade  and  current  account  balances  are  forecast  to  increase 
further  in  the  rest  of  2023  and  2024  but  are  set  to  remain  well  below  their  pre-pandemic 
levels (21). Both energy and non-energy goods balances are expected to remain lower while services 
balances are projected to exceed their pre-pandemic levels. 

Graph 2.1.2: Current account and trade balance of the euro area 

‘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.  
Source: Eurostat and European Commission calculation 

(21)  Note that due to an exceptionally low current account balance in Ireland in 2019, the euro area current account is forecast 

to increase above its 2019 level. However, it is forecast to remain below the levels posted in 2017 and 2018. 

13 

-30360708091011121314151617181920212223f% of EA20 real GDPb) Trade balance, euro areaDE real TBNL real TBFR real TBIT real TBES real TBReal TB othersAggregate T-o-T effectEA20 real TBEA20 nominal TB-6-4-202461617181920212223% of GDPa) Current account, euro area Secondary incomePrimary incomeTravel servicesServices excl travelGoods excl energyEnergy goodsTrade balanceCurrent account   
 
 
2.1. External sector 

At country level, the following developments are worth highlighting:  

• 

In 2022, the current account balances, based on 3-year averages, of four Member States were 
below  the  lower  scoreboard  threshold  of  -4%  of  GDP:  Cyprus,  Greece,  Hungary  and 
Romania. At the same time,  five Member States had averages above the upper threshold  of 
6%  of  GDP:  Denmark,  Germany,  Ireland,  Luxembourg  and  the  Netherlands.  The  surplus, 
based on 3-year averages, in Germany is however projected to fall below the threshold in 2023 
and 2024. As for the NIIP readings, they were below the scoreboard threshold of -35% of GDP 
for eight Member States: Cyprus, Greece, Hungary, Ireland, Portugal, Romania, Slovakia 
and Spain. 

•  The current accounts of Cyprus and Greece further deepened their already significant deficits 
in  2022.  Spain  saw  a  slight  reduction  in  its  surplus,  while  Portugal  slightly  increased  its 
current  account  deficit.  The  current  accounts  of  Greece,  Cyprus  and  Portugal remained  below 
the  levels  suggested  by  economic  fundamentals,  albeit  to  varying  degrees.  In  the  future, 
current accounts surpluses are forecast for Spain and Portugal. The current account deficits are 
expected to reduce but to remain sizeable in Greece and in Cyprus by 2024. NIIPs for all these 
countries have been improving primarily due to strong nominal economic growth and valuation 
effects. Further improvements are expected for all these countries except Cyprus in the future, 
albeit at a slower pace. 

•  The current accounts of Hungary and Romania have been on a multiannual declining trend. In 
2022,  Hungary's  current  account  deficit  sharply  worsened  due  to  a  decline  in  the  energy 
balance,  while  Romania's deficit  was  affected  by  both  non-energy  and  energy  goods.  In  both 
cases,  governments  contribute  substantially  to  the  economies’  external  borrowing  needs. 
Despite  some  improvement,  the  current  account  deficit  in  Romania  is  forecast  to  remain 
sizeable  and  significantly below  both  pre-pandemic levels  and  fundamentals. In  Hungary,  the 
current account deficit is forecast to close in 2023. Foreign reserves, having fallen below three 
months' worth of imports, and the volatility of the forint, contribute to concerns about external 
sustainability  in  Hungary.  Both  Hungary  and  Romania  hold  negative  NIIPs,  of  which  foreign 
direct  investments  represent  a  large  share,  making  their  NIIPs  excluding  non-defaultable 
instruments more favourable. 

•  Current accounts in Czechia, Latvia, Lithuania and Slovakia fell into large deficits in 2022, 
primarily due to a deterioration of their energy balances. Estonia and Poland also saw their 
current  account  deficits  widening.  Current  accounts  are  expected  to  improve  in  all  these 
countries, though to a varying degree, with Estonia, Lithuania and Poland likely to record small 
surpluses in 2023 and beyond. Czechia’s current account is forecast to remain in a small deficit 
while the deficits in Latvia and Slovakia are projected to remain sizeable. The negative NIIP for 
Slovakia is thus set to remain sizeable. 

•  The  current  account  surpluses  of  Denmark,  Germany,  Ireland,  the  Netherlands  and 
Sweden exceed their norms. In 2022, Denmark experienced a notable increase in its surplus, 
with the exceptional  revenues of logistics companies boosting the balances.  The Netherlands, 
Germany,  Ireland  and  Sweden  recorded  a  decline  in  their  surpluses.  Germany's  decline  was 

14 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with current account balance (3 year average) in % of GDP above 6% or below -4% in 2022 in blueBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with NIIP (% of GDP) below -35% in 2022 in blue 
 
 
2.1. External sector 

predominantly  driven  by  a  worsening  in  the  terms  of  trade,  as  well  as  resilient  domestic 
demand. The current accounts in the Netherlands and Ireland, were mainly affected by changes 
in the primary income balances while goods and service balances worsened the current account 
in Sweden. Current account balances are expected to remain high, above fundamentals, in all 
these  countries  although  the  current  account  of  Germany  is  forecast  to  remain  below  6%  in 
2023,  before  increasing  again  in  2024.  The  NIIPs  of  all  these  countries,  except  of  Ireland 
greatly  exceed  the  levels  suggested  by  economic  fundamentals.  The  NIIP  of  Ireland  remains 
deep in negative territory. 

•  Belgium’s current account declined strongly throughout 2022 and is projected to remain below 
its  pre-pandemic  levels.  Nevertheless,  the  country's  NIIP  remains  firmly  in  positive  territory. 
While France recorded a deficit in 2022, it is forecast to remain only slightly negative over the 
forecast period. 

15 

 
 
Graph 2.1.3: Selected graphs on the external sector 

2.1. External sector 

Source: Eurostat and European Commission 

16 

-8-6-4-202468DKBGESLUPTEELVPLCYROATSEBEFRNLFIIECZSKELDEHRITHUMTSILT% of GDPa) Decomposition of current account changes from 2021 to 2022Services excl. travelTravel balanceEnergy balanceGoods excl. energyPrimary income balanceSecondary income balanceTrade balanceCurrent account balance859095100105110115BGLVEEDKROMTFICYLUCZPLPTNLFRSEIESIELBEATDEHRESSKHUITLTindex (2015=100)c) Terms of trade goods and services202220232024-15-10-5051015NLDKBGESLVLUPTBESEATPLCYELFRFICZITDESKHUIESIMTHRLTEE% of GDPd) Net lending borrowing by sector, changes from 2021 to 2022Households and NPISHCorporationsGovernmentTotal economy-3-2-1012HRDKSEPTBEPLFRIELUITFIRONLDEESLTEECZLVSIATELHUCYSKBGMTpps of GDPe) International travel, change from 2019 to 2022Travel creditTravel debit (neg)Travel balance-50-2502550ELIESEPTESCYFRHRPLROSIBGLUDEATHULVLTSKFIITCZEEBEDKNLChange in pp of GDP (y-o-y)f) Decomposition of changes of the NIIP from 2021to 2022Nom. growth effectInvest. income effectNet transaction effectValuation changesΔNIIP (y-o-y)ΔNIIP (y-o-y) (t-1)-6-4-20246SIPLHUPTSKROLTCZFIESIEBGATELHRMTBEDEDKITSELVNLFRCYEELU% of GDPb) Decomposition of current account changes from 2022Q3 to 2023Q2Services excl. travelTravel balanceEnergy balanceGoods excl. energyPrimary income balanceSecondary income balanceTrade balanceCurrent account balance 
   
2.2. COMPETITIVENESS 

The EU has been marked by significant cost and price pressures over the past two years, 
with  strong  and  divergent  dynamics.  Inflationary  pressures,  which  started  to  pick  up  in  late 
2021,  became  widespread  but  also  divergent.  In  an  initial  phase,  until  mid-2022,  inflation 
divergences  were  principally  driven  by the  differentiated  impact  of  the  higher  energy  prices.  This 
reflected  differences  in  energy  sourcing  and  in  energy market  structures  across  countries,  and in 
policy responses. The fact that the weights of energy and food vary widely across the EU, and  is 
very  high  in  some  countries,  has  also  contributed  to  different  dynamics  in  costs  and  prices 
following the increases of the prices of energy and food in international markets (22). Inflationary 
pressures subsequently widened to other goods and services, resulting in rising and diverging core 
inflation across the EU in 2022 and 2023. With the fall in energy prices, in particular natural gas, 
since  late  summer  2022,  and  the  more  recent  and  smaller  reduction  in  food  inflation,  headline 
inflation has fallen since the turn of the year, but not in a uniform way across the EU. While also 
falling, core inflation is just marginally off its peak in recent decades. Divergences across countries 
continue being significant, including at the level of core inflation, even if reducing somewhat over 
the course of 2023. These issues compound the challenges of a more structural nature, including 
those  related  to  the  transition  away  from  fuel  fossil  energy  and  minding  the  EU’s  high  energy 
imports dependency, and risks of global trade fragmentation (23). 

Unit labour costs have been rising markedly across the EU amid high inflation and tight 
labour markets. Unit  labour  costs (ULC)  rose  strongly in  2022  in  several  EU  countries.  Many  of 
those countries had displayed significant ULC growth already in earlier years, including before the 
pandemic,  but  recent  readings  are  often  the  highest  over  recent  decades.  The  marked  ULC 
increases in 2022 were driven by strong wage rises resulting from tight labour markets and high 
inflation, while wages and ULCs declined in real terms. Labour productivity grew in most countries 
amid marked expansions of output, but in some – especially in the euro area – countries, output per 
worker  stagnated  or  even  declined.  This  added  further  pressure  to  ULC  (Graph  2.2.1  a  and  b). 
Outside  the  euro  area,  countries  with  very  high  ULC  growth  displayed  productivity  growth  that 
mitigated some of the very high increases in compensation but clearly were not enough to prevent 
that marked growth in ULC. At the same time, unit profits increased in most EU countries too and 
accompanied the increase in inflation in various cases (see Section 1 and Section 2.3) (24).   

In 2023, unit labour costs are accelerating in most countries driven by high wage growth 
with some moderation expected only next year. In almost all EU countries, ULC are expected 
to have grown faster this year than last year (Graph 2.2.1. b). In 2023, the marked increases in ULC 

(22)  The  same  increase  in  the  price  of  energy  and  other  commodities  will  generate  a  larger  change  in  the  inflation  rate  the 
lower  the  price  level  of  other  goods  and  services;  i.e.  economies  with  overall  low  price  levels  will  see  their  inflation  rise 
more as a consequence of the same shock, e.g. coming from international markets. Thus, countries with lower price levels 
are  likely  to  have been  more  affected  by  the  absolute increase in  the  prices of  energy  and  other commodities  in  global 
markets,  as  those  goods  weigh more  on  costs,  mirroring  the  fact  that  labour  costs  tend  to  have  a  lower  weight  in  total 
costs.  See  also  European  Commission  (2023),  ‘Inflation  Differentials  in  Europe  and  Implications  for  Competitiveness: 
Thematic Note to Support In-Depth Reviews’ (europa.eu), Institutional paper No. 198, April 2023. 

(23)  See  also  European  Commission,  SWD(2023)  903,  Commission  staff  working  document,  2024  Report  on  the  euro  area 

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

(24)  Hansen,  Niels-Jakob,  Frederik  Toscani,  Jing  Zhou.  2023.  “The  Role  of  Import  Prices,  Profits  and  Wages  in  the  Current 

Inflation Episode in the Euro Area” IMF Working Paper 23/131, International Monetary Fund, Washington, DC. 

17 

 
 
 
2.2. Competitiveness 

have been primarily driven by stronger pay rises, as employees require higher salaries to make up 
for the recent, and sudden, losses in purchasing power, against a backdrop of tight labour markets 
and  skill  shortages  (Graph  2.2.4  a).  In  addition,  productivity  per  worker  is  stagnating  in  most 
countries and even receding in some cases in a context of the weak economic momentum. In 2024, 
prospects are for ULC growth to generally decelerate, sometimes quite markedly, but to still remain 
positive in all EU countries and high in some, as wages are expected to grow at a more moderate 
pace, but the uncertainty remains high as wages are dependent on negotiations that have not yet 
taken  place  in  many  countries,  while  productivity  should  edge  up.  Continuously  strong  ULC 
increases could, in turn, drive second-round effects and risks of further price hikes, resulting in the 
persistence of high inflation.  

Graph 2.2.1: Unit labour costs decomposition and evolution 

Source: AMECO; European Commission autumn 2023 economic forecast 

In  2022,  export  market  shares  were  dampened  by  price  effects,  and  global  trade 
patterns  had  a  negative  impact  on  manufacturing  and  a  positive  one  on  tourism,  and 
those patterns have extended into 2023. The particularly high energy cost increase in Europe 
and higher prices of other commodities had the effect of increasing the value of total global trade 
due to price effects in 2022. As EU countries are net energy importers, their export market shares 
automatically shrunk due to this denominator effect, while the opposite occurs with falling energy 
prices. At the same time, sluggish world trade, in particular in goods, in the second half of the year 
and  into  2023,  had  a  negative  impact  on  countries  with  sizeable  manufacturing  sectors (25). 
Conversely,  service  exports,  in  particular  tourism,  expanded  partly  due  to  a  still  post-pandemic 
normalisation,  increasing  the  export  market  shares  of  economies  with  important  international 
tourism  sectors.  In  the  future,  trade  in  goods  may  be  subdued  for  some  more  time,  while  the 
tourism normalisation seems to have run its course; as a result, external demand could limit scope 
for export-led expansions. 

Nominal effective exchange rates depreciated for most of the EU countries in 2022, in 
line  with  the  euro  itself,  but  have  appreciated  for  most  of  the  current  year.  The  euro 
depreciated  over  most  of  2022,  but  outside  the  euro  area  the  picture  is  more  mixed.  Despite 
appreciations that started in the final quarter of 2022, the overall effect was for a depreciation of 
the nominal effective exchange rates for 2022 as a whole for nearly all EU countries (Graph 2.2.4 
d).  The  nominal  appreciation  of  the  euro  continued  until  early  summer  2023,  with  a  reversal 

(25)  See,  for  instance,  ECB,  Economic Bulletin, Issue  04/2023,  Box  3, ‘The  energy  shock,  price  competitiveness  and  euro  area 

export performance’. 

18 

-30369121518CYELIEPTESMTATITDENLFIFRSISKBEHRLULVEELTSERODKCZPLBGHUEA20EU27Euro areaNon-euro areaAvg.Average annual % changeb) ULC evolution2019-2120222023f2024f-6-30369121518CYELIEPTESMTATITDENLFIFRSISKBEHRLULVEELTSERODKCZPLBGHUEA20EU27Euro areaNon-euro areaAvg.Average annual % changea) ULC decomposition 2022CompensationProductivityULC 
   
 
2.2. Competitiveness 

thereafter. Outside the euro area, only the Swedish krona has recorded a continued depreciation in 
2023,  while  the  rest  of  the  currencies  of  non-euro  area  Member  States  appreciated  or  broadly 
stabilised  against  the  euro  until  summer.  Consequently,  prospects  are  that  nominal  effective 
exchange rates appreciate in all EU countries bar Sweden, including in the euro area ones, for 2023 
as a whole.  

Some  countries  have  been  experiencing  strong  real  appreciations,  driven  by  higher 
inflation  than  in  trading  partners.  Throughout  2022,  real  effective  exchange  rates  diverged 
strongly,  and  despite  the  nominal  depreciations,  in  some  cases,  both inside  and  outside  the  euro 
area, real  effective exchange rates appreciated,  sometimes significantly so (Graph  2.2.4 d). Since 
the beginning of the recent inflationary period in late summer 2021, a number of countries, both 
inside  and  outside  the  euro  area  recorded  marked  appreciations,  particularly  in  those  with  high 
inflation  rates  (Graph  2.2.4.  e).  Outside  the  euro  area,  in  2022,  the  strong  depreciations  of  the 
Hungarian forint, Polish zloty and Swedish krona, counteracted the impact of high inflation on the 
real  effective  exchange  rates,  but  already  over  most  of  2023,  Hungary  and  Poland  have 
experienced  nominal  and  real  appreciations.  Overall,  as  EU  countries  mostly  trade  among 
themselves,  the  impact  of  variations  in  nominal  exchange  rate  tend  to  be  limited,  especially  of 
course for the euro area members, which adds to the relevance of inflation differentials. 

Current challenges for competitiveness are chiefly related to the evolution of inflation 
differentials  within  the  euro  area  and  the  EU.  In  2023  to  date,  changes  in  the  HICP-based 
REER have pointed to appreciation nearly everywhere driven by nominal appreciations of almost all 
EU currencies. Within the euro area, continued divergence in inflation rates, which is also evident in 
core  inflation,  raises  the  prospects  of  worsening  competitiveness  becoming  entrenched  in  some 
cases  (see  Graph  2.2.4  e).  In  addition, the  euro  area  countries  that  had  recorded  the  largest  real 
appreciations in 2022 have kept recording significant real appreciation in 2023, and that was also 
the  case  for  some  Member  States  outside  the  euro  area.  More  heterogeneity  is  expected  across 
non-euro area countries, partly reflecting different nominal exchange rate policies but which are in 
some cases compounded by very high inflation rates, including core inflation. 

Significant  divergence  in  price  and  cost  dynamics  risk  becoming  entrenched  and  some 
challenges  related  to  higher  energy  prices  may  remain.  Cross-country  differences  in  core 
inflation,  especially  if  lasting,  raise  the  prospect  of  impaired  competitiveness  within  a  currency 
area. In some countries with high inflation in 2022, the reduction in inflation rates slowed down in 
the course of 2023 and in all cases the differentials vis-à-vis the euro area and the rest of EU are 
still higher than before the beginning of this period of higher inflation (see Box 2.2.1 for details). In 
many  cases, inflation in  2022  was  accompanied  by  a  sizeable  increase in  unit  profits  along  with 
strong ULC growth (see also Section 1), with price and labour cost dynamics reinforcing each other. 
Wage  dynamics  are  particularly  relevant  for  services  inflation,  which  has  recently  been  slightly 
higher than core inflation. In parallel, as energy prices are still higher than before Russia’s invasion 
of Ukraine, the production and competitiveness potential of the most affected economies remains 
under  pressure,  which  may  linger  as  a  concern  if  those  prices  remain  permanently  higher.  That 
highlights the importance of accelerating structural changes that may entail important adjustment 
costs and new policy needs. 

Strong  and  divergent  price  and  wage  dynamics  may  reinforce  each  other  and  harm 
competitiveness  and  external  balances,  and  impact  the  transmission  of  the  monetary 
stance, which is a particular concern for euro area members. The risks of price-wage spirals 
do not appear to be strong, and the increase in unit profits that has occurred may offer a buffer for 
firms  to  absorb  higher  wages,  without  passing  them  onto  prices (26).  However,  should  the 

(26)  See, for instance, Box 1 in European Commission, SWD(2023) 903, Commission staff working document, 2024 Report on 
the euro area accompanying the Recommendation for a Council Recommendation on the economic policy of the euro area. 

19 

 
2.2. Competitiveness 

divergence  across  countries  in  price  and  wage  dynamics  persist,  and  not  be  matched  by 
productivity  gains,  there may  be  lasting  competitiveness  pressures.  Higher inflation may increase 
expectations  about  future  inflation  and  lift  wage  demands,  which  in  turn  could  prevent  lower 
inflation. Those concerns are heightened in the case of euro area countries as the re-alignment of 
domestic costs and prices via changes in the nominal exchange rate is not an option. At the same 
time, divergent inflation across the euro area makes the task of the monetary authority particularly 
difficult, as the uniform transmission of changes in monetary stance to all parts of the monetary 
union may be impaired with real interest rates differing across the euro area. 

Large  net  external  debtor  countries  in  the  euro  area  have  been  less  affected  by 
competitiveness  losses,  which  has  contributed  to  more  symmetric  rebalancing  of  the 
large external stock positions within the monetary union. Since late 2021, unit labour costs 
have grown less in large net-debtor euro area countries than in large net-creditor ones and than in 
the rest of the euro area (Graph 2.2.4 f), thereby supporting external rebalancing within the area. 
However, developments in inflation, and in particular in core inflation, are a reason for caution: they 
have  not  differed  much  between  some  of  the  large  net-creditor  countries  and  some  of  the  net 
debtors. This might dampen the rebalancing effect in the future. In parallel, in 2022, the large net-
creditor countries may have gained more from a depreciation of the euro given their higher share 
of  extra-euro  area  trade,  although  net-debtor  countries  have,  overall,  continued  to  benefit  from 
expanding tourism exports.  

For  non-euro  area  countries,  nominal  exchange  rate  depreciation  may  mitigate  part  of 
the  cost  competitiveness  pressures,  but  brings  in  other  challenges.  While  non  euro  area 
countries  have  more  flexibility  when  it  comes  to  external  adjustments  given  their  sovereign 
monetary and exchange rate policies, there are limits to this. Nominal depreciations could result in 
further  increases  in  domestic  inflation  (in  a  period  in  which  inflation  rates  are  high  already  and 
sticky)  as  imported  goods  and  services  become  more  expensive,  feeding  second-round  effects. 
They  could  also  hamper  the  repayment  of  foreign  denominated  debt,  with  countries  with  large 
liabilities  in  foreign  currencies  facing  particular  constraints  in  terms  of  the  impact  of  nominal 
depreciations  on  their  financing  costs.  In  addition,  volatile  exchange  rates  can  negatively  affect 
investment  flows,  while  repeated  or  expected  depreciations  can  affect  external  borrowing  on 
account of higher risk premia.  

20 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with nominal unit labour cost growth (3 year % change) above 9% (EA) or 12% (non-EA) in 2022 in blueBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with export market share, % of world exports (5 year % change) below -6% in 2022 in blueBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with REER, HICP deflator (3 year % change) above +/- 5% (EA) and +/- 11 (non-EA) in 2022 in blue 
 
 
2.2. Competitiveness 

At country level, the following developments are worth highlighting:  

•  Unit  labour  cost  growth,  cumulated  over the  three  years  to  2022,  was  above the  scoreboard 
threshold  in  16  Member  States:  Austria,  Belgium,  Bulgaria,  Czechia,  France,  Estonia, 
Hungary, Latvia, Lithuania, Luxembourg, the Netherlands, Poland, Portugal, Slovenia, 
Slovakia,  and  Spain.  For  the  HICP-based  REER,  the  three-year  changes  were  beyond  the 
scoreboard  thresholds in  four  Member  States:  Czechia,  Estonia,  Latvia,  and  Lithuania.  Six 
Member States exceeded the scoreboard threshold for the changes in export market shares in 
the five years up to 2022: Czechia, France, Germany, Italy, Slovakia, and Spain. 

•  Concerns about cost pressures have been significant and are persisting in Bulgaria, Croatia, 
Czechia,  Estonia,  Hungary,  Latvia,  Lithuania,  Poland,  Romania,  and  Slovakia.  In  these 
countries  both  headline  and  core  inflation  have been  well  above  euro  area  and  EU  averages. 
Hungary  and  Romania  stand  out  on  account  of  their  recent  high  core  inflation;  core  inflation 
differentials vis-à-vis the euro area are notable for Lithuania and Slovakia. Bulgaria, Czechia, 
Estonia, Latvia, Lithuania, Romania, and Slovakia have recorded real appreciations, which have 
continued  in  2023,  adding  to  competitiveness  concerns.  In  Hungary,  marked  nominal 
depreciations offset the impact of sharp price rises in 2022 and led to real depreciation. In all 
these cases, ULCs have been growing much faster than in the euro area or the rest of the EU, 
and prospects are for ULC growing even faster in most of these cases in 2023 than in 2022. 
Taking  2022  and  2023  together,  ULC  growth  is  estimated  to  have  been  particularly  high  in 
Estonia, Hungary, and  Lithuania, and also notable in  Latvia, Bulgaria and Poland. Czechia  and 
Slovakia have recorded considerable export market share losses in the last few years. Recently, 
substantial falls in inflation have been noted in Estonia, Latvia, and Lithuania, but core inflation 
differentials vis-à-vis the euro area are still visible. See Box 2.2.1 for additional information on 
inflation developments in these countries. 

•  Austria,  Belgium,  Luxembourg,  and  Slovenia  have  recently  displayed  some  risks  of  cost 
competitiveness  losses.  All  of  them  have  shown  strong  ULC  dynamics  in  recent  years.  Those 
ULC  increases  are  expected  to  continue  and  to  accelerate  further  this  year,  in  particular  in 
Austria. Core inflation in all these countries except Luxembourg has exceeded that in the euro 
area by visible margins, more significantly in Austria and Slovenia.  

•  Cost competitiveness has overall improved in large net-debtor euro area countries. In particular, 
ULCs have been growing less than in trading partners and the rest of the euro area, growing 
only moderately in Portugal and Spain and even falling somewhat in Cyprus and Greece in 
2022;  despite  some  accelerations  in  2023,  they  are  expected to  remain  below  the  euro  area 
average. Headline inflation has typically been below or even well below the euro area average; 
in  the  case  of  Cyprus  and  Spain  this  is  also  the  case  for  core  inflation.  Apart  from  Cyprus, 
export market shares have edged up markedly on account of clear recoveries from the sharp 
losses recorded in the sizeable tourism sectors with the worst of the COVID-19 crisis in 2020. 
In  the  cases  of  Spain,  and  to  some  extent  Portugal,  that  has  not  yet  been  enough  to  offset 
earlier losses in export market shares. 

•  Developments  in  large  net-creditor  countries  may  marginally  contribute  to  facilitate  a  more 
symmetric adjustment of external positions within the euro area. In particular, ULC are growing 
somewhat faster than in the rest of the euro area, especially in 2023. In  Germany, headline 
and  core  inflation  have  been  above  but  very  close  to  the  euro  area  average.  However,  real 
depreciation was relevant in 2022 on account of the nominal  depreciation of the euro, which 
was particularly impacting given its large weight of extra-euro area trade. In the Netherlands, 
core  inflation  has  been  above  the  euro  area.  Against  the  backdrop  of  those  cost 
competitiveness developments, weaknesses in manufacturing and in global goods trade since 

21 

mid-last  year  seem  to  have  hurt  export  market  shares  of  these  Member  States,  especially 
Germany, which recorded visible losses in 2022. 

2.2. Competitiveness 

Box 2.2.1: Zooming in on inflation developments in selected Member States 

This  box  looks  at  inflation  developments  in  more  detail  for  selected  Member  States. 
These  include  the  Member  States  for  which  an  In-Depth  Review  was  prepared  in  2023,  with  a 
specific  emphasis  on  competitiveness  and  which  were  covered  in  the  thematic  note  on  inflation 
differentials published in April 2023 (27). Bulgaria, Poland, and Croatia are also considered in light of 
the recent developments. This box aims at taking stock of more recent data, and, for the countries 
where  the  IDR  concluded  that  imbalances  were  not  present,  to  act  as  a  follow-up  to  that 
assessment. 

Inflation  has  been,  and  often  remains,  well  above  euro  area  and  EU  averages  in  these 
countries  (Graph  2.2.2.  a  and  b).  Most  of  them  were  particularly impacted  by  the  higher  energy 
prices in 2022 on account of their sourcing of energy, higher weights of energy on output and on 
consumption baskets, and lower overall price levels, which makes them more sensitive to increases 
in energy and commodities prices in world markets. Food inflation too has been clearly higher than 
in the euro area and the EU and weighs more in the consumption baskets in these countries than in 
higher income ones, and has been adding to headline inflation (see Table 2.2.1). 

All  those  dynamics  have  clearly  spilled  into  other  goods  and  services,  leading  to  high 
core inflation, which has been and remains well above the euro area in all these cases. 
Core inflation and the differentials vis-à-vis the euro area are visibly higher than in late summer 
2021 when inflationary pressures became more noticeable (Graph 2.2.2. b and d).   

In recent months, both headline and core inflation are falling in these countries, with the 
exception of Romania. In Romania, core inflation continues to increase, reaching a record high in 
September 2023, while the differential with respect to the euro area remains on the rise recently 
even  though  it  had  been  somewhat  more  limited  than  in  the  other  countries  reviewed  here  (see 
Table  2.2.1  and  Graph  2.2.2  d).  The  reductions  in  headline  inflation  have  been  more  visible 
reflecting also the fact that energy prices had typically increased more than elsewhere and are now 
falling  in  most  countries  (Graph  2.2.2  c).  Despite  recent  reductions,  strong  inflationary  pressures 
clearly linger and at the level of core inflation too, with differentials vis-à-vis the euro area and the 
rest of EU being higher than before the beginning of this period of higher inflation (Graph 2.2.2 d). 
Hungary and Romania display double-digit core inflation rates, while the others recorded just-below 
double-digit  core  inflation  readings  in  recent  months.  In  addition,  in  September,  energy  inflation 
was still positive in Czechia, Hungary, and  Slovakia, and to a lesser extent in Croatia and Poland, 
often reflecting the phasing out of price caps on some energy goods. At the same time, Hungary, 
Poland, Romania and Slovakia stand out for their clearly high food inflation in 2023, which has just 
fallen in recent months but is still above the headline inflation rates (Table 2.2.1).  

Higher  unit  profits  have  been  major  drivers  of  the  inflation  differentials  vis-à-vis  the 
euro area. Unit labour costs have visibly added to those differentials, except in Croatia, Romania 
and  Slovakia  (see  Graph  2.2.3).  Changes  in  imported  energy  prices  have  contributed  in  different 
ways, being insignificant or detracting from the differential vis-à-vis the euro area in the cases of 
Czechia, Estonia, and Romania (see Graph 2.2.3). 

(27)  European  Commission  (2023),  ‘Inflation  Differentials  in  Europe  and  Implications  for  Competitiveness:  Thematic  Note  to 

Support In-Depth Reviews’ (europa.eu), Institutional paper No. 198, April 2023. 

22 

 
 
2.2. Competitiveness 

According  to  the  Commission  forecasts,  the  prospects  are  for  further  accumulation  in 
the  inflation  differentials  in  2023  and  in  2024.  The  cumulated  effect  of  higher  inflation  in 
these countries will be a lasting shift in price levels, of double-digit magnitude apart from Croatia, 
over  the  years  2022  to  2024.  In  all  these  cases,  in  2023,  differentials  are  expected  to  continue 
being visibly  positive, especially in  Czechia, Hungary,  Poland, and Slovakia (Graph  2.2.3).  In 2024, 
the  inflation  differentials  are  forecast  to  turn  negative  in  Croatia  and  to  be  essentially  stable  in 
Czechia, Latvia, and Lithuania, with a marginal increase in Estonia. Differentials will continue being 
positive in Bulgaria and Hungary, and more strongly so in Poland, Romania, and Slovakia.  

With  headline  inflation  decreasing  in  these  countries,  it  is  also  important  to  maintain 
tight  conditions and  keep  up the  disinflationary  efforts.  Empirical  evidence (28)  shows  that 
comebacks of inflationary episodes after premature retractions of the tight policies are very likely 
and are associated with periods of inflation plateauing at higher levels or re-accelerating. Evidence 
also  points  to  less  nominal  depreciation  and  lower  nominal  wage  growth  (which  does  not 
necessarily imply  negative  real  wage  growth)  as main  factors  towards  a  successful  resolution  of 
the inflationary episodes. 

Graph 2.2.2: Headline and core inflation and differentials with EA20 in selected countries 

Source: European Commission with Eurostat data 

(28)  Ari,  A.,  Mulas-Granados,  C.,  Mylonas,  V.,  Ratnovski,  L.,  &  Zhao,  W.  (2023).  One  Hundred  Inflation  Shocks:  Seven  Stylized 

Facts. IMF Working Paper WP/23/190. 

23 

0510152025BGCZHREELVLTHUPLROSKEA20EU27% changea) Headline HICP2016-21 avg.2021-092022-092023-090510152025BGCZHREELVLTHUPLROSKEA20EU27% changeb) Core HICP2016-21 avg.2021-092022-092023-09-202468101214BGCZHREELVLTHUPLROSKEU27pps.c) Headline HICP differential with EA202016-21 avg.2021-092022-092023-09-202468101214BGCZHREELVLTHUPLROSKEU27pps.d) Core HICP differential with EA202016-21 avg.2021-092022-092023-09      
 
 
Graph 2.2.3: Inflation differentials decomposition with respect to the euro area, 2022-2024, 
cumulated 

2.2. Competitiveness 

Source: European Commission. For methodology see European Commission (2023), ‘Inflation Differentials in Europe and 
Implications  for  Competitiveness:  Thematic  Note  to  Support  In-Depth  Reviews’  (europa.eu),  Institutional  paper  No.  198, 
April 2023. 

24 

-10-5051015202520222022-232022-2420222022-232022-2420222022-232022-2420222022-232022-2420222022-232022-2420222022-232022-2420222022-232022-2420222022-232022-2420222022-232022-2420222022-232022-24BGCZEEHRLVLTHUPLROSKDomestic ULCUnit profits (&taxes)Energy imports from Extra-EURestConsumer inflation   
 
Table 2.2.1:  Heatmap: HICP and components, year-on-year percentage change 

2.2. Competitiveness 

Source: Eurostat, European Commission 

25 

 
 
 
 
 
Graph 2.2.4: Selected graphs on competitiveness 

2.2. Competitiveness 

Note: Panel b: ‘CoE implied by ULC-37 REER’ is the percentage change in the compensation per employee that would have 
left  constant  the  REER  based  on  ULC  between  2019  and  2023.  Panel  e:  Commission  calculations  using  the  underlying 
double export weights provided by DG ECFIN’s NEER (link: https://economy-finance.ec.europa.eu/economic-research-and-
databases/economic-databases/price-and-cost-competitiveness/price-and-cost-competitiveness-data-section_en), 
and 
the following inflation rates: HICP excluding food and energy for countries covered by Eurostat, the BLS urban CPI excl. 
food and energy for the US, e-stat “core-core“ inflation for Japan, and IMF CPI excluding  the food, beverages, tobacco, 
housing, water, electricity, gas and other fuels, for all other countries. 
Source: Eurostat and European Commission calculations 

26 

051015202530354045ELCYMTFRITDEFIDKATESNLBESEPTLUCZSIROSKHREEPLLVLTHUBGEA20EU27MSAvg.Cumulative % change 2019-23b) Wage growth between 2019 and 2022 and benchmarks, cumulativeWage growthCoE implied by ULC-37-REERInflationCore inflation-3-1135791314151617181920212223f24f% change  f) ULC growth per level of NIIPs of the EA countriesNIIP < -35% of GDPNIIP > +35% of GDP-35% < NIIP < 35%-16-12-8-4048121620IEFRITESDEFILUBEATPTCYELSINLMTSKHRLVLTEESEDKHUBGPLROCZEuro areaNon euro areaAnnual change, in %e) Change in core inflation-REER, Sep 2023 vs. Sep 2021Due to change in EUR exchange rateDue to core inflation differential with EA19Due to core-REER change with non-EA partnersChange in REER based on core inflation0369121518CYIEELFIMTDENLESITATFRSIPTLUSKBEEELTHRLVSEDKCZROPLBGHUEA20EU27Euro areaNon-euro areaAvg.Average annual % changea) Nominal compensation per employee2019-2120222023f2024f-9-6-314710IEFRMTFICYDEATITPTESLUSIELBEHRNLSKLVLTEESEHUDKPLROBGCZEU27EA20Euro areaNon euro areaAvg.% changed) NEER and REERs, 2022GDP REERHICP REERNEERBEDEEEIEELESFRHRITCYLVLTLUMTNLATPTSISKFIBGCZDKHUPLROSE-20-15-10-5051015-3271217Export market share % changeTravel service balancec) EMS, travel services balance and manufacturing share of GVAManufacturingshare in GVA 
   
2.3. NON-FINANCIAL CORPORATIONS 

Non-financial  corporate  (NFC)  debt-to-GDP  ratios  continued  to  decrease  in  2022,  but 
remained sizeable in many EU countries. The EU and euro area average debt ratios decreased 
by 5 percentage points in 2022, to 78% of GDP and 80%, respectively. Both aggregates returned to 
close to their pre-pandemic level (Graph 2.3.1 a) (29). The corporate debt ratio decreased in nearly 
all countries in 2022, reflecting high inflation and, in nearly all cases real GDP growth (Graph 2.3.3 
a).  Corporate  net credit  flows  were  positive  and  increasing  in  almost  all  Member  States  in  2022, 
including in  some  with  high  debt  ratios.  Nonetheless,  in  2022,  debt  ratios  remained  above  levels 
suggested by both economic fundamentals and by levels related to prudential concerns in almost 
half of the EU countries.  

Deleveraging  is  continuing  at  lower  pace  so  far  in  2023,  driven  by  decelerating  credit 
flows and high inflation (30). In the first half of 2023, corporate debt-to-GDP ratios continued to 
decline, driven by high inflation and moderating credit flows (Graph 2.3.3 b and Graph 2.3.3 c). The 
contribution of real GDP growth to deleveraging has weakened, reflecting a slowdown in economic 
activity in the first half of 2023. If trends observed over the first half of 2023 persist,  with high 
nominal GDP growth, mostly on account of still high inflation, and moderate credit flows, corporate 
debt  deleveraging  is  set  to  continue.  In  almost  all  EU  countries  with  high  or  very  high  corporate 
debt ratios, deleveraging is expected to be extensive, reaching several percentage points in 2023.  

In the future, deleveraging could become more challenging, as credit conditions remain 
tight  and  the  macroeconomic  environment  remains  subdued.  Inflation  should  remain 
elevated for a while, which would continue to support passive deleveraging. The high and increasing 
share of corporate loans with a revision of the interest rates within the next 24 months implies that 
the rise in interest rates can rather quickly translate into an increasing interest payment burden for 
corporates (31). Overall, credit standards remain tight by historic standards, despite some loosening 
since  spring  2023  (Graph  2.3.3  e).  Tighter  financing  conditions  could  slowdown  corporate 
investment  and  credit  demand  in  the  future  (Graph  2.3.3  f).  With  the  continuously  subdued 
macroeconomic  environment,  these tendencies  could  undermine  some  corporates’  ability  to meet 
their interest payments and make further deleveraging efforts of companies more difficult.  

The  composition  of  corporate  debt  can  affect  vulnerabilities  associated  to  high  debt 
stocks,  through  its  ownership  structure  and  currency  denomination.  Debt  holdings  by 
foreigners with low associated domestic risks, such as liabilities linked to foreign direct investment 
inflows, represent a sizeable share of corporate debt in some countries with particularly high debt 
stocks. While such foreign debt holdings reduce domestic corporate vulnerabilities, they also imply 

(29)  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. 

(30)  European Central Bank (2023), Financial Stability Review, May 2023 

(31)  European  Central  Bank  (2023),  Financial  Stability  Review,  May  2023,  based  on  the  Bank  lending  Survey,  first  quarter  of 

2023. 

27 

 
 
 
2.3. Non-financial corporations 

higher  cross-border  contagion  risks  from  an  EU  and  a  euro  area  perspective  (32).  A  high  share  of 
corporate  loans  denominated  in  foreign  currency  exposes  the  debt  holder  to  additional  exchange 
rate  risks (33).  It  therefore  represents  a  source  of  additional  vulnerabilities  in  some  countries, 
particularly  some  outside  the  euro  area  and  when  they  do  not  have  revenues  recorded  in  the 
currencies in which they borrow. 

Unit profits  have increased  substantially  until  2022, but  the  sharp  increase in interest 
rates has resulted in deteriorating interest coverage ratios (34). Unit profits benefited from 
higher  pricing  power  in  a  context  of  high  inflation  and  supply  shortages  affecting  the  production 
process. This, along with accumulated liquidity, helped NFCs to repay their debts in 2022. Unit profit 
growth  decelerated  in  the  first  two  quarters  of  2023,  with  the  economic  slowdown  and  strong 
wage growth (Graph 2.3.1 b). The recent steep increase in funding costs dents net incomes and has 
resulted  in  an  overall deterioration  of the interest coverage  ratio  of  firms  (Graph  2.3.3  d).  Highly 
leveraged firms experienced a particularly marked decline in their interest coverage and have far 
lower profit margins than firms with lower debt levels which makes it more difficult for them to 
deleverage (35). The build-up of inventories could reflect preventive action by firms in response to 
the sharp increase in input prices. 

Although  corporate  non-performing  loans  ratios  remain  low  in  most  countries, 
bankruptcies  have  started  to  increase  in  some  cases (36).  Corporate  non-performing  loans 
ratios continued to decline in almost all Member States in 2022. Business bankruptcies, although 
they remain low compared to the years before the COVID-19 pandemic, have been increasing, at 
accelerating  pace,  in  the  first  half  of  2023.  Bankruptcies  increased  particularly  strongly  in  the 
accommodation  and  food  and  the  transport  sectors  (Graph  2.3.2  b).  Instead,  new  business 
registrations remain at an elevated level compared to the pre-COVID period, although the number 
decreased in some countries in the first half of 2023. At industry level, some differences are worth 
highlighting, including the increase in vulnerabilities in manufacturing and commercial real estate, 
as compared to the services sector (Box 2.3.1, see also Section 2.6). 

The investment activity of non-financial corporates is decelerating, which, if persistent, 
may  undermine  overall  economic  growth  and  corporates’  ability  to  repay  their  pre-
existing  debts. Corporate  investment,  as  share  of  GDP,  recovered  gradually  after  the  COVID-19 
crisis  (Graph  2.3.3  f).  However,  at  23.7%  of  GDP  for  the  EU  in  the  second  quarter  of  2023,  it 
remains  below  pre-pandemic  levels  and  broadly  unchanged  compared  to  the  end  of  2022.  The 
recent increase in energy prices boosted green investment, while reducing the funds available for 

(32)  Plamen  Nikolov,  2016.  ‘Cross-border  risk  sharing  after  asymmetric  shocks:  evidence  from  the  euro  area  and  the  United 
States’, Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European 
Commission, vol. 15(2), pages 7-18, July.  

(33)  At the end of 2022, the share of non-financial corporate loans denominated in foreign exchange was very high and above 
25% a number of non-euro area countries, including Poland, Hungary, Bulgaria, Romania and Czechia. In Ireland, Sweden 
and Luxembourg this share was at around 10%.   

(34)  The  interest  coverage  ratio  is  defined  as  the  ratio  of  gross  operating  surplus  to  gross  interest  payments  before  the 
calculation of financial intermediation services indirectly measured (FISIM). The ratio is a measure of the ability of the non-
financial  corporate  sector  to  pay  the  interest  on  its outstanding  debt  (European  Central  Bank  (2022),  Financial  Stability 
Review, November 2022.. 

(35)  European 

(2022), 
https://www.ecb.europa.eu/pub/pdf/fsr/ecb.fsr202205~f207f46ea0.en.pdf 

Financial 

Stability 

Central 

Bank 

Review 

–  May 

2022. 

Data 

for 

2021. 

(36)  Non-performing  loans  and  bankruptcy  data  are  typically  considered  to  be  backward-looking  data.  As  usually  some  time 
passes  until a  company in difficulty  repays debt  with  a delay  or  files  bankruptcies.  This  backward-looking  tendency  was 
strengthened  during  the  COVID-19  pandemic  through  corporate  debt  moratoria  that  were  introduced  in  many  Member 
States. 

28 

 
2.3. Non-financial corporations 

investment  spending (37).  In  the  future,  high  uncertainty,  rising  interest  rates,  and  still  high  credit 
standards are likely to weigh on corporate investment activity. Investment of firms with high debt 
stocks is likely to be affected particularly strongly (38). A persistent decline in the investment rate of 
corporates in light of the continuously high uncertainty would undermine their growth potential and 
capacity to repay the pre-existing debt (Graph 2.3.3 f). 

Graph 2.3.1: Non-financial corporate debt and unit profits 

Corporate debt includes loans (F4) plus debt securities (F3) as defined in the financial balance sheet accounts. Corporate 
debt  is  consolidated,  which  means  that  transactions  within  the same  sector  are excluded.  The  peak  value in  Panel  A  is 
based  on  data  since  1997,  upon  availability.  Unit  profit  growth  in  Pan  el  B  is  calculated  as  profits  divided  by  sectoral 
value added (profits = value added minus compensation of employees). 
Source: AMECO, Eurostat and Commission estimates. 

(37)  European Investment Bank (2023), Investment Report 2022/2023 - Resilience and renewal in Europe, Luxembourg. 

(38)  Corporate  indebtedness  implies  higher  interest  expenses  and  thus  less  money  available  for  investment.  Firms  with  high 
debt also find it harder to obtain new funds from external sources due to their higher default risk. Moreover, the desire to 
repair weak balance sheets leads firms to reduce their debt burden, and thereby forgo investment opportunities. European 
investment,  The  ECB  Blog,  8  January  2023. 
Central  Bank 
2023https://www.ecb.europa.eu/press/blog/date/2023/html/ecb.blog230118~0eb37005b7.en.html 

(2023),  How  high  corporate  debt  stifles 

29 

050100150200250LUCYIESENLDKBEFRPTFIATESMTITDEHUEEELBGHRSKCZSIPLLVLTROEU27EA20% of GDPa) Corporate debt201920212022Peak valuePrudential benchmark 2022Fundamental benchmark 2022-20-15-10-505101520DKLVEELUBGSIBELTATROIEHRFIHUSEELCYDEITPLESPTFRNLCZSKMTEU27EA20Year-on year change, in %b) Unit profits2019Q22020Q22021Q22022Q22023Q2 
  
 
 
2.3. Non-financial corporations 

The  risks  associated  with  more  difficult  economic  conditions,  combined  with  ongoing 
structural  changes,  can  have  differentiated  effects  within  the  euro  area.  Tightening 
financing  conditions  are  likely  to  hit  particularly  countries  with  high  debt  stocks  or  where  non-
performing loans are higher, which can hamper investment and convergence. In some countries, the 
denominator effect can play a stronger role and support passive deleveraging, in the current high 
inflation environment. Some countries with a strong industrial base may need to finance structural 
transformations,  which  would  need  to  be  accompanied  by  effective  policies  to  avoid  excessive 
adjustment  costs,  including  through  rising  insolvencies.  Financial  conditions  and  available  fiscal 
space  might  eventually  play  a  role  in  the  possible  scale  and  scope  of  national  interventions.  A 
divergence  in  corporate  investment  could  over  time  lead  to  competitiveness  and  growth 
differentials in the euro area.  

Box 2.3.1 Selected corporate vulnerabilities at industry level 

This box provides a brief overview of vulnerabilities across selected industries. It draws 
on  publications  by  the  European  Commission,  the  European  Central  Bank,  and  the  European 
Systemic Risk Board.  

Vulnerabilities  associated  with  the  commercial  real  estate  sector  are  increasing,  with 
the  demand  for  office  and  commercial  space  decreasing  and  financing  conditions 
tightening  (39).  Bank  lending  survey  data  suggest  that  the  commercial  real  estate  sector  in  the 
euro area is sizeable and accounts for up to one third of total bank loans to corporates, despite the 
substantial moderation in lending activity (40). Despite the decline in credit witnessed since the end 
of 2022, the commercial real estate sector continued to contribute strongly to the growth in bank 
loans  (Graph  2.3.2a).  While  bankruptcies  among  commercial  real  estate  exposed  non-financial 
firms  remain  low,  the  share  of  vulnerable  NFC  loans  in  the  commercial  real  estate  has  likely 
increased  due  to  declining  asset  prices,  falling  investor  demand,  and  residual  vulnerabilities 
persisting from the pandemic (see also Section 2.6) (41). The European Systemic Risk Board recently 
also highlighted vulnerabilities in the commercial real estate sector (42). 

The  currently  witnessed  transformations  in  industry  in  some  Member  States  could  be 
structural  and  part  of  necessary  adjustment  processes  but  may  also  increase 
vulnerabilities (43). The challenges associated with structural adjustments that accelerated during 
the  COVID-19  pandemic  and  the  energy  crisis  outbreak  in  2022  can  have  widespread  effects  on 
the  productive  capacity  and  potential  growth  of  industry.  Confidence  evolved  less  favourably  in 
industry  than  in  the  service  sector  throughout  2023,  and  bankruptcies  increased,  although  they 
remain  below  pre-pandemic  levels (44).  While  the  share  of  value  added  in  industry  for  the  EU 
decreased in  2022, it  started  to  recover  in the  first  half  of  2023.  Employment  remained broadly 
stable in the first half of 2023, but is lower than before the COVID-19 pandemic. The growth in unit 

(39)  Ryan, Ellen & Horan, Aoife & Jarmulska, Barbara, 2022. ‘Commercial real estate and financial stability – new insights from 

the euro area credit register’, Macroprudential Bulletin, European Central Bank, vol. 19.  

(40)  According to the ECB Bank Lending Survey, bank lending to corporates in the sectors real estate, professional services and 
administration (LMN) accounted for about one third of bank lending to corporates and 38% of GDP in the first half of 2023. 

(41)  European Central Bank (2023), Financial Stability Review, May 2023.  

(42)  In January 2023, the European Systemic Risk Board issued a recommendation on vulnerabilities in the CRE sector in the 
EEA,  which  encompass  both  cyclical  and  structural  factors:  Recommendation  of  the  European  Systemic  Risk  Board  of 
1 December  2022  on vulnerabilities  in  the  commercial  real  estate  sector  in  the  European  Economic Area  (ESRB/2022/9) 
2023/C 39/01 

(43)  Industry includes (B) mining and quarrying, (C) manufacturing, (D) Electricity, gas, steam and air conditioning supply; and (E) 

water supply, sewerage, waste management and remediation activities. 

(44)  European Commission, Business and consumer surveys. 

30 

 
 
2.3. Non-financial corporations 

profits in industry decelerated in the first half of 2023, after high growth in 2021 and 2022 (45). If 
input costs become permanently higher, a loss of competitiveness could materialise.  

The service sector overall continues to benefit from a strong recovery of tourism after 
the COVID-19 pandemic in several Member States, although the number of bankruptcies 
continues  to  increase.  The  tourism  sector  performed  strongly  in  the  first  half  of  2023.  Value 
added  in  tourism  services  contracted  significantly  in  the  fourth  quarter  of  2022,  but  started  to 
increase  again  in  the  second  quarte  r  of  2023.  In  the  first  two  quarters  of  2023,  confidence  in 
services performed better than in the manufacturing sector. The number of bankruptcies continued 
to be high and increased further in the first half of 2023, pointing to some structural adjustments 
in some service sectors (Graph 2.3.2 b). 

Graph 2.3.2: Corporate loan growth contributions and bankruptcies, by industry 

Panel a: Loans granted to euro area non-financial corporations by the euro area monetary financial institution (MFI) 
sector, broken down by economic activity in accordance with NACE Rev. 2. 
Source: ECB, Eurostat. 

At country level, the following developments are worth highlighting:  

•  Non-financial corporate debt is very high, at close to or above 100% of GDP, in Denmark and 
Sweden  (Graph  2.3.1  a).  Unlike  in  Denmark,  the  corporate  debt-to-GDP  ratio  in  Sweden  has 
remained broadly  unchanged in recent quarters and is above its pre-pandemic level,  with the 
corporate real estate sector showing vulnerabilities. In both countries the interest rate burden is 
high and has increased recently.  

•  Non-financial  corporate  debt  is  also  very  high,  at  close  to  or  above  100%  of  GDP,  but 
decreasing  in  Belgium,  Cyprus,  Ireland,  Luxembourg,  and  the  Netherlands.  However,  a 
high share of foreign direct investment loans and cross-border intracompany borrowing partly 

(45)  European Commission (2023), Spring Forecast 2023. 

31 

-2024681019Q119Q219Q319Q420Q120Q220Q320Q421Q121Q221Q321Q422Q122Q222Q322Q423Q123Q2Nominal growth contributions, in  %a) Loans to corporates, euro area, by industryremaining activitiesLMN - real est., prof., adminI - accommodationG - tradeF - constructionC - manufacturingTotal05010015020019Q119Q219Q319Q420Q120Q220Q320Q421Q121Q221Q321Q422Q122Q222Q322Q423Q123Q2Index: 100=2019Q1b) Bankruptcies, EU27TOTALIndustryTradeTransport, storageAccommodation, foodBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with non-financial corporate debt to GDP ratios above fundamental and prudential thresholds in 2022 in blue 
   
 
 
 
 
2.3. Non-financial corporations 

limits  vulnerabilities  in  these  countries.  In  Ireland,  vulnerabilities  are  further  mitigated  by 
particularly high and increasing profits. In Luxembourg, the corporate debt-to-GDP ratio is still 
above its pre-pandemic level, but net credit flows are negative. Belgium is characterised by a 
particularly high and increasing interest rate burden.  

•  High  non-financial  corporate  debt-to-GDP  ratios  have  been  declining  in  Austria,  France, 
Malta,  Portugal,  and  Spain.  In  Spain, bankruptcies  continued  to  increase  in  the  first  half  of 
2023,  although  starting  from  low  levels.  In  France  the  debt  ratio  remains  higher  than before 
the COVID-19 pandemic, but credit flows have recently started to slow down significantly. 

• 

• 

• 

In  Bulgaria,  Estonia  and  Hungary,  the  non-financial  corporate  debt-to-GDP  ratio  is  high 
compared to regional peers. The debt ratio decreased in Bulgaria in 2022. In Hungary the debt 
ratio  remained  broadly  unchanged  and  well  above  its  pre-pandemic  level.  The  interest  rate 
burden in Hungary increased more than in most other EU countries. A substantial share of debt 
denominated in foreign currency represents an additional risk factor in Hungary.   

In  Greece,  the  non-financial  corporate  debt-to-GDP  ratio  has  declined  to  moderate  levels  in 
recent  years,  but  the  non-performing  loans  ratio  is  still  high,  albeit  decreasing  rapidly.  High 
corporate liquidity buffers mitigate risks.  

In  Germany,  the  non-financial  corporate  debt-to-GDP  ratio  is  moderate,  but  vulnerabilities 
seem  to  increase.  The  energy  crisis  disproportionately  affected  energy-intensive  industries, 
entailing  vulnerabilities  associated  to  potential  structural  changes,  rising  interest  rates  and  a 
loss  of  real  incomes. Construction investment  has  been  muted.  At  the  same time,  equipment 
investment remained robust. 

32 

Graph 2.3.3: Selected graphs on non-financial corporations 

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.  Real  corporate  investment  for  the  euro  area  excludes  Malta  due  to  data 
limitations.  The  interest  coverage  ratio  is  defined  as  the  ratio  of  gross  operating  surplus  to  gross  interest  payments 
before the calculation of financial intermediation services indirectly measured. 
Source: AMECO, Eurostat, ECB. 

33 

-18.624.1-30-20-10010CYLUIEELPTBEESBGMTNLATITLVHRFRFISEROPLDKEECZLTDESKSIHUpps of GDPa) Change in non-financial corporate debt, 2022 Net credit flowsReal GDP growthInflationOther changesDebt/GDP, change-30-20-1001020304050607005Q106Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q118Q119Q120Q121Q122Q123Q1Weighted net percentage (tightened minus eased)e) Euro area, NFC Credit standards, Loan supply,  -15-10-50510201320142015201620172018201920202021202220232024in %%f) Investment, credit and GDP, euro areareal GDP (% change)Corporate credit (% of GDP)Real corporate investment (% change)-30-20-10010NLLUIECYHUPTFRESBEBGITPLSKATMTDESICZSEHRFIROEELVLTDKpps of GDPb) Change in non-financial corporate debt, 2023f Net credit flowsReal GDP growthInflationOther changesDebt/GDP, change-60-40-200204005Q106Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q118Q119Q120Q121Q122Q123Q1year-on-year % changed) Interest coverage ratio, euro areaInterest expenses contributionGross operation surplus contributionCoverage ratio6070809010011012005Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q422Q4% of GDPc) Corporate debt, euro area 
  
 
2.4. HOUSING MARKETS 

House prices grew strongly in 2022 overall, but within the year housing markets began 
to slow. In most Member States, the pandemic and immediate post-pandemic period saw strong 
increases in many countries’ overvalued housing markets, building on years of house price growth 
exceeding household incomes (see Graph 2.4.1 a). House prices continued to accelerate in the early 
months  of  2022,  before  beginning  to  moderate  as  mortgage  interest  rates  increased  and  high 
inflation  put  pressure  on  household  disposable  income.  In  most  EU  countries,  the  moderation 
resulted in lower – but overall, still substantial – nominal house price growth compared to 2021. In 
some other cases, primarily countries with very high inflation rates in 2022, house prices grew even 
more  strongly  than  in  2021.  By  the  end  of  last  year,  house  price  growth  had  come  down  on  a 
quarter-on-quarter basis in all but two countries and in two cases it had even turned negative. In 
the euro area as a whole, house prices grew by 9% on average over the year, which represents a 
slight deceleration relative to 2021 and hides strong in-year variation. By the end of 2022, house 
prices were estimated to be overvalued in three quarters of EU countries, with more than half of 
the countries displaying overvaluations of between 10-60% (see Graph 2.4.1 b).  

Graph 2.4.1: House price evolution, over/undervaluation and household debt 

(1) The bubbles in Panel b refer to household debt as % of household income. 
Source: Eurostat and European Commission 

The  moderation  in  house  price  growth  continued  in  2023,  with  more  EU  countries 
displaying  declines  in  house  prices,  but  housing  markets  remain  overvalued  in  many 
countries. In-year data show a continuation of the reduction in house price growth rates in 2023 
as the housing markets continue to adapt to high interest rates and household incomes continue to 
be  affected  by  inflation.  Negative  house  price  growth  has  been  recorded  in  one  quarter  of  EU 
countries. Countries that have seen house price falls are primarily those with high overvaluations 
and high household debt (Graph 2.4.1 b). In most countries this reduction started within the year to 
the second quarter of 2023, so the overall fall from the peak has been greater. House prices have 
also  fallen  in  the  euro  area  on  aggregate  and  there  is  marked  difference  in  the  overall  country 
contributions  to  the  euro  area  developments  (Graph  2.4.3  e).  Compared  with  the  global  financial 
crisis of 15 years ago, the biggest increases – and subsequent falls – were among countries that 
were not those affected before the global financial crisis 15 years ago. House price overvaluation 
has  started  to  ease  in  many  of  the  countries,  although  the  reductions  so  far  are  limited  and 
housing markets remain overvalued in many countries. 

34 

-15-10-50510152025ELHRBGLTPTSIPLLVEEMTESCYHUIEBEITFRROATSKCZNLFILUSEDKDEEU27EA20a) House price % changes, YoY2020202120222023Q2BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISE-12-8-40481216-3003060House price % change, 22Q2 to 23Q2Over/undervaluation (%), 2022b) House price change vs over/undervaluation  
 
 
  
2.4. Housing markets 

The  increase  of  interest  rates  has  triggered  a  reduction  in  loan  demand  for  house 
purchases  and  in  housing  transactions  in  2022  and  2023,  affecting  house  prices. 
Monetary  tightening  both  within  and  outside  the  euro  area  has  translated  into  higher  mortgage 
rates  for  new mortgages. This is particularly  marked  for  some  non-euro  area countries,  although 
not  for  all  of  them  (Graph  2.4.3  b).  Existing  mortgage  payments  have  also  increased  in  some 
countries,  with  some  delay  depending  on  the  fixation  period  of  mortgage  interest  rates.  The 
resulting  reduced  borrowing  capacity  of  households  has  reduced  demand  for  mortgage  credit 
(Graph  2.4.3  c)  and  had  an  impact  on  house  prices from mid-2022  in  most Member  States.  This 
has also resulted in a big fall in housing transactions (Graph 2.4.3 d).  

The  borrowing  capacity  of  households  (46)  fell in  most  countries  in  2022, and is due to 
fall further in 2023, affecting house prices. Graph 2.4.2 presents the change in the borrowing 
capacity  of  households  for  2021,  2022  and  2023  compared  with  2019.  It  shows  that  in  around 
half of countries the borrowing capacity in 2022 was below that in 2021, and in 2023 it is set to 
fall further in all but three countries. In some cases, the impact of the interest rate contribution is 
so  substantial  that  it  reduces  the  borrowing  capacity  of  households  by  30-50%.  While  the 
borrowing  capacity  of  households  is  different  from  house  prices,  it  offers  a  stylised  approach  to 
estimating how demand for housing may be affected by household incomes and interest rates. In 
countries  where  loan  maturities  are  longer  and  house  prices  most  overvalued,  the  impact  of 
interest  rates  on  house  prices  so  far  has been  faster  and more  pronounced, while  countries  with 
shorter interest rate fixation periods and variable rates have experienced a faster transmission into 
existing mortgage payments. In EU countries outside the euro area, the impact of the increase in 
interest rates on house prices has been very strong overall, as interest rates have risen earlier and 
by more than in the euro area, although they have not risen in a small number of countries.  

(46) For a definition and methodology, see notes under Graph 2.4.2. 

35 

 
Graph 2.4.2: Borrowing capacity change (%), vis-à-vis 2019 

2.4. Housing markets 

(1) Borrowing capacity reflects the evolution of house prices that credit constrained households can afford by devoting a 
constant  share  of  their  income to  mortgage  payment  at  the  origination  of the  mortgage.  (2)  Data  used  for  computing 
borrowing capacity  is  median  household  income,  interest  rates  and  country-specific  loan  maturity.  For  loan  maturity  is 
used  the  average  of maximum  maturity,  available  in  Grünberger  et  al.  (2023):  Housing taxation  database  1995-2021, 
European Commission, Joint Research Centre (JRC).  LTV ratio considered is 100% and other variables, like taxation, tax 
relief  and  transaction  costs  were  fixed  to  zero  to  capture  only  the  impact  of  income  and  interest  rates  on  borrowing 
capacity. (3) For more detailed methodology see Andrle, M. and M. Plašil (2019): Assessing House Prices with Prudential 
and Valuation Measures. IMF Working Paper No. 19/59. 
Source: Eurostat, ECB, AMECO, JRC, European Commission 

A  further  correction  of  house  prices  is  expected,  particularly  in  countries  where 
sustained price increases were associated with low interest rates. The current moderation 
or correction of house prices is expected to continue in 2023, as the mortgage rates should remain 
high this year and housing markets have not yet fully adjusted to the constraints faced by (new) 
borrowers.  The  most  overvalued  countries  have  typically  seen  house  prices  grow  faster  than 
incomes  over  the  last  decade,  with  a  further  acceleration  during  the  pandemic.  Where  house 
purchases have been reliant on high household borrowing amid low interest rates, a correction in 
prices,  which  may  cause  some  economic  disruptions,  can  be  expected.  For  a  number  of  other 
countries, house prices grew in line with income before the pandemic, but house price growth was 
very high and significantly surpassed the evolution of incomes in recent years, drawing on excess 
accumulated  liquidity.  In  these  countries  where  overvaluation  is  limited  or  recent,  and  where 
inflation and wage growth continue to be strong, it is more likely that any correction will be overall 
less significant economically.  

A  sharp  and  sizeable  correction  of  house  prices  with  significant  spillovers  to  other 
sectors  is  unlikely  for  most  Member  States,  although  some  economic  effects  may  be 
felt.  Structural  factors  that  led  to  sustained  increases  in  house  prices,  often  relating  to  tight 
supply,  remain  in  place  ,  and  may  be  exacerbated  by  input  cost  increases  in  some  cases.  These 
should reduce the scope for more muted demand, translating into lower prices, instead leading to 
fewer  transactions,  possibly  affecting the  construction  sector. Compared  with the  global  financial 
crisis,  the  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  that  limited  the  pace  of  mortgage  credit  growth  in  the  last  decade  in  most  countries. 
However,  in  some  cases,  there  are  substantial  risks  associated  with  the  ability  of  households  to 
meet mortgage payments, resulting in both reduced consumption and loan repayment difficulties.  

36 

-60-40-200204060212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223212223BGMTROHRELIELVNLLTEESICZESBEPLLUCYFRHUSKITATDEFIPTDKSE% change vs 2019Interest rate contributionIncome contributionBorrowing capacity 
   
2.4. Housing markets 

Despite  the  current  downturn  in  housing  markets,  there  are  still  risks  associated  with 
rising prices. Despite the increase in nominal interest rates, real interest rates remain negative – 
in  some  countries  deeply  so  –  providing  an  incentive  for  increased  demand  for  housing  with  an 
investment perspective once the short-term jitters in the markets work their way through. In some 
regional  markets,  in  particular  in  city  centres  and  coastal  areas,  housing  demand  is  also  being 
driven by tourism, which is strongly recovering, and the high yields provided by short-term rentals. 
Therefore, countries affected by these factors may continue to see price growth in the future. This 
can  be  seen  as  a  risk  factor  for  a  future  sharper  correction  if  economic  conditions  were  to 
deteriorate. For some countries, increased current account deficits are associated with increases in 
construction for investment purposes. The possibility of housing bubbles funded by external capital 
flows  and  resulting  in  increased  consumption  needs  to  be  carefully  monitored.  Finally,  in  some 
cases house prices may not seem to be overvalued using methodologies that capture the extent to 
which  house  prices  are  out  of  line  with  fundamentals,  but  they  may  still  be  very  high  when 
measured against incomes (Graph 2.4.3 a).  

At country level, the following developments are worth highlighting:  

•  House  prices  are  significantly  overvalued  and  have  been  falling  recently  in  Czechia, 
Luxembourg,  the  Netherlands,  and  Sweden.  In  Denmark,  Germany  and  Slovakia,  prices 
are also falling but overvaluation is less significant and has almost been completely corrected 
in  Denmark.  Over  the  last  decade,  these  countries  have  seen  steep  increases  in  prices, 
particularly  relative  to  income,  including  over  the  pandemic.  Luxembourg,  and  especially 
Czechia also displayed very  high growth in 2022.  In Slovakia, a strong acceleration in growth 
took place in most of 2022. In Sweden, Denmark, Germany and Luxembourg, the increases in 
interest rates are greatly reducing the borrowing capacity of households to below 2019 levels, 
while in the Netherlands and Czechia the increase in interest rates are not estimated to offset 
the  positive  impact  of  income  growth  over  the  last  few  years.  In  Sweden,  the  impact  on  the 
construction sector and on household consumption is already visible and being reflected in the 
total  economy.  The  evolution  of  the  housing  market  poses  risks  for  the  overall  economy  in 
these countries.  

•  House  prices  are  overvalued  and  still  increasing  in  Bulgaria,  Spain,  Latvia,  Portugal,  and 
Slovenia. In these countries the evolution of house prices can be  seen as a risk factor for a 
future  sharper  correction  if  economic  conditions  were  to  deteriorate,  with  house  prices  being 
strongly overvalued in Portugal. In Belgium and Hungary overvalued house prices have fallen 
slightly in  the most  recent  period,  although in  both cases  the  annual  rate  of  growth  remains 
positive. France’s overvalued house prices have shown several quarters of shallow reductions. 
In Austria, some small recent reduction appears to have stalled in the most recent data, with 
house prices remaining strongly overvalued. 

• 

• 

In  Greece,  Croatia  and  Lithuania,  house  prices  are  not  estimated  to  be  overvalued  but 
increased at a strong pace, despite the change in economic conditions. Affordability concerns 
also increased, in particular in Greece and Croatia. 

In Finland, prices are estimated to be slightly undervalued and are falling fast, as the level of 
household  debt  relative  to  income  is  very  high,  and the increase  in interest  rates  is  having a 
significant  impact  on  household  demand  for  housing.  In  Ireland,  house  prices  have  been 
increasing  significantly  faster  than  income  since  2013,  and  the  ratio  of  household  debt  to 

37 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with growth of house price index, deflated (1 year % change) above 6% in 2022 in blue 
 
income is high. House prices, measured in years of income needed to buy a typical home, are 
very high and have not yet started to adjust. 

Graph 2.4.3: Selected graphs on the housing market 

2.4. Housing markets 

(1) Graphs a, b and c, countries are ordered by decreasing order of the last data. (2) In Graph d, countries are ordered by 
decreasing order of 2022Q4 values, as 2023 data are not available or missing for several countries. (3) In  Graph e, the 
euro  area  house  price  before  2005  is estimated.  (4)  In  Graph  f,  countries  are  ordered  by  decreasing  order  of  share  of 
owner occupied with loan. 
Source: Eurostat, European Commission, ECB, AMECO 

38 

6080100120140160PTLUIEATNLHUCZSEDEEEESLTSIDKSKHRFRBEELPLLVMTBGFIITCYRO2013 = 100a) House-price-to-income ratio202120222023Q20%25%50%75%100%NLSEDKBELUFIPTIEESFREESKMTATDECZCYHUSILTITPLLVELHRBGROEA20EU27f) Distribution of population by tenure status, 2022 (% of population)Owner occupied, with loanOwner occupied, no loansTenant - market priceTenant - reduced price or free-50510000204060810121416182023YoY % changee) Euro area house price change and country contributionsOthersNLITFRESDEEA200246810HUPLROLVLTCZEEDKCYITSEPTSILUDEELATFINLSKIEESBEHRFRBGM…b) Interest rate for house purchase (annual average)2021202223Q25 years min.050100150200250LTLVIEHRESPTSIEECYNLITROMTLUFRBEFIHUDECZAT2019 = 100c) New credit for house purchase by households, excluding renegotiations (12m average)2021-122022-122023-085 years max.6080100120140160CYESITPTBGSEIEBEFRPLLTHUFILVSIATNLDKLUCZlast 10y average = 100d) House transactions (4q average)2021Q42022Q42023Q2 
  
2.5. HOUSEHOLD DEBT AND SAVING 

Household debt ratios continued to decrease in 2022 and came in close to or below their 
pre-pandemic  level  in  most  EU  countries  (Graph  2.5.1).  After  a  long  period  of  decline, 
household debt-to-GDP ratios spiked in 2020 and then fell again to 56% in the euro area and 55% 
in  the  EU by  2022,  just  below  their  pre-pandemic  level.  The  debt-to-gross  household  disposable 
income ratios evolved in a similar way, declining in 2022 to 94% in the euro area and 92% in the 
EU  on  the  back  of  strong  nominal  income  growth.  Most  EU  countries,  including  those  with  the 
highest levels of debt, have seen their household debt-to-GDP ratios fall below their 2019 levels. At 
the same time, in almost half of the Member States, household debt remains above the thresholds 
suggested by economic fundamentals and by prudential concerns (47). The decline in the household 
debt-to-GDP  ratios  in  2022  was  strongly  driven  by  denominator  effects,  as  strong  nominal  GDP 
growth, reflecting extraordinary inflation and (in many countries) significant real GDP growth, offset 
the Impact of still strong credit flows (Graph 2.5.3 a). Passive deleveraging was particularly strong 
in the countries with the highest debt ratios, contributing to EU/euro area convergence.  

Graph 2.5.1: Household debt-to-GDP ratios 

(1) 

(1) Debt comprises loans (F4) and debt securities (F3), consolidated. 2023 figures present projections based on available 
in-year data and forecasts.  
Source: Eurostat, AMECO, ECB and European Commission 

As of mid-2022, tightening financing conditions are reducing net credit flows, but pose 
challenges  for  existing  borrowers.  After  a  long  period  of  growth,  net  credit  flows  peaked 
between mid-2021  and mid-2022,  and  then plunged  as  a  result  of  soaring  interest  rates  (Graph 
2.5.4 a) and declining residential property transactions in many countries (see Sections 2.4 and 2.6 
for  more  details).  Countries  with  a  larger  increase  in  the  cost  of  borrowing  saw,  on  average,  a 
greater contraction in credit flows. In most Member States, net credit flows nevertheless remained 
positive in 2022 as a whole (Graph 2.5.2). While the reduction in credit flows may ease the overall 
risk associated with further household debt accumulation, the increase in financing costs presents 

(47) For definitions and methodologies, see footnote 29. 

39 

020406080100120NLSEDKCYLUFRFIPTBEMTDEESATSKELITEECZHRPLSIIEBGLTHULVROEU27EA20% of GDP20192020202120222023fFundamentals benchmark 2022Prudential threshold 2022 
 
 
 
 
a  risk  to  existing  debt  holders,  in  particular  in  a  context  of  already  high  pressure  on  purchasing 
power. High financing costs can also have a negative impact on asset valuations.  

Graph 2.5.2: Net credit flows to households 

2.5. Household debt and saving 

(1) 

(1) Credit flows reflect adjusted loans (net flows) as reported by the ECB. 2023 figures present projections based on 
available in-year data and forecasts  
Source: Eurostat, AMECO, ECB and European Commission 

Some debtor households’ balance sheets are significantly affected by the recent strong 
increase in interest rates, and there are risks in the near future. Across the EU, households’ 
cost of borrowing soared as of 2022. By mid-2023, the euro area average cost  of borrowing for 
new (purely new and renegotiated) loans had tripled vis-à-vis its mid-2021 level. In recent years, 
loans  with  fixed interest  rates  have  won  ground  over  those  with  flexible interest  rates  in  several 
Member  States,  meaning  that  many  households  may  remain  well  protected  against  the  interest 
rate increases in the short to medium-term (Graph 2.5.4 d). Still, in some countries, banks provide 
almost  exclusively  loans  with  variable  interest  rates.  Moreover,  in  some  countries,  in  spite  of  a 
recent  shift  towards  more  stable  rates,  variable  interest  rates  still  prevail  among  the  stock  of 
existing  loans.  Finally,  in  some  countries  the  proportion  of  variable  interest  rates  has  recently 
picked up again in response to the changing financing conditions.  This means that certain pockets 
of households may be exposed to abrupt rises in expenditures in the face of interest rate shocks. 
Box 2.5.1 contains more details.  

Subdued  borrowing  and  inflation  are  continuing  to  exert  downward  pressure  on 
household debt-to-GDP ratios in 2023. In Q2-2023, the euro area (EU) household debt-to-GDP 
ratio  dropped  to  55%  (53%),  its  lowest  level  since  2005 (48).  Measured  as  a  share  of  gross 
disposable income, it fell to 90% (89%) in the same quarter, also markedly below its pre-pandemic 
level. If trends observed over the first half of 2023 persist, all but two EU Member States will see a 
reduction in household debt-to-GDP ratios in 2023. In almost all EU countries with high or very high 
household  debt,  deleveraging  is  expected  to  be  extensive,  reaching  several  percentage  points 
(Graph  2.5.3  b).  The  most  recent  data  suggest  that  in  more  than  half  of  all  Member  States,  net 
credit flows have (almost) stalled in the first half of 2023, or even turned negative, with a higher 
loan  volume  being  repaid  than  issued,  in  response  to  tightening  financing  conditions.  In  the 
countries with the highest debt levels, flows dropped considerably as well. 

(48)  Source: Commission calculations based on ECB-QSA and ESTAT data.  

40 

-2-10123456LUSKMTEESEFRBEBGNLLTDEFISIPTHRCZITATDKHULVROESIEELPLCYEA20% of GDP20192020202120222023f 
 
 
 
Graph 2.5.3: Contributions to changes in household debt-to-GDP ratios 

2.5. Household debt and saving 

Source: Commission calculations based on AMECO, Eurostat, ECB data 

Household  savings  have  come  down  since  2020  but  remain  mostly  above  their  pre-
pandemic levels. Gross savings (as a % of disposable income)  had gone up significantly during 
the  COVID-19  pandemic,  but  came  down  over  2021  and  2022  to  more  usual  levels,  where  they 
plateaued  just  above  their  pre-pandemic  level  (Graph  2.5.4  b).  At  the  same  time,  important 
differences can be observed between countries. Overall, gross savings seem to be holding up more 
strongly  in  countries  with  an  already  higher  savings  rate  to  begin  with.  In  many  countries  which 
started  out  with  lower  savings  rates  before  the  pandemic,  gross  savings  have  recently  been 
decreasing,  possibly  as  a  result  of  the  higher  impact  of  increases  in  the  cost  of  living  in  these 
countries as a result of high inflation. These differential dynamics risk contributing to divergence in 
the euro area. 

The  outlook  for  savings  developments  is  moderately  positive,  with  real  incomes 
expected to stay stable in 2023 and start growing again in 2024, as inflation gradually 
subsides.  In  spite  of  buoyant  nominal  wage  growth,  real  income  and  purchasing  power  growth 
have lagged behind as a result of high inflation. Real gross disposable income per capita contracted 
in 2022. Real compensation per employee is expected to recover to 2019 levels only by 2024 (49). 
While  less  than  half  of  the  EU  countries  had  recovered  to  2019  levels  of  real  compensation  by 
2022, by 2024, all but six are expected to have recovered to those levels. Employment dynamics 
have  so  far  been  supportive  of  growth  in  disposable  incomes,  even  if  they  are  expected  to  slow 
down  in  the  future.  Unemployment,  already  at  historical  lows,  is  forecasted  to  remain  stable  in 
2023  and  return  to  its  downward  trend  in  2024,  boding  well  for  the  outlook  on  income  growth. 
These positive effects should have a positive impact on household savings and support households’ 
abilities to meet their debt obligations overall. 

In general, the household sector has over time increased its ability to withstand housing 
market  shocks.  House  price  corrections  risk  reflecting  adversely  on  some  households’  balance 
sheets. But households’ vulnerability to house price shocks seems to have improved over time, as 
loan-to-value ratios have generally decreased, in particular at the higher end of their distribution. 
While in 2014, the 90th percentile of the loan-to-value ratio for the main residence stood at 100% 
for the euro area, this has come down to 87% by 2021 (50). In parallel, the 90th percentile of the 

(49)  Calculated using the private consumption deflator. 

(50)  This means that in 2014, the 10% of households with the highest loan-to-value ratio for their main residence’s mortgage, 
all  had a  loan-to-value  ratio of more  than  100%,  in  other  words,  the  value of  the  mortgage  exceeded  the  value of  the 
property concerned.  

41 

-20-16-12-8-4048DKELCYNLPLPTESSEIEATHRMTFIHUBEROLVCZITEELTDEBGSIFRSKLU% of GDPa) 2022Net credit flowsReal GDP growthInflationOther changesDebt/GDP, change-20-16-12-8-4048CYNLPTESSEATSKFRFIPLDEITBEMTHUSICZROHRLVEELTIEBGLUDK% of GDPb) 2023fNet credit flowsReal GDP growthInflationOther changesDebt/GDP, change 
 
 
 
2.5. Household debt and saving 

debt-to-assets  ratio  of  indebted  households  has  come  down  from  128%  to  97% (51).  A  similar 
trend can be observed for most individual countries, in particular those with very high loan-to-value 
and  debt-to-assets  ratios  to  begin  with  in  2014.  At  the  same  time,  stricter  macroprudential 
regulations  may  have  come  at  the  cost  of  reducing  access  to  the  housing  market  for  some 
households.  

Box 2.5.1: The impact of increased interest payments on households  

Interest  paid  by  households  in  the  euro  area  has  been  increasing  since  mid-2022,  but 
NPLs have continued to decline. Between Q2-2021 and Q2-2023, the share of household gross 
disposable  income  spent  on  interest  payments  has  grown  from  0.8  to  3%.  At  the  same  time, 
interests  received  by  households  also  increased  significantly,  overcompensating  the  increase  in 
interests paid in almost all countries for which data are available, with the notable exception of the 
countries with the highest household debts (the Netherlands, Sweden and Denmark). However, the 
gains from rising interest rates may accrue to different households than the losses and therefore 
provide limited cushioning. Despite this, the proportion of NPLs to households continued to decline 
in 2022, with minor upticks in just a few Member States in the first half of 2023 (Graph 2.5.4 f). 
This followed a strong improvement in 2021 in the highest risk countries thanks to dedicated policy 
measures.  Risks  remain  on  the  downside however, with  some  signs  of  the  Stage  2  allocation  for 
mortgages picking up recently (see Section 2.6) (52).   

For  low-income  households  who  hold  mortgages,  the  rising  interest  burden  may  bite 
strongly and exacerbate hardship resulting from already high inflation. The rising interest 
burden is more likely to fall onto richer households: they are less likely to be credit-constrained and 
more likely to take out a mortgage. Moreover, they tend to take out larger loan volumes (53). For the 
relatively  few  households  in  the  bottom  income  quintile  which  take  out  a  mortgage,  the  debt 
service-to-income  ratio  tends  to  be  higher,  however  (Graph  2.5.3  e):  their  median  monthly  debt 
payment covers 21% of gross monthly income on average in the euro area, as compared to 13% 
for mortgage holders overall. Median debt service payments for the bottom income quintile  even 
exceed  40%  of  monthly  income  in  Cyprus,  Portugal,  Greece  and  the  Netherlands  (Household 
Finance and Consumption Survey, 2021). Debt-holding households in the bottom quintile make up 
around 2.5-10% of the population in those countries. 

(51)  Source: HFCS 2014 and 2021 waves. 

(52)  Stage 2 loans are loans categorised as underperforming (see also Section 6 for more details). Source: Risk Dashboard, Data 

as of Q1 2023, European Banking Authority. 

(53)  See 2021 ECB-HFCS data 

42 

 
 
 
2.5. Household debt and saving 

At country level, the following developments are worth highlighting: 

•  The Netherlands, Sweden, Denmark and Cyprus have very high household debt (above 70% 
of GDP in 2022), although debt levels have been falling in recent years. While the Netherlands, 
Denmark  and  Cyprus  have  already  undergone  a  decade  of  deleveraging,  the  debt  ratio  was 
increasing over time before the pandemic in Sweden, and there is a risk this trend will pick up 
again shortly in the absence of policy changes. In the cases of Denmark, the Netherlands and 
Sweden,  household  debt  is  particularly  high  when  measured  as  a  share  of  gross  disposable 
income. Lately, net interest payments have also increased substantialy in these countries. Risks 
to  the  household  sector  are  compounded  by  the  high  share  of  variable  interest  rates  for 
Sweden,  Denmark,  and  Cyprus;  and  the  high  median  debt  service  to  income  ratio  for  Cyprus 
overall,  and  for  debt  holders  at  the  bottom  of  the  income  distribution  in  Cyprus  and  the 
Netherlands,  and  the  low  savings  rate  and  high  proportion  of  non-performing  loans  to 
households in Cyprus.  

•  Luxembourg, France, Finland, Belgium and Slovakia have moderate to high household debt 
stocks (between 35 and 70% of GDP in 2022) that have observed a longer-term upward trend 
over  the  last  decade,  strongly  outstripping  the  post-2020  decline.  When  expressed  as  a 
proportion of household gross disposable income, Luxembourg is among the countries with the 
highest  household  debt  in  the  EU.  Risks  to  the  household  sector  are  exacerbated by the high 
share  of variable  interest rates in  Finland  and  Luxembourg,  the  high  median debt  service-to-
income  ratio  for  France  and  Luxembourg  overall  as  well  as  for  debt  holders  in  the  bottom 
quintile of the income distribution in Luxembourg, and by the low savings rate in Slovakia  For 
the case of France and Slovakia, these risks are mitigated by the fact that the vast majority of 
mortgages at fixed rates. 

•  Portugal, Germany, Spain, Malta, Austria, Greece, Italy and Estonia also have moderate 
to high household debt levels, but these have declined over the last decade, in some cases very 
substantially. Debt stocks nevertheless continue to exceed their fundamentals-based threshold 
by more than 10 percentage points in  Spain, Malta, Greece, and  Italy. Risks to the household 
sector  are  compounded  by  the  high  share  of  variable  rate  loans  in  Estonia,  Malta,  Portugal, 
Austria,  and  Italy,  the  low  savings  rate  in  Greece,  Estonia,  and  Portugal,  and  the  still  high 
proportion  of  non-performing  loans  in  Greece  and,  to  a  lower  extent,  in  Spain,  despite  the 
declines that have taken place in recent years.  

•  The  relatively  high  proportion  of  non-performing  loans  to  households  may  also  still  be  of 
concern  for  Hungary,  Croatia,  Poland,  Bulgaria,  Romania  and  Ireland,  in  spite  of  their 
relatively  low  household  debt-to-GDP  ratios  (below  35%).  For  Ireland,  household  debt  is  still 
relatively high (around the euro area/EU average) when expressed as a proportion of household 
gross disposable income.  

43 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with household debt to GDP ratios above fundamental and prudential thresholds in 2022 in blue 
 
Graph 2.5.4: Selected graphs on household savings and debt 

2.5. Household debt and saving 

Panel (a): Cost of borrowing concerns new (+renegotiated) loans for house purchase by HH and NPISH. Source: ECB-MIR. 
(b): The gross savings rate is measured as a proportion of HH (+NPISH) gross disposable income, adj. for change in net 
equity in pension funds reserves. Source: AMECO. (c): Net interest paid = interest paid - received. Source: ECB-QSA (D41). 
(d):  Variable  rate  loans  are  defined  as  loans  with  <  1  year  fixation  period.  No  data  for  MT,  DK.  If  2023-06  data  are 
missing,  2023-05  or  2023-03  data  are  shown.  If  2013-06  data  are  missing,  data  for  2013-05  or  2013-07  data  are 
shown. Source: ECB-RAI. (e): Data reflect the ratio of total monthly debt payments to gross monthly income for HH with 
debt payments in the bottom two quintiles of the income distribution  and for all HH. Debt service-to-income ratios are 
usually lower for quintiles higher up. Source: ECB-HFCS (2021). (f): NPLs are defined as HH’ gross non-performing loans 
and advances, % of total gross loans and advances. Source: ECB-CBD2. 
Source: AMECO, Eurostat, ECB, Commission 

44 

024681012MTFRBEESNLATSKIEDELUFIELSIITPTCYEELVLTEA20BGHRSEDKCZROPLHUEuro areaNon-euro areaAnnualized, weighted average, %a) Cost of borrowing by households2023-062021-06-5051015202530DENLLUFRATIEBESIITLVFIESCYPTSKLTEEELEA20CZSEHUDKHRPLEuro areaNon-euro area% gross disposable incomeb) Gross savings rate, households202220212019020406080100120FILTEELVMTCYPTATLUITELNLESDEIEBESIFRHRSKEA20BGSERODKPLCZHUEuro areaNon-euro area% new loansd) Share of variable rate loans among new loans to households2023-062013-06051015202530CYELHRESIEITPTMTATFRSKSILUFIDEBENLLTLVEEPLHUROBGDKSECZEuro areaNon-euro areaf) % NPLs to households2023-Q22021-Q2-25-20-15-10-505101520NLIEFRFIDEPTATITBEESEA20SEDKPLHUEuro areaNon-euro area% gross disposable incomec) Interest burden (% gross disposable income), householdsInterest paid 2023-Q2Interest received 2023-Q2Interest paid 2021-Q2Net interest paid 2023-Q2010203040506070CYFRLUESBEELITPTMTSINLIEFISKATEEDELVLTEA20HRCZHUEuro areaNon-EA% gross monthly incomee) Median debt service-to-income ratio, by quintile (2021)AllQuintile 1Quintile 2 
 
 
 
2.6. FINANCIAL SECTOR 

The  EU  banking  sector  performed  well in  2022,  benefiting overall  from  the increase  in 
interest rates. Over 2022, the financial system was marked by the effect of rising interest rates 
and elevated inflation, which led to pressure on asset valuation, including real estate. The return on 
equity showed a significant increase in 2022, especially for large banks; most banks had a higher 
pass-through of the monetary policy tightening to lending rates than to deposit rates, raising their 
net interest margins and delivering higher net interest  income. The Common Equity Tier 1 (CET1) 
ratio of EU banks experienced a slight decline in 2022 due to strong lending activity in the first half 
of  2022,  but  it  still  remained  close  to  record  heights  (Graph  2.6.1  a  and  Graph  2.6.3  a).  The  EU 
banks maintained a robust liquidity position, primarily driven by a large share of high-quality liquid 
assets.  Throughout  2022,  non-performing  loans  (NPLs)  remained  relatively  stable  and  low 
(Graph 2.6.1 b), despite the further withdrawal  of moratoria on loan repayments introduced after 
the COVID-19 pandemic outbreak.  

Since  mid-2022,  there  has  been  a  significant  tightening  of  financial  conditions, 
impacting credit provision to the rest of the economy. The credit growth remained strong in 
the  first  half  of  2022  despite  increasing  lending  rates  for  households  and  non-financial 
corporations  (NFCs)  in  the  euro  area  and  already  high  interest  rates  in  several  non-euro  area 
countries  (Graph  2.6.3  c  and  Graph  2.6.3  d)  Over  the  second  half  of  2022,  credit  conditions 
tightened significantly both for NFCs and households amid ongoing monetary tightening, especially 
in the euro area. Credit provision to NFCs and households (see also  Sections 2.3 and 2.5) slowed 
down  noticeably  (Graph  2.6.3  e)  (54).  According  to  the  Bank  Lending  Survey  of  the  euro  area, 
lending standards for both households and businesses continued to be tightened in the first half of 
2023, particularly in the first quarter. This tightening was driven by higher risk perception and lower 
risk tolerance. In 2023, there was a notable decline in demand for loans from both households and 
firms amid high interest rates. These trends are expected to persist in the rest of 2023 (55). 

The resilience of the EU banking sector has continued into 2023. Despite several episodes 
of  heightened  turmoil  at  global  level,  the  EU  banking  sector  is  showing  resilience (56).  NPLs  have 
remained broadly stable despite the pressures on the loan repayment capacity of households and 
corporates amid higher interest rates and lower disposable income. The NPL ratio (for the median 
large EU bank) (57) remained stable at 1.8% at the end of the first quarter of 2023 (58). In parallel, 
the  share  of  loans  categorised  as  having  registered  an  increase  in  credit  risk  (Stage  2  loans) 
marginally  declined  but  remained  relatively  high  at  9.3%  in  the  euro  area  in  the  first  quarter  of 

(54)  ECB Financial Stability Review, May 2023, EBA Risk Dashboard, Q4-2022, April 2023. 

(55)  ECB Euro area Bank Lending Survey, First quarter of 2023, Second quarter of 2023, Third quarter of 2023.  

(56)  EU banks’ resilience was further boosted by robust capital and liquidity requirements, significant NPL workout efforts in the 
aftermath  of  the  2008  global  financial  crisis,  borrower  support  measures  granted  after  the  onset  of  the  COVID-19 
pandemic, as well as a stringent regulatory and strong and effective supervisory oversight, as recently further underscored 
with an agreement on the Banking Package. 

(57)  Large banks data refer to those banks whose data are collected by European Banking Authority (EBA) for  EU-wide stress 

tests and transparency exercises. 

(58)  EBA Key Risk Indicators. This is driven both by lower numerator (ongoing NPL decline) and higher denominator (growth of 

total stock of loans).  

45 

 
 
 
 
 
2.6. Financial sector 

2023 (59).  Capital  ratios  have  recovered  after  a  slight  decrease  in  2022,  which  was  driven  by  an 
increase  in  risk-weighted  assets  amid  strong  lending  growth.  The  aggregate  CET1  ratio  for  large 
banks stood at 16.5% by the second quarter of 2023 (60). The retun on equity has shown a strong 
increase,  rising  from  7.5%  in  the  final  quarter  of  2022  to  nearly  12%  in  the  second  quarter  of 
2023 (for the median large EU bank), supported by strong net interest income. The valuations of EU 
banks,  which  had  been  recovering  since  mid-2022,  experienced  a  notable  decline  in  March  2023 
following  the  failure  of  three  US  mid-to-small-sized  banks  and  the  failure  of  the  G-SIB  Credit 
Suisse and the subsequent government-assisted purchase by UBS, despite limited direct exposure 
to them. However, bank stock prices recovered subsequently. 

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

(1) The Common Equity Tier 1 (CET1) ratio encompasses ordinary shares and retained earnings. CET1 ratio and return on 
equity are average of quarterly data over the year 2022. The average value for the EU is unweighted by the economy 
size. The NPL ratio in 2020Q1 in EL was 34% and in CY 18%. 
Source: ECB Consolidated Banking Data, European Commission 

In the future, the more difficult and uncertain economic conditions may adversely affect 
the  asset  quality  and  the  profitability  of  the  banking  sector.  So  far,  banks,  in  particular 
those with a high balance sheet sensitivity to interest rate movements, have benefited from higher 
interest rates, increasing their net interest income. However, the full impact of higher interest rate 
on  the  banking  sector  depends  on  the  evolution,  assets  and  deposits  repricing,  loan  volume 
developments, and the banks' funding mix. Funding costs for banks in the euro area are expected to 
rise  due  to  the  need  to  refinance  maturing  parts  of  the  Targeted  Longer-Term  Refinancing 
Operations (61). The flat yield curve entails challenges for the maturity transformation function of 
banks  and,  as  a  result,  banking  profitability.  Weaker  economic  growth,  higher  interest  rates  and 
persistent  inflation  may  put  pressure  on  firms’  profitability  and  household  incomes,  resulting  in 
reduced  banks’  asset  quality (62).  Bank  exposures  to  the  manufacturing  and  real  estate  sectors 
appear to be particularly problematic, given their relatively high share of vulnerable loans and the 
EU banks’ significant exposure to these sectors.   

(59)  ECB Supervisory Banking Data. 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. 

(60)  EBA Risk Dashboard, Q4 2023. 

(61)  ECB Financial Stability Review, May 2023. 

(62)  Corporate vulnerabilities and the risks of lower growth and higher rates, box in ECB Financial Stability Review, May 2023. 

46 
50 

ATBEBGCYCZDEDKEEESFIFRELHRHUIEITLTLULVMTNLPLPTROSESISK0246810121518212427Return on equity in % (2022)CET1 ratio in % (2022)a) Profitability and capital ratiosEU(2021)EU(2022)012345678910ELPLCYBGPTHRHUITROESMTFRSKATSIIEBEDKCZLVNLDEFILTSEEELU% of total gross debt instruments / loansCountry b) Non-performing loans2020Q12022Q12023Q1 
 
 
     
 
2.6. Financial sector 

The 2023 stress tests conducted by the European Banking Authority (EBA) and the ECB 
have confirmed the resilience of the EU banking sector. In July 2023, EBA and ECB published 
results of their EU-wide and euro area bank stress tests respectively (63). The results of the stress 
tests reveal that European banks remain resilient even under the adverse scenario, which includes 
a  severe  EU  and  global  recession,  increasing  interest  rates  and  higher  credit spreads.  The  banks' 
current solid capital position allows them to withstand the capital depletion that occurs under the 
adverse scenario (64). The estimated adverse impact on capital is lower than in the previous stress 
test  round in  2021.  The  EBA  test  indicates  a  heterogeneous  impact  of  scenarios  across  different 
economic  sectors (65).  The  ECB  test,  on  the  other  hand,  highlights  that  smaller  banks  would 
experience higher capital depletion than the larger ECB-supervised banks. However, even after the 
stress  scenario,  their  capital  ratio  remains  higher  than  their  larger  counterparts  due  to  their 
stronger  starting  capital  position.  On  the  positive  side,  the  undertaken  reforms  should  make  it 
easier for banks to contain any potential accumulation of NPLs and to continue to support the EU’s 
economy by extending loans to households and companies even in times of an economic slowdown. 

its 

The non-bank financial sector is challenged by risks related to asset price correction and 
interconnections  with  the  banking  system.  High 
represents  a  risk  through 
interconnectedness between  European  banking  and non-banking  sector  represents  another  risk  in 
the  future  with  funding  from  non-bank  being  the  main  spillover  channel  as  non-bank  financial 
intermediaries  hold  their  liquid  assets  as  bank  deposits  and  short-term  securities (66).  The 
investment  fund  sector  has  significantly  increased  in  the  EU  over  the  last  decade  and  is 
concentrated  in  a  few  countries  (Graph  2.6.3  b).  Since  mid-2022,  however  the  sector  has 
experienced significant capital outflows and the funds started to decrease their exposure to lower 
rated  corporates  in  favour  of  investment  grade  sovereigns (67).  Investment  funds,  insurance 
companies  and  pension  funds  remain  exposed  to  risks  of  asset  price  corrections,  including  real 
estate, whose share in portfolios has increased in the recent years. While the solvency of insurance 
companies remained high in 2022, profitability decreased due to losses on interest rate sensitive 
instruments. However, the long-term impact of increased interest rates is expected to be positive 
due  to  higher  returns  on  new  investment.  Life  insurance  and  pension  funds  face  potential  lower 
demand in face of declining real income of households. Non-life insurance, in turn, may face higher 
costs  of  future  claims  amid  persistent  inflation.  The  insurance  sector  is  challenged  by  elevated 

(63)  These stress tests assess the ability of European banks to withstand adverse economic conditions over a three-year period, 
considering both a baseline and an adverse scenario. The EBA EU-wide stress test involved 70 banks from 16 EU and EEA 
countries (20 more than in the previous stress test round), covering 75% of the EU banking sector  assets; the ECB stress 
tested 98 banks under its direct supervision. Of those, 57 are the euro area’s largest banks which are included in the EU-
wide stress test coordinated by the EBA, and 41 are medium-sized banks outside the EBA sample. Together they represent 
80% of the total banking sector assets in the euro area.  

(64)  Under the baseline scenario, the capital Tier 1 ratio is expected to increase by 136 bps to reach 16.3% in 2025. The capital 
depletion under the adverse stress test scenario is measured at 459 basis points (bps) in the EBA test and 480 bps in the 
ECB test. As a result, the fully loaded CET1 ratio at the end of the scenario is projected to be 10.4% for both tests in 2025, 
which is sufficient for banks to continue supporting the economy even in times of severe stress.  

(65)  Losses on large corporates and SMEs account over half of total credit losses. The manufacturing sector accounts for around 
a  fifth  of  the  losses  on  corporates  –  with  loss  rates  for  energy  intensive  companies  being  notably  higher.  Exposures  to 
companies  operating  in  the  accommodation  and  food  services  and  the  construction  sectors  experience  the  highest  loss 
rates and are thus the most affected by the scenario. 

(66)  Key  linkages  between  banks  and the  non-bank  financial  sector,  Special  feature  B in  ECB  Financial  Stability  Review,  May 

2023. 

(67)  ECB Financial Stability Review, May 2023. In January 2023, the EBA launched the 2023 EU-wide stress test and released 
the  macroeconomic  scenarios  (adverse  scenario  heightened  geopolitical  tension  with  high  inflation  and  higher  interest 
rates), results to be published by end of July 2023. 

50 
47 

 
 
 
2.6. Financial sector 

uncertainty  and  new  climate,  cyber  and  geopolitical  risks,  which may  be  difficult  to  quantify  and 
risk negatively affecting the insurability of certain risks in the future (68).  

Financing  conditions  for  private  sector  and  governments  are  differentiated  across  the 
EU,  and  even  within the  euro area.  The  tightening  of  funding  conditions is  particularly  strong 
among  some  non-euro  area  Member  States.  Within  the  euro  area,  there  is  also  increasing 
divergence  in  funding  conditions  for  private  sector.  Some  divergence  has  been  a  long-standing 
phenomenon, but most recently varying pass-through of policy rates to lending rates contributed, 
especially for households. This discrepancy can be attributed, at least in part, to differences in the 
share  of  variable  rates  in  loan  portfolios.  Additionally,  the  maturing  of  Targeted  Longer-term 
Refinancing Operations could lead to further differentiation in funding conditions among banks, and 
in  turn  lending  rates  for  households  and  non-financial  corporation.  The  divergence  in  financing 
conditions is also evident in the case of sovereign funding costs. Banking sectors that have a strong 
domestic  bias  may  be  more  vulnerable  to  changes  in  their  home  country’s  fiscal  and  economic 
conditions.  Furthermore,  since  the  COVID-19  pandemic,  there  has  been  a  significant  increase  in 
sovereign  exposure  to  the  corporate  sector  in  some  countries  via  among  other  things  contingent 
liabilities (see also Section 2.7). This creates a risk of a doom loop, where adverse developments in 
one sector (e.g. corporate sector) can impact and potentially lead to problems in other sectors (e.g. 
sovereign and banking sector). 

Box 2.6.1 - Financial sector and real estate 

The exposure of the European financial sector to real estate has increased over the last 
decade.  Besides  standard  mortgage  lending  by  the  banking  sector  that  represents  a  significant 
part  of  their  portfolios,  other  forms  of  exposures  to  real  estate  by banks  but also  by  non-banks, 
including  real  estate  investment  trusts,  have  gained  prominence  in  the  past  decade.  While 
mortgage lending remains one of the main activities of EU banks, the relevance of mortgages for 
banking  balance  sheets  and  mortgages  arrangements  vary  significantly  across  Member  States. 
Graph 2.6.3 shows the share of total bank assets that correspond to mortgages for households and 
non-financial corporations, to give an insight into the exposure of the banking sector to real estate 
(69).  Most  of  the  mortgages  are  granted  to  households  and  are  therefore  mainly  used  to  buy 
houses.  In  2022,  several  Member  States  received  warnings  (Bulgaria,  Croatia,  Hungary,  and 
Slovakia)  and  recommendations  (Austria,  Germany)  from  the  European  Systemic  Risk  Boad 
regarding  mid-term  vulnerabilities  stemming  from  their  residential  real  estate  sectors.  The 
mortgages  granted  to  corporations  are  commonly  collateralised  by  commercial  real  estate  and 
represent a comparatively small part of banking portfolio, although exposures are very significant 
in some Member States. The volatility of real estate prices represents a potential risk for financial 
sectors in terms of repricing of mortgage collateral but also of prices of other assets linked to real 
estate markets such as mortgage-backed securities or real estate-related funds. 

Real  estate  markets  are  experiencing  a  correction  overall,  and  the  commercial  real 
estate (CRE) is subject to the most acute risks. While both residential and CRE prices followed 
a  similar  upward  trend  until  the  COVID-19  pandemic,  there  has  been  a  notable  decoupling  since 
then. The increase in interest rates has negatively impacted the borrowing capacity of households 
and  their  ability  to  service  existing  debts,  including  mortgages  (see  also  sections  2.4  and  2.5). 
Combined  with  an  overvaluation  of  residential  real  estate  in  many  EU  countries,  this  has  led  to 
turns in housing markets since mid-2022, with nominal prices decreasing in some Member States, 
and  a  slowdown  of  their  growth  rates  in  several  others.  The  CRE  market  has  already  faced 

(68)  EIOPA Financial Stability Report, June 2023. 

(69)  The comparison across countries is subject to some caveats. For example, mortgages for households in some countries are 

not fully collateralised by house purchases as a form of tax and notary fee optimisation. 

48 
50 

 
 
 
significant  challenges  since  2020  (see  also  Section  2.3).  CRE  prices  and  transactions  already 
experienced  substantial  declines  in  2020  and  2021,  with  non-prime  properties  being  particularly 
affected.  Although  the  CRE  market  seemed  to  have  stabilised  in  the  first  half  of  2022,  the 
downturn resumed again from mid-2022, impacting offices, in particular (70). 

Graph 2.6.2: Mortgages and bank loans for house purchase, 2022 

2.6. Financial sector 

(1)  
Source: ECB 

The CRE sector is strongly interconnected with both banks and non-banks but there are 
notable differences across countries. The decline in CRE prices has put pressure on indebted 
firms and financial institutions that have exposures to real estate. Banks and non-banking financial 
institutions  across  the  EU  have  varying  degrees  of  exposure  to  CRE  and  are  geographically 
clustered. Real estate investment funds play a significant role in holding CRE in some countries and 
their  relevance  has  increased  in  the  EU  over  the  last  decade (71).  The  two-sided  impact  between 
investment funds, exposed to liquidity risks, and CRE, subject to valuation uncertainty, poses a new 
vulnerability in the European financial market (72). However, EU banks also have direct (via lending 
or  investment)  and  indirect  (via  Real  Estate  Investment  Trusts)  exposures  to  residential  and 
commercial  properties (73).  The  complex  cross-border  linkages  and  data  gaps,  especially  in  the 
investment funds sector, make country-level risk assessment challenging. Based on available data, 
it  seems that Member  States  such  as  Sweden, Germany,  Luxembourg,  and the  Netherlands  have 
the  highest  financial  sector  exposure  to  CRE (74).  In  January  2023,  the  European  Systemic  Risk 
Board issued a recommendation on vulnerabilities in the CRE sector in the European Economic Area, 

(70)  ECB Financial Stability Review, May 2022, May 2023.  

(71)  Most real estate funds are open-ended, thus large request of redemption can cause fire sales of their CREs assets. Those 
funds  are  mainly  located  in  Germany,  France,  the  Netherlands,  Italy  and  Luxembourg.  EBA,  Transparency  exercise,  June 
2022. 

(72)  The growing role of investment funds in euro area real estate markets: risks and policy considerations, ECB Macroprudential 

Bulletin, April 2023. 

(73)  ESRB (2023): Vulnerabilities in the EEA commercial real estate sector, January 2023. 

(74)  CRE accounts for more than 9% of euro area bank risk exposure.  In the euro area, of the 12.6% non-financial corporations 
loans growth between Q4-2019 and Q2-2022, almost half (5.6 percentage points) was dedicated to real estate and 
professional services.   

49 
50 

0510152025303540455055DKSEEESKFINLLVBEPTLTATPLCZMTCYESDEBGSIROITHRHUGRIEFRLUEAEU% of total assetsMortgage to householdsMortgage to NFCsTotal mortgageLoans for house purchase 
 
       
 
which encompass both cyclical and structural factorsIt urged authorities to improve the monitoring 
of systemic risks arising from the CRE sector and promote sound financing practices (75). 

2.6. Financial sector 

At country level, the following developments are worth highlighting:  

•  Despite significant progress in  recent years, financial systems in Cyprus and Greece are still 
vulnerable.  While  the  NPL  ratio  of  the  banking  sector  has  been  strongly  reduced  in  previous 
years, non-performing debt remains in the economy through credit servicing companies and its 
workout  continues  to  face  challenges.  Moreover,  the  NPL  ratio  of  the  banking  sector  is  still 
above the EU average. The Stage 2 loans ratio and forbearance of the Greek banking sector is 
also high compared to the EU average. The banking sector capitalisation in Cyprus is close to 
the EU average, but in Greece falls below it. Profitability increased well above the EU average in 
2022 in Greece, in Cyprus it remained below the EU average in 2022 but significantly increased 
in the first half of 2023. 

•  Banks  in  Italy  and  Portugal  have  significantly  decreased  their  NPLs  and  their  capitalisation 
remains sufficient, but below the EU average (Portuguese banks recorded a strong increase in 
the capital ratio in the first half of 2023). While Portuguese banks are exposed to residential 
real  estate,  Italian  banks  have  a  non-negligible  exposure  to  commercial  real  estate,  but  the 
vulnerability of Italian banks stemming from these exposures has remained low so far. Strong 
exposure to the domestic sovereign remains a risk for banks in both countries.  

•  The  banking  sector  in  Germany  and  France  features  relatively  low  profitability  and 
capitalisation.  Recent  stress  tests  revealed  potential  vulnerabilities  of  several  financial 
institutions  from  these  countries.  Both  banking  systems,  particularly  in  Germany,  have  large 
exposures to both residential and commercial real estate, which is subject to correction. This is 
also the case for Spain where capitalisation is low, but profitability is higher. 

•  Relatively  high  exposures  of  banks  to  real  estate  can  be  found  in  Luxembourg  and  the 
Netherlands,  where  banks  are  well  capitalised.  Vulnerabilities  related  to  the  non-banking 
financial  sector  are  sizeable  in  view  of  the  general  adjustment  of  asset  prices.  This  is 
particularly  the  case  in  Luxembourg  with  a  very  large  investment  funds  sector  that  also 
features large cross-border exposures.  

•  Banks  in  Sweden,  Denmark  and  Finland  have  strong  exposure  to  both  residential  and 
commercial real  estate, which is undergoing a significant correction, most  notably in Sweden, 
where interest rate tightening is also most pronounced. This increases banks’ net interest rate 
income amid  the  large share of floating rate mortgages but sets risks for the borrowing and 
repayment capacity  of households. However, in general  banks are well capitalised. Significant 
exposure to real estate can also be found in Estonia and Slovakia. 

•  Bulgaria, Poland and Hungary still feature relatively high NPL ratios and Stage 2 loans, but 
the banks in these countries are well capitalised and profitable, notably in Bulgaria where credit 
growth remains rather dynamic. 

(75)  ESRB/2022/9. 

50 
50 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with total financial sector liabilities, non-consolidated (1 year % change) above 16.5% in 2022 in blue 
 
 
 
 
Graph 2.6.3: Selected graphs on the financial sector 

2.6. Financial sector 

Source: ECB, European Commission 

51 
50 

012345672019-082019-112020-022020-052020-082020-112021-022021-052021-082021-112022-022022-052022-082022-112023-022023-05c) Lending rate (%) for NFC (new business) selected EA countriesDEFRITESEA MinEA Max0246810121416182019-082019-112020-022020-052020-082020-112021-022021-052021-082021-112022-022022-052022-082022-112023-022023-05d) Lending rate (%) for NFC (new business) non-EA countriesCZHUPLROBGSEDK22.12.22.32.42.52.62.70246810121416182021Q42022Q12022Q22022Q32022Q42023Q1a) Capital, profitability and asset quality ratios (%), EU significant institutions supervised by SSMStage 2 ratioCET1 ratioRoENPL ratio (rhs)-4-20246810MTBGSKEEHRSELUCZDEATLTHUBEFRROSILVFIELNLIEPTPLITESCY% of GDPNFC (Q3 2022 –Q2 2023)HH (Q3 2022 –Q2 2023)Total (Q3 2022 –Q2 2023)Total (Q3 2021 –Q2 2022)e) Loans (transactions) from banks to domestic households and corporationsb) Financialassets of EA financial sector,2022Q4 
 
 
 
 
2.7. GOVERNMENT SECTOR 

Government debt ratios decreased in most Member States in 2022, supported by strong 
nominal GDP growth, but generally remain above pre-pandemic levels. In 2022, the debt-
to-GDP ratio decreased in almost all EU countries, with the EU and euro area aggregates declining 
by  nearly  four  percentage  points  to  reach  84.8%  and  92.5%  respectively  (Graph  2.7.1  a).  This 
decrease is mostly driven by the recovery of nominal GDP after the pandemic (see Graph 2.7.2 d). 
Despite  the  reduction,  the  debt-to-GDP  ratio  remained  above  the  pre-pandemic  levels  in  most 
Member  States.  Fiscal  deficits  narrowed  in  2022  in  almost  all  EU  countries,  despite  sizeable 
support packages for households and firms related to high energy prices (accounting for 3.6% of 
GDP for the EU as a whole), in part due to the removal of pandemic support measures (Graph 2.7.1 
b). Deficits were below 3% of GDP in over half of the Member States, while the average deficit was 
3.6% of GDP and 3.3% of GDP for the euro area and for the EU as a whole respectively.  

The  government  debt-to-GDP  ratio  is  expected  to  decrease  further  in  most  of  the  EU 
countries in 2023, with small changes in 2024. In most Member States, government debt is 
forecast to fall in 2023 but still to remain higher than its 2019 levels, in some cases by nearly 15 
percentage  points  (Graph  2.7.1  a).  The  improvement  is  a  result  of  continued  nominal  economic 
growth, driven by inflation. The declines in the debt ratio should continue to be 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  stabilise  or  slightly  increase.  In-2024,  reductions  of  debt  ratios  are  forecast  to  be 
smaller despite government deficits being expected to improve in all Member States, as the passive 
deleveraging effect is set to be more muted due to lower nominal GDP growth. The phasing out of 
the  extraordinary  measures  to  cushion  households  and  firms  from  some  of  the  effects  of  the 
higher energy prices is expected to reduce the general government deficit further in 2023 and in 
particular in 2024.  

While  inflation  may  help  reduce  the  debt  burden  in  the  short  term,  higher  nominal 
interest rates increase the cost of rolling over and issuing new debt. Despite the continued 
decrease in  debt  ratios, the  high  level  of  debt is  a  risk  factor. Higher inflation  has  a  direct  debt-
reducing  impact  through  the  denominator  effect  over  the  medium  term.  However,  Commission 
simulations show that this effect is outweighed by the debt-increasing effects in the case of terms 
of  trade  shocks,  which  result  in  slower  real  GDP  growth,  a  weaker  primary  balance  and  a  higher 
interest rate (76). Already in 2022, financing conditions for sovereigns became less favourable due 
to  rising  interest  rates  Following  tighter  monetary  conditions  in  2022,  sovereign  bond  yields 
increased  across  the euro  area  in  2022  from  very  low  or  even  negative  levels.  Spreads  between 
euro  area  countries  increased  somewhat  as  markets  priced  in  risk,  before  stabilising  and  even 
declining  for  some  more  indebted  countries  from  mid-2022,  which  was  the  timing  of  the 
introduction  of  the  Transmission  Protection  Instrument  by  the  ECB  (Graph  2.7.2  c).  The  higher 
funding  cost  will  affect  the  rolling  over  of  existing  debt  or  the  issuance  of  new  debt.  Gross 
financing needs increased in 2020 in all Member States in response to the COVID-19 pandemic, by 
some 10 percentage points of GDP on average (Graph 2.7.2 a). In 2021 and 2022 gross financing 
requirements  decreased  gradually,  mostly  thanks  to  improved  (primary)  fiscal  balances.  In  2023 

(76)  See  European  Commission  (2023):  Report  on  the  Public  Finances  in  EMU,  Part  3  Impact  of  inflation  on  public  finances, 

Institutional Paper 256, October 2023. 

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2.7. Government sector 
2.6. Financial sector 

and 2024 they are forecast to recede further albeit at a slower pace, with deficits remaining still 
relatively high in some Member States.  

While the difference between nominal GDP growth and nominal interest rates is helping 
to  reduce  debt  in  all  EU  countries  in  2023,  it  is  forecast  to  change  in  2024  in  some 
countries. Despite the tightening of monetary policy, real interest rates are currently negative and 
forecast  to  remain  so.  Euro  area  government bond yields  remain  among  the lowest  in  the  world. 
Bond  yields  in  Member  States  with  high  debt  levels  have  risen  more  strongly  but  long  debt 
maturities help to cushion the impact. Favourable financing conditions, which have been present in 
the EU over the last few years, have become tighter. In 2023, the interest rate growth differential, 
i.e. the difference between the nominal interest rate and nominal GDP growth, is still conducive to 
reducing the debt-to-GDP burden in all EU countries. By 2024, that ‘r-g’ differential is forecast to 
turn positive and thus debt-increasing in a few Member States and close to zero in several others.  

Non-euro  area  Member  States  face  higher  debt  servicing  costs  due  to  widening 
sovereign bond yields, while exposure to debt denominated in foreign currencies is a risk 
in  the  event  of  currency  depreciation.  Prolonged  tight  financing  conditions  or  exchange  rate 
movements may have a negative impact on the fiscal performance, especially in the non-euro area 
countries  where  the  share  of  debt  denominated  in  foreign  currency  is  significant.  The  global 
tightening of financing conditions has had a more pronounced, and earlier, impact outside the euro 
area but it has improved somewhat since the end of 2022 (Graph  2.7.2 c). Sovereign bond yields 
are  especially  high  in  Hungary,  Romania  and  Poland  which  also  have  high  central  bank  interest 
rates.  In  addition,  non-euro  area  countries  have  a  significant  share  of  government  debt 
denominated  in  foreign  currencies,  especially  Bulgaria (77)  (72%),  and  Romania  (54%),  but  also 
Hungary (29%).  

Government  contingent  liabilities  remain  elevated  overall,  so  that  stress  in  the 
corporate  and banking sectors  can  spill over into the  sovereign.  Some  countries  featured 
significant  government  contingent  liabilities  even  before  the  COVID-19  pandemic.  During  the 
COVID-19  pandemic,  government  contingent  liabilities  increased  significantly  due  to  the  credit 
guarantees granted by many governments to the private sector, notably  non-financial corporates. 
As the guarantee schemes were provided to the companies in the COVID-19 pandemic to mitigate 
the  negative  implications  of  the  pandemic-related  lockdowns,  there  exist  potential  risks  of  a 
negative  feedback  loop  between  the  corporate,  banking  and  sovereign  sectors  (see  also  Section 
2.6).  The  size  of  those  guarantees  is  forecast  to  decline  but  the  risks  linked  to  the  contingent 
liabilities  in  the  banking  sector  can  materialise  in  some  Member  States  (Graph  2.7.2  b).  Bank 
balance  sheets  indicate  contained  vulnerabilities,  but  stress  tests  conclude  that  the  implicit  risks 
stemming from contingent liabilities may exist in some Member States in  the event of a systemic 
banking crisis (78).  

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

2020. 

(78)  Debt Sustainability Monitor 2022 (April 2023) 

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Graph 2.7.1: Government debt and government balance 

2.7. Government sector 

2.7. Government sector 

(1) Countries are presented in decreasing order of the debt-to-GDP and deficit-to-GDP ratios in 2022 
Source: AMECO and European Commission 

At country level, the following developments are worth highlighting:  

•  At  the  end  of  2022,  the  government  debt-to-GDP  ratios  were  above  100%  in  Greece,  Italy, 
Portugal, Spain, France and Belgium and above 60% in Austria, Croatia, Cyprus, Finland, 
Germany,  Hungary  and  Slovenia.  The  debt-to-GDP  ratios  decreased  in  all  those  Member 
States in 2022, except Finland, and are forecast to continue decreasing in most of them in 2023 
and  2024,  apart  from  Belgium  and  Finland.  In  Bulgaria,  Malta,  Poland  and  Slovakia 
government debt remained below 60% of GDP but the deficits are high and forecast to exceed 
3% of GDP in 2023 and 2024, contributing to increasing debt ratios. 

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55 54
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55 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with government debt (% of GDP) above 60% in 2022 in blue050100150200ELITPTFRESBECYATHUFISIHRDESKMTNLPLROIECZLVLTSEDKLUBGEEEAEU% of GDPa) Debt-to-GDP ratio20192020202120222023f2024f-12-8-404ITROHUMTFRESLVPLATBECZSIBGDEELSKEEFILTPTLUNLHRSEIECYDKEAEU% of GDPb) Deficit-to-GDP ratio20192020202120222023f2024f 
 
 
 
 
 
 
 
   
2.7. Government sector 

•  All  Member  States  have  been  identified  as  displaying  low  fiscal  sustainability  risks (79)  in  the 
short  term.  Over  the  medium  term,  eight  Member  States  are  assessed  as  facing  high  fiscal 
sustainability  risks,  namely  Belgium,  France,  Greece,  Hungary,  Italy,  Portugal,  Slovakia 
and Spain. 

•  Greece has the highest government debt-to-GDP ratio in the EU and well above 100%, but it is 
at  its  lowest  level  for  a  decade,  and  the  steady  reduction  is  forecast  to  continue.  The  fiscal 
deficit  was  sizeable in  2022,  but  is  forecast  to  improve  and  gross  financing should  decrease 
over  the  coming  years.  Portugal’s  fiscal  situation  is  improving  with  a  declining  government 
debt-to-GDP  ratio,  benefiting  from  a  strong  denominator  effect  and  an  improving  primary 
balance. Financing needs are falling to a moderate level. The government balance is forecast to 
turn  positive  in  2023,  and  remain  in  surplus  in  both  2024  and  2025.  Government  debt  has 
been edging down progressively in France, Italy and Spain mainly thanks to the growth and 
inflation  effects,  but  still  remain  above  their  pre-pandemic  levels.  In  France,  however,  public 
debt at unchanged policies  is expected to not to fall  further as of 2024. As the crisis-related 
measures are phased out, the fiscal deficits are narrowing but still remain at an elevated level, 
particularly  in  Italy.  In  Italy,  the  debt  ratio  is  expected  to  pick  up  and  the  r-g  differential  is 
forecast to become less favourable in 2024-2025. In Spain, in the absence of policy changes, 
public debt is expected to continue to reduce in 2023 and 2024, before stabilising in 2025 as a 
number of revenue-increasing measures are set to expire and drive the slight increase of the 
general  government  deficit.  Belgium’s  high  government  debt  decreased  in  2022  due  to  the 
denominator effect but remains high and is forecast to increase steadily, with the government 
deficit forecast to remain sizeable over the forecast period. The automatic indexation of wages 
in the public sector and rising ageing costs put pressure on the public finances. Public finances 
in  Cyprus  are  improving  markedly.  The  government  debt-to-GDP  ratio  decreased  again 
significantly  in  2022  as  the  result  of  an  overall  fiscal  surplus,  and  strong  real  and  nominal 
growth  and  is  below  its  pre-pandemic  level.  The  fiscal  surplus  is  projected  to  continue 
contributing to deleveraging. 

•  Romania and  Hungary are characterised by  persistently high fiscal  deficits and government 
bond  yields.  Debt  denominated  in  foreign  currencies  is  relevant  for  both  countries,  especially 
the former. In Hungary, government debt is above 60% of GDP and is forecast to recede only 
marginally  and  not  come  under  its  pre-pandemic  level,  and  the  government  gross  financing 
needs are high. In Romania, government debt has been somewhat low but is forecast to edge 
up further. Both Romania’s and Hungary’s fiscal deficit is forecast to improve but remain high, 
with the underlying position being substantially weaker in Romania. 

• 

In Austria, Croatia, Germany and Slovenia the government debt exceeds the 60% of GDP 
threshold but is forecast to continue decreasing, together with fiscal deficit, to below 60% by 
2024  in  the  case  of  Croatia.  Concerns  related  to  the  government  in  Ireland  remain  limited 
and the debt-to-GDP ratio continues to fall from its moderate level, however the debt relative 
to  gross  national  income  (GNI)  is  still  high.  Fiscal  surpluses  are  expected  to  continue  in  the 
coming years. Government debt in Finland exceeds 60% of GDP and has been increasing since 
2021 and is forecast to rise further. The difference between the interest rate and growth rate 
is estimated to be positive and the fiscal deficit is also expected to increase but remain below 
3% of GDP.  

(79)  See  the  Commission  Country  Reports  2023  for  the  latest  risk  classification  and  Debt  Sustainability  Report  2022  (April 

2023) for methodological details. 

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Graph 2.7.2: Selected graphs on the government sector 

2.7. Government sector 

(1) Government contingent liabilities data are not available for some countries for 2020 and 2022. The countries are ranked 
according to 2022 value (2021 if 2022 is not available). 
Source: Eurostat, AMECO and European Commission 

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051015202530ITFRESBEDEATFIELROHUMTPLSKHRCZNLPTLVSILUDKCYBGLTSEEEIE% of GDPa) Gross financing needs20192020202120222023f0510152025FIDEITATFRSEESDKHULUMTBEPLCYSIPTNLROHRLVEELTSKCZBGIE% of GDPb) Government contingent liabilities2019202020212022-2024681020-0320-0620-0920-1221-0321-0621-0921-1222-0322-0622-0922-1223-0323-0623-09c) Sovereign bond yields (%)EABGCZDKHUPLROSE-8-3271217d) Drivers of changes in debt ratio (% of GDP), EA(-) Primary balanceInterest expenditureReal growth effectInflation effectStock flow adjustmentChange in debt ratio-30-20-10010CZFIEELUFRROBGNLMTSIHUDELVSKSEBEATPLESLTITDKHRIEPTCYELEA20EU27e) Drivers of changes in debt ratio (% of GDP), 2022(-) Primary balanceInterest expenditureReal growth effectInflation effectStock flow adjustmentChange in debt ratio-30-20-10010LUBEPLMTFIBGEELVROCZDKLTSKDEIEITATFRSENLSIHUESCYHRPTELEA20EU27f) Drivers of changes in debt ratio (% of GDP), 2023(-) Primary balanceInterest expenditureReal growth effectInflation effectStock flow adjustmentChange in debt ratio 
 
 
 
 
 
 
 
  
 
3. COUNTRY SECTIONS 

BELGIUM 

In Belgium, unit labour cost growth is very high and government and private sector debt ratios are 
also high, although associated macroeconomic risks appear to be limited. Nominal unit labour costs 
have been increasing substantially and more than in the euro area; core inflation is also above the 
euro area overall. Government debt is high and is forecast to remain broadly unchanged, reflecting 
a high deficit. Household and non-financial corporate debt-to-GDP ratios are high but are declining. 

Real GDP growth reached 3% in 2022 and is forecast at 1.4% in 2023 and 1.4% in 2024. Headline 
inflation stood at -1.7% year-on-year in October 2023. This is below the peak of 13.1% recorded in 
October 2022 and below the euro area average. Core inflation also decreased, from a peak of 6.8% 
in May 2023, to 5.6% in October 2023, which is above the euro area average. Nominal wages per 
person grew less than prices in 2022, but are expected to rise faster than prices in 2023. 

The  scoreboard  reading  for  Belgium  shows  that  three  indicators  were  beyond  their  indicative 
thresholds in 2022, namely unit labour costs, private sector debt, and government debt. Relevant 
developments worth highlighting:  

•  The net international investment position of Belgium remains fairly positive, and concerns 
about  the  external  position  remain  limited,  despite  a  deterioration  of  the  current  account 
balance in 2022. The current account is forecast to return to a small surplus in 2023. 

•  Cost competitiveness concerns have increased recently. Nominal unit labour costs increased 
markedly in 2022 and are expected to grow just as much in 2023, in both years more than in 
the euro area, driven by the automatic indexation of wages to past inflation. Indexation means 
that nominal wages are expected to further increase in the future, albeit more moderately. The 
HICP-based real effective exchange rate was stable in 2022 but appreciated  against the euro 
area.  However,  it  has  depreciated  in  2023  on  account  of  the  now  lower  headline  inflation  at 
home. Core inflation is above the euro area average. 

•  The non-financial corporate debt-to-GDP ratio remains among the highest in the EU, but is 
on  a  declining  path.  It  fell  to  101%  of  GDP  in  2022  and  continued  to  fall  in  the  first  two 
quarters of 2023. Debt is now 17 percentage points lower than in 2019. Although it remains 
high and Belgium is characterised by a particularly high and increasing interest rate burden, the 
substantial share of cross-border intra-group lending in corporate debt reduces risks. 

•  After a period of steady growth in 2000-2020, the household debt-to-GDP ratio is declining 
on  the  back  of  high  nominal  output  growth.  It  remains  high,  at  60%,  but  is  set  to  decrease 
further  in  2023.  While  it  has  increased,  the  cost  of  borrowing  remains  moderate  at  3.6%  in 
mid-2023. The low share of variable rate mortgages and strong nominal wage growth reduce 
risks associated with household debt in the short term. 

•  House price growth moderated to 5.6% in 2022 as growth slowed relative to 2021. In 2023, 
house prices showed the first signs of decline and are expected to moderate further. They have 
been growing in line with income in the last decade, but are estimated to be overvalued by just 
over  25%.  The  financial  sector  remains  sound.  The  Common  Equity  Tier  1  capital  ratio  is 

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106 

 
 
 
 
 
 
 
close to the EU average, profitability increased in 2022 and the NPL ratio remained low. Credit 
dynamics slowed down since mid-2022, alongside a tightening of financial conditions. 

•  Concerns related to Belgium’s high government debt remain. It decreased in 2022 to 104.3% 
of GDP as strong growth delivered a marked denominator effect. It is still nearly 7 percentage 
points above its 2019 level. The government deficit remains high, although it declined to 3.5% 
in 2022. It is forecast to increase in 2023 and in 2024. Fiscal sustainability risks are high both 
in the medium and long term (80). 

Graph 3.1: Selected graphs: Belgium 

Source: AMECO, Eurostat and European Commission 

(80) Estimated based on the Commission’s 2023 spring forecasts. 

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-30-20-10010203013Q414Q415Q416Q417Q418Q419Q420Q421Q422Q4y-o-y changea) Evolution of corporate debt to GDPCredit flowReal growthInflationOther changesD/GDP, change-5%0%5%10%08091011121314151617181920212223*24*25*b) Unit labour costnominal CoE per hourlabour (hours worked)TFP contributioninvestment contrib.nominal ULC growthRate of change, y-o-y 
 
 
 
 
 
 
           
 
 
 
 
 
 
 
 
 
 
Table 3.1:  Key economic and financial indicators, Belgium 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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  ThresholdsBenchmark IBenchmark II20202021202220232024External position Current account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.2 0.9 0.6 0.2 -0.4  Current account balance, balance of payments (% of GDP)0.6 (1)1.7 (2)1.4 1.3 -1.0 0.2 -0.2  Net international investment position (% of GDP)-35%-82.4 (3)7.8 (4)47.3 67.7 57.7 53.8 50.4 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)36.6 36.0 28.8 Competitiveness Nominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)7.0 4.9 10.1 p12.6 16.3  Nominal unit labour cost index (% y-o-y change)4.0 -0.4 6.3 p6.4 2.8  Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.4 0.5 1.7 -1.6 -3.2  Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.2 0.6 -0.1 -0.9 -1.1  Export market share - % of world exports (5 year % change)-6%8.9 3.8 -1.9 -1.7 -3.2  Export market share - % of world exports (1 year % change)3.7 2.0 -5.3 -1.3 -2.2 Private sector debt Private sector debt, consolidated (% of GDP)133%182.8 172.4 161.4 p152.6 148.5  Private sector credit flow, consolidated (% of GDP)14%-3.0 6.2 5.7 p1.8 1.9 Household debt, consolidated (% of GDP)47.3 (6)55.8 (7)65.3 62.1 60.0p57.6Non-financial corporate debt, consolidated (% of GDP)65.2 (6)46.3 (7)117.5110.3101.495.0Housing market House price index, deflated (1 year % change)6%3.3 4.5 -3.8 -1.8 0.3 House price index, nominal (1 year % change)28.9 (8)4.27.15.62.83.0Government debt General government gross debt (% of GDP)60%111.8 108.0 104.3 106.3 106.4 General government balance (% of GDP)-8.9-5.4-3.5-4.9-4.9Banking sector Total financial sector liabilities, non-consolidated (1 year % change)16.5%8.0 8.1 -2.7 1.8 Return on equity (%)5.99.99.9Common Equity Tier 1 ratio10.6 (9)17.117.617.3Gross non-performing loans, domestic and foreign entities (% of gross loans)2.1e1.6e1.5p1.5Labour market Unemployment rate (3 year average)10%5.8 5.9 5.9 5.8 5.6  Unemployment rate (year level)5.8 (10)5.8 6.3 5.6 5.6 5.6 SB_B1A_Activity_RT_pp3yActivity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.4 b1.1 1.4 2.3 1.3 SB_B1A_LT_Unempl_pp3yLong-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.0 0.0 0.2 SB_B1A_Youth_Unempl_pp3yYouth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-3.5 2.2 1.9 forecast 
 
 
 
 
 
 
 
 
 
BULGARIA 

In  Bulgaria,  developments  related  to  cost  competitiveness,  dynamic  household  borrowing  and 
strong house price growth are of relevance, although associated macroeconomic risks appear to be 
limited.  Nominal  unit  labour  costs  are  expected  to  continue  to  grow  strongly  and  moderate  only 
gradually. Core inflation has been well above the euro area average. Nominal house price growth 
moderated recently but remains high and house prices show signs of overvaluation. 

Real GDP growth reached 3.9% in 2022 and is forecast at 2% in 2023 and 1.8% in 2024. Headline 
inflation stood at 6.4% year-on-year in September 2023. This is below the peak of 15.6% recorded 
in September 2022, but above the EU and euro area averages. Core inflation also decreased, from 
a  peak  of  11.1%  in  January  2023,  to  7.6%  in  September  2023,  which  is  also  above  the  EU  and 
euro area averages. Nominal wages per person grew more than prices in 2022, and are expected to 
also do so in 2023. 

The scoreboard reading for Bulgaria shows that one indicator was beyond its indicative threshold in 
2022, namely unit labour costs. Relevant developments worth highlighting: 

•  Cost competitiveness concerns persist and are widening. In 2022, nominal unit labour costs 
increased sharply after several years of marked increases. In contrast, unit labour costs in the 
manufacturing  sector  declined  on  the  account  of  very  strong  output  expansion.  For  the 
economy as a whole, unit labour costs are expected to continue to grow strongly in 2023 and 
increase  visibly  further  in 2024,  albeit  at  a  somewhat  slower  pace.  Although wage  growth  is 
expected to gradually slow down relative to 2022, it has been the highest in the EU in recent 
years, reflecting both a tight labour market and a broader nominal convergence process. Core 
inflation has been high compared with the euro area trading partners and the rest of the EU. 
Despite  recent  reductions,  differentials  vis-à-vis  the  euro  area  and  the  EU  remain  very 
significant. The HICP and core inflation-based real effective exchange rates appreciated further 
in  2022,  with  nominal  appreciation  playing  only  a  small  role  given  the  currency  board 
arrangement  and  the  large  share  of  trade  with  the  euro  area.  The  appreciating  trend  has 
continued in 2023. External sustainability concerns are contained, with the current account 
deficit at 1.4% of GDP in 2022 and a slightly negative net international investment position.  

•  The non-financial corporate debt-to-GDP ratio remains high compared to regional peers but 
is on a declining path. It fell to 52% in 2022 and continued to fall in the first half of 2023. The 
share of domestic corporate loans denominated in foreign currency remains very high at 43%. 
It remained broadly unchanged in the first half of 2023, constituting a potential risk factor. This 
is nevertheless tempered by Bulgaria’s participation in ERM II and the operation of the currency 
board. Interest rates have been negative in real  terms given the high inflation. The corporate 
non-performing loans ratio decreased in 2022 but remains relatively high.  

•  The household debt-to-GDP ratio is contained and continues to decline, to 23% in 2022, on 
the  back  of  very  high  nominal  GDP  growth.  Non-performing  loans  to  households  declined 
further  in  2022  but  remained  relatively  high  at  4%  in  mid-2023.  Unlike  other  countries,  the 
cost  of  borrowing  did  not  increase,  remaining  broadly  stable  in  2022  and  in  the  first  half  of 
2023. This resulted in robust net borrowing by households. The predominance of variable rate 
mortgages  linked  to  deposit  interest  rates,  combined  with  strong  growth  in  the  deposit  base 
and  high  liquidity  in  the  banking  system,  largely  explain  the  still  low  mortgage  interest  rate. 
Nevertheless, a reversal in banks’ lending policy may materialise, which could be a risk for the 
household sector.  

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•  House prices continue to be a concern, despite some moderation. They have been growing less 
than incomes since 2013, but are estimated to be overvalued by some 8%. House price growth 
increased  to  13.8% in  2022,  although prices  still  fell  in  real  terms.  House  price  growth  rates 
have  moderated  since  the  second  half  of  2022,  coupled  with  declines  in  house  sales 
transaction volumes, but house price increases continue to be strong. Housing construction and 
building permits have been declining. 

• 

In the banking sector, the Common Equity Tier 1 capital ratio and return on equity have been 
above  the  EU  average,  with  profitability  improving  in  2022.  The  non-performing  loans  ratio 
declined  further  to  4.3% in  Q4-2022 despite  the  expiration  of  private  loans moratoria  at  the 
end of 2021, but remains above the EU average. Stage 2 loans and forborne loans are high.  

Graph 3.2: Selected graphs: Bulgaria 

Source: AMECO, Eurostat and European Commission 

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-10-50510152008091011121314151617181920212223*24*25*Rate of change, y-o-y (%)a) Decomposition of unit labour cost growthInflation (GDP deflator growth)Real Compensation per EmployeeProductivity ContributionNominal unit labour costULC in EU271001101201301401501601701801900510152016Q417Q418Q419Q420Q421Q422Q42015=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 axis 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
  
Table 3.2:  Key economic and financial indicators, Bulgaria 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%1.0 0.1 -1.0 -0.8 -0.3 Current account balance, balance of payments (% of GDP)-0.3 (1)-2.6 (2)0.0 -1.7 -1.4 0.7 -0.3 Net international investment position (% of GDP)-35%-41.3 (3)-19.0 (4)-25.6 -18.6 -12.9 -11.0 -6.1 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)47.7 47.4 44.4 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)19.9 16.4 23.6 25.7 30.5 Nominal unit labour cost index (% y-o-y change)9.0 3.6 9.5 10.8 7.6 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)6.9 3.7 5.8 11.4 9.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)2.7 0.9 2.1 2.6 -1.2 Export market share - % of world exports (5 year % change)-6%15.4 11.3 15.5 13.1 10.8 Export market share - % of world exports (1 year % change)-0.8 4.4 8.5 -1.9 0.5 Private sector debtPrivate sector debt, consolidated (% of GDP)133%92.1 84.0 74.6 70.2 70.9 Private sector credit flow, consolidated (% of GDP)14%4.2 4.9 5.9 5.5 4.7 Household debt, consolidated (% of GDP)95.4 (6)23.5 (7)24.3 23.8 22.5 22.4Non-financial corporate debt, consolidated (% of GDP)113.2 (6)47.9 (7)67.860.252.147.8Housing marketHouse price index, deflated (1 year % change)6%5.2 2.5 -2.1 b-5.3 -0.9 House price index, nominal (1 year % change)8.2 (8)4.68.713.8b4.93.0Government debtGeneral government gross debt (% of GDP)60%24.6 23.9 22.6 23.5 24.3 General government balance (% of GDP)-3.8-4.0-2.9-3.0-3.0Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%10.6 9.6 12.0 1.6 Return on equity (%)4.98.811.2Common Equity Tier 1 ratio10.6 (9)22.022.020.4Gross non-performing loans, domestic and foreign entities (% of gross loans)5.9e4.8e3.7p3.3Labour marketUnemployment rate (3 year average)10%5.8 5.5 5.2 4.6 4.2 Unemployment rate (year level)4.2 (10)6.1 5.3 4.3 4.2 4.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.9 0.6 0.5 1.7 2.3 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.2 -1.0 -0.6 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp1.3 -0.1 -1.4 forecast 
 
 
 
 
 
 
 
      
 
 
CZECHIA 

In  Czechia,  developments  related  to  cost  competitiveness  and  house  price  developments  are  of 
relevance,  although  associated  macroeconomic  risks  appear  to  be  limited.  Nominal  unit  labour 
costs have been increasing markedly, but are expected to moderate in the future. Core inflation is 
high compared to the euro area average, although it is declining fast. Nominal house price growth 
turned negative recently, but prices are still estimated to be overvalued. 

Real  GDP  growth  reached  2.4%  in  2022  and  is  forecast  at  -0.4%  in  2023  and  1.4%  in  2024. 
Headline inflation stood at 8.3% year-on-year in September 2023. This is below the peak of 19.1% 
recorded in January 2023, but above the EU and euro area averages. Core inflation also decreased, 
from a peak of 14% in October 2022 to 7.2% in September 2023, which is also above the EU and 
euro area averages. Nominal wages per person grew less than prices in 2022 and are expected to 
also do so in 2023. 

The  scoreboard  reading  for  Czechia  shows  that  three  indicators  were  beyond  their  indicative 
thresholds in 2022, namely the real effective exchange rate, export market share, and unit labour 
costs. Relevant developments worth highlighting:  

•  External sustainability concerns are receding. The current account balance fell from -2.8% in 
2021 to -6.1% in 2022, owing to a decrease in the balance of energy and non-energy goods. In 
the  second  quarter  of  2023,  the deficit  narrowed  to  4.3%  and  is  projected  to  narrow  further 
to -1.6% in 2023 (81). The net international investment position (NIIP) declined from -14.5% in 
2021 to -19.7% of GDP in 2022, but is expected to improve by around -2 percentage points in 
2023. The NIIP net of non-defaultable instruments remained positive and substantial at 28.4% 
of GDP in 2022. 

•  Cost competitiveness concerns persist and are widening. Nominal unit labour costs increased 
markedly  further  in  2022,  and  are  expected  to  continue  to  grow  more  strongly  in  2023. 
However,  the  pace  of  growth  should  moderate  in  2024  as  productivity  and  economic  output 
recover  and  nominal  wage  increases  slow  down.  Real  wages  are  falling  due  to  very  high 
inflation, which remains strongly above that of euro area trading partners and the rest of the 
EU in 2023. Nominal appreciation has been significant since mid-2020, although part of it has 
been  undone  since  April  2023.  The  central  bank  announced  that  it  would  end its intervention 
regime in August 2023, further fuelling the depreciation in 2023. The HICP and core inflation-
based real effective exchange rates appreciated further in 2022, and continue to appreciate in 
2023 amid higher inflation at home, although inflation is declining fast.   

•  The household debt-to-GDP ratio is low, and has been stable at around 30% since 2010. The 
small uptick in 2020 has now been reabsorbed. The ratio is set to decline in 2023 on the back 
of high inflation and a contraction in credit flows as the cost of borrowing more than doubled 
between mid-2021 and mid-2023. Gross savings rates are below their 2021 peak but above 
the  pre-pandemic  level,  and  are  likely  to  contract  somewhat  in  the  future.  Non-performing 
loans to households declined in 2022 from an already low level. The non-financial corporate 
debt-to-GDP ratio decreased to 44% in 2022, and continued falling in the first half of 2023. 

•  House prices are a source of concern as the market adjusts from the very high growth rates 
of  recent  years.  House  prices  have  been  growing  faster  than incomes in  the  last  decade  and 

(81) Quarterly data refer to the four-quarter-moving sum of current account balances. 

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were estimated to be overvalued by 30-40% (Q4-2022), having posted particularly high growth 
rates since 2017. In 2022, house price growth was very high at around 17%, moderating in the 
second half of the year. By Q4-2022, house prices were falling in nominal terms, and this has 
continued  in  2023,  although  the  rate  of  decrease  is  moderating.  By  2024  house  prices  are 
expected to stabilise as the housing market adjusts to the new interest rate environment and 
long-standing supply constraints continue. 

•  The banking sector is well capitalised and its profitability increased in 2022, well above the 
EU average. The non-performing loans ratio remains low. A significant increase in lending rates 
in 2022 has significantly driven down credit, which seems to have contributed to a correction in 
house prices.  

•  Fiscal developments remain a cause of concern, although the government debt-to-GDP ratio 
is still relatively low. It reached 44.2% in 2022 after having increased every year since 2020 
due  to  a  significant  increase  in  fiscal  deficits  since  the  pandemic,  despite  high  nominal  GDP 
growth. The debt ratio is forecast to further increase this and next year. The government deficit 
narrowed to 3.2% in 2022 and is forecast to increase to 3.8% in 2023 and to start improving 
from  2024  onwards.  The  medium-  and  long-term  fiscal  sustainability  risks  are  assessed  as 
medium (82). 

Graph 3.3: Selected graphs: Czechia 

Source: AMECO, Eurostat and European Commission 

(82) Estimated based on the Commission’s 2023 spring forecasts. 

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-20-15-10-5051015201011121314151617181920212223f% change, y-o-yb) GDP, Unit labour costs and house pricesULC growthReal GDP growthDeflated house price indexCZEA1902468101214161920212223%, y-o-ya) Core inflation, year-on-year 
 
 
 
 
 
 
           
 
 
 
 
 
 
Table 3.3:  Key economic and financial indicators, Czechia 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.9 -0.1 -2.3 -3.5 -2.8 Current account balance, balance of payments (% of GDP)0.9 (1)-2.2 (2)2.0 -2.8 -6.1 -1.6 -0.6 Net international investment position (% of GDP)-35%-62.1 (3)4.2 (4)-16.3 -14.5 -19.7 -17.6 -15.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)37.3 36.9 28.4 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)18.7 13.9 14.8 16.9 21.3 Nominal unit labour cost index (% y-o-y change)7.3 1.8 5.1 9.3 5.6 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)5.6 5.0 13.7 16.7 10.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.8 3.9 8.7 6.0 -2.0 Export market share - % of world exports (5 year % change)-6%7.8 -1.7 -7.7 -7.2 -7.4 Export market share - % of world exports (1 year % change)2.4 -4.8 -5.0 1.4 -1.4 Private sector debtPrivate sector debt, consolidated (% of GDP)133%81.7 78.8 76.1 71.4 71.4 Private sector credit flow, consolidated (% of GDP)14%0.6 2.9 4.5 3.7 3.4 Household debt, consolidated (% of GDP)52.9 (6)46.0 (7)33.9 34.4 32.6 31.0Non-financial corporate debt, consolidated (% of GDP)73.4 (6)61.6 (7)47.844.443.540.4Housing marketHouse price index, deflated (1 year % change)6%5.4 16.4 1.6 -14.7 -2.9 House price index, nominal (1 year % change)35.5 (8)8.519.716.9-6.21.0Government debtGeneral government gross debt (% of GDP)60%37.7 42.0 44.2 44.7 45.5 General government balance (% of GDP)-5.8-5.1-3.2-3.8-2.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%4.8 7.8 3.2 0.3 Return on equity (%)6.710.614.4Common Equity Tier 1 ratio10.6 (9)20.319.818.7Gross non-performing loans, domestic and foreign entities (% of gross loans)1.9e1.7e1.4p1.2Labour marketUnemployment rate (3 year average)10%2.3 2.5 2.5 2.5 2.4 Unemployment rate (year level)2.1 (10)2.6 2.8 2.2 2.4 2.5 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.5 0.0 0.5 1.1 1.1 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.4 0.1 0.0 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp0.1 1.5 1.2 forecast 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DENMARK 

In  Denmark,  the  current  account  surplus  has  increased  from  its  previous  high  level  and  non-
financial corporations and household debt are very high, although associated macroeconomic risks 
appear to be limited. The current account surplus is the highest in  the EU and has increased over 
the last decade. Although moderating, the surplus is forecast to remain very high. The high share of 
variable interest rate loans to households are a risk factor amid high debt and falling house prices.  

Real  GDP  growth  reached  2.7%  in  2022  and  is  forecast  at  1.2%  in  2023  and  1.4%  in  2024. 
Headline inflation stood at 0.6% year-on-year in September 2023. This is below the peak of 11.4% 
recorded in October 2022 and below the EU and euro area averages. Core inflation also decreased, 
from a peak of 6.1% in February 2023 to 3.6% in September 2023, which is also below the EU and 
euro area averages. Nominal wages per person grew less than prices in 2022, but are expected to 
rise broadly in line with prices in 2023. 

The  scoreboard  reading  for  Denmark  shows  that  two  indicators  were  beyond  their  indicative 
thresholds  in  2022,  namely  the  current  account  balance  and  private  sector  debt.  Relevant 
developments worth highlighting:  

•  External  sector  concerns  related  to  the  persistently  high  current  account  surplus  increased. 
Denmark’s current account balance has shown a positive trend in recent years, reaching 13.4% 
of  GDP  in  2022,  up  from  an  average  of  8.6%  over  2019-2021.  This  far  exceeds  the  levels 
explained  by  economic  fundamentals.  The  balance  of  trade  in  services  saw  a  significant 
increase,  more  than  compensating  for  the  decrease  in  the  balance  of  trade  in  goods.  This 
increase was largely attributed to the exceptional performance of the shipping sector in 2022, 
benefiting from high transport prices. However, the surplus remains high even after  excluding 
the impact of this sector. The current account balance is forecast to decrease slightly in 2023 
and  2024  and  to  contribute  to  further  rises  in  Denmark’s  strongly  positive  net  international 
investment position (NIIP).  

•  Cost competitiveness concerns remain limited. Nominal unit labour costs increased visibly in 
2022. In 2023, unit labour costs are expected to grow less than in euro area trading partners 
and the rest of the EU. Inflation is below the EU and euro area averages. 

•  The non-financial corporate debt-to-GDP ratio is among the highest in the EU. It decreased 
to 103% in 2022, but remained broadly unchanged in the first two quarters of 2023. The ratio 
remains  very  high  but  is  below  its  2019  level.  Credit  flows  to  non-financial  corporates 
increased to 11.8% of GDP in 2022, but decelerated substantially in the first half of 2023. The 
interest rate burden is high and increased recently. 

•  Despite  a  strong  decline  recently,  the  household  debt-to-GDP  ratio  remains  among  the 
highest in the EU. It fell to 85% of GDP in 2022. Households’ gross savings are robust, at 13% 
in  2022.  Non-performing  loans  to  households  declined  in  2022  from  an  already  low  level. 
However,  the  high  share  of  variable  rate  loans (50%  for  new loans)  constitutes  a  risk  factor, 
and is associated with high house prices. 

•  House prices started to fall in 2022, following a decade of growing faster than incomes. The 
reduction  in  house  prices  accelerated  throughout  the  year  and  resulted  in  a  year-on-year 
reduction of just under 1%, which masks strong quarterly decreases at the end of the year. At 
the beginning of 2023 the correction in house prices seems to have moderated somewhat. The 

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estimated overvaluation of 2021 has almost completely corrected, although further decreases 
in house prices cannot be excluded.  

•  The banking sector is well capitalised and the non-performing loans ratio is low. Profitability 
significantly decreased in 2022 to well below the EU average. This decrease is driven by one-
off  legal  settlement  expenses  of  one  large  bank.  The  ongoing  house  price  correction  coupled 
with high household indebtedness represents a risk for the financial sector.  Government debt 
remains low and fell further in 2022. 

Graph 3.4: Selected graphs: Denmark 

Source: AMECO, Eurostat and European Commission 

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050100150200250300091011121314151617181920212223f% of GDPb) Debt by sector, consolidatedGovernmentHouseholdNon financial corporationsPrivate sector-20-1001020304002040608010012014016005Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q422Q4Rate 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 axis 
 
 
 
 
 
 
           
 
 
 
 
 
 
 
 
 
 
 
 
Table 3.4:  Key economic and financial indicators, Denmark 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn forecast 
2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%7.9 8.6 10.2 10.9 11.2 Current account balance, balance of payments (% of GDP)0.8 (1)1.6 (2)8.1 9.1 13.4 10.3 10.0 Net international investment position (% of GDP)-35%-92.8 (3)18.1 (4)69.0 72.9 58.2 70.5 79.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)32.4 30.9 34.9 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)7.3 4.8 7.2 6.2 11.7 Nominal unit labour cost index (% y-o-y change)4.2 -1.2 4.2 3.2 3.9 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.9 -1.1 -1.2 -6.6 -6.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.6 -0.9 -1.9 -5.3 -1.0 Export market share - % of world exports (5 year % change)-6%10.5 5.7 12.4 18.8 14.6 Export market share - % of world exports (1 year % change)6.7 -2.9 5.6 6.3 -1.4 Private sector debtPrivate sector debt, consolidated (% of GDP)133%217.1 206.9 188.0 191.0 185.6 Private sector credit flow, consolidated (% of GDP)14%5.4 11.5 13.1 1.9 1.6 Household debt, consolidated (% of GDP)57.6 (6)77.3 (7)112.0 102.1 84.8 85.6Non-financial corporate debt, consolidated (% of GDP)83.3 (6)74.0 (7)105.1104.8103.2105.4Housing marketHouse price index, deflated (1 year % change)6%4.7 9.5 -7.4 -9.8 -2.2 House price index, nominal (1 year % change)11.2 (8)5.111.7-0.5-6.60.0Government debtGeneral government gross debt (% of GDP)60%42.3 36.0 29.8 30.3 28.4 General government balance (% of GDP)0.44.13.32.61.8Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%5.6 11.6 -1.6 0.0 Return on equity (%)4.58.23.8Common Equity Tier 1 ratio10.6 (9)19.118.718.7Gross non-performing loans, domestic and foreign entities (% of gross loans)1.9e1.8e1.5p1.4Labour marketUnemployment rate (3 year average)10%5.2 5.2 5.1 4.7 4.8 Unemployment rate (year level)4.5 (10)5.6 5.1 4.5 4.6 5.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.1 b1.4 1.3 1.6 0.8 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.3 0.0 -0.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-0.8 0.3 0.5 forecast 
 
 
 
 
 
 
 
      
 
 
 
 
 
 
 
 
 
GERMANY 

Germany’s large current account surplus moderated substantially in 2022, primarily as a result of 
much  higher  energy  prices,  but  is  widening  again  as  energy  prices  recede  and  domestic  demand 
remains  weak.  Price  and  cost  competitiveness  developments  in  2022  contributed  to  a  more 
symmetric euro area adjustment. Nominal house price growth turned negative in recent quarters, 
but prices are still estimated to be overvalued. 

Real  GDP  growth  reached  1.8%  in  2022  and  is  forecast  at  -0.3%  in  2023  and  0.8%  in  2024. 
Headline  inflation  stood  at  3%  year-on-year  in  October  2023.  This  is  below  the  peak  of  11.6% 
recorded in October 2022 and slightly above the euro area average. Core inflation also decreased, 
from  a  peak  of  6.3%  in  August  2023,  to  4.2%  in  October  2023,  which  is  below  the  euro  area 
average. Nominal wages per person grew less than prices in 2022 and are expected to also do so in 
2023. 

The  scoreboard  reading  for  Germany  shows  that  three  indicators  exceeded  their  indicative 
thresholds  in  2022,  namely  the  current  account  balance,  export  market  shares  and  government 
debt. Relevant developments worth highlighting:  

•  External  sector  concerns  persist.  The  current  account  surplus  moderated  in  2022  and  is 
expected  to  rebound  over  the  forecast  period.  The  current  account  balance  declined 
significantly from 7.7% of GDP in 2021 to 4.2% of GDP in 2022. This decrease reflected the 
impact of a worsening in terms of trade, as well as resilient domestic demand. However, in the 
first half of 2023, the current account surplus increased to  almost 6% of GDP due to higher 
energy  and  non-energy  goods  balances.  The  current  account  surplus  is  forecast  to  widen  to 
5.9% in 2023, as domestic demand is declining in real terms. The net international investment 
position, one of the highest in the EU, is set to continue increasing over the forecast period.  

•  Cost  competitiveness  developments  in  2022  contributed  to  a  more  symmetric  euro  area 
adjustment. Nominal unit labour costs increased broadly in line with the euro area in 2022 and 
are expected to grow somewhat faster than the euro area in 2023, largely on account of lower 
productivity per worker in the face of declining economic activity, with wages increasing at the 
same  pace  as  in  the  euro  area.  The  HICP-based  real  effective  exchange  rate  depreciated  in 
2022  and  has  been  appreciating  in  2023,  in  both  cases  largely  due  to  changes  in  the  euro 
nominal exchange rate. For 2023, headline and core inflation have been above but very close to 
the euro area average. The core inflation-based real effective exchange rate has appreciated 
somewhat  amid  the  nominal  appreciation  of  the  euro  until  mid-2023.  Export  market  shares 
have declined in 2022 and 2023 to a larger extent than in other large euro area countries. 

•  The  non-financial  corporate  debt-to-GDP  ratio  decreased  slightly  to  63%  in  2022,  and 
continued to fall slightly in the first half of 2023, but remains above its 2019 level. The energy 
crisis  disproportionately  affected  specific  parts  of  manufacturing  branches  that  may  face 
structural  changes.  The  cost  of  borrowing  of  non-financial  corporates  increased more  than  in 
most other euro area countries.  

•  The household debt-to-GDP ratio came down to 55% in 2022 and is set to reach its lowest 
level in the last two decades in 2023. The high savings rate and low prevalence of variable rate 
loans  reduces  risks  associated  with  household  debt  in  the  short  term,  which  is  concentrated 
among a small group of mortgage holders.  

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•  House prices started to correct in 2022. While they had grown rapidly until early 2022, they 
have been falling since the middle of 2022 and declined by 9.9% year-on-year in the second 
quarter  of  2023.  House  prices  have  been  growing  substantially  above  income  over  the  last 
decade  and  accelerated  over  the  pandemic.  As  a  result,  they  are  estimated  to  still  be 
overvalued by about 10%. The correction in house prices may continue in the short term as the 
market adjusts to higher interest rates and economic prospects appear muted. 

•  The  banking  system  remains  sound,  with  a  very  low  level  of  non-performing  loans,  and 
capital ratios that are in line with the EU average. While its profitability had been suppressed 
for long, it improved in 2022, while remaining below the EU average. The ongoing correction of 
residential  and  commercial  real  estate  prices  amidst  an  increase  in  lending  rates  and  bleak 
growth  prospects  in  2023  represents  a  challenge  for  the  financial  sector,  which  has 
considerable exposure to real estate.  

•  Concerns  related  to  government  debt  remain  contained.  The  government  debt-to-GDP  ratio 
exceeds the 60% of GDP threshold, amounting to 66.1% in 2022. It is forecast to decrease in 
the future, with fiscal sustainability risks in the medium and long term considered medium (83). 
The fiscal deficit narrowed to 2.5% of GDP in 2022 and is forecast to continue decreasing in 
2023 and 2024. 

Graph 3.5: Selected graphs: Germany 

Source: AMECO, Eurostat and European Commission 

(83) Estimated based on the Commission’s 2023 spring forecasts. 

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DEEA19-1012345671920212223Growth, year-on-year (%)a) Inflation, year-on-year-5-137111920212223% of GDPb) Current account, 12-month moving averageIncome balanceServices balanceOther goods balanceEnergy price impactEnergy balance (2019 prices)Current account balance 
 
 
 
 
 
 
           
 
 
 
 
 
 
Table 3.5:  Key economic and financial indicators, Germany 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%7.7 7.6 6.3 5.9 5.5 Current account balance, balance of payments (% of GDP)1.4 (1)3.0 (2)7.1 7.7 4.2 5.9 6.3 Net international investment position (% of GDP)-35%-82.9 (3)22.9 (4)63.7 68.0 70.2 73.7 77.1 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)54.8 54.1 49.8 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)10.5 p7.0 p7.2 p10.2 15.3 Nominal unit labour cost index (% y-o-y change)3.5 p0.1 p3.4 p6.5 4.7 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.4 0.5 -0.5 -0.4 -2.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.4 0.8 -2.5 1.8 -0.9 Export market share - % of world exports (5 year % change)-6%1.6 -6.0 -13.0 -13.3 -13.9 Export market share - % of world exports (1 year % change)2.0 -4.4 -8.7 -1.7 -1.7 Private sector debtPrivate sector debt, consolidated (% of GDP)133%120.9 p120.4 p118.4 p112.2 109.2 Private sector credit flow, consolidated (% of GDP)14%6.8 p6.8 p6.7 p3.1 1.1 Household debt, consolidated (% of GDP)47.3 (6)52.9 (7)57.0p56.5p55.0p52.2Non-financial corporate debt, consolidated (% of GDP)71.0 (6)74.7 (7)63.963.460.0Housing marketHouse price index, deflated (1 year % change)6%7.2 8.3 -1.3 -5.9 -0.6 House price index, nominal (1 year % change)17.4 (8)7.811.55.3 p-0.12.0Government debtGeneral government gross debt (% of GDP)60%68.8 69.0 66.1 64.8 63.6 General government balance (% of GDP)-4.3-3.6-2.5-2.2-1.6Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%11.4 7.2 1.5 1.1 Return on equity (%)2.24.04.3Common Equity Tier 1 ratio10.6 (9)16.015.715.9Gross non-performing loans, domestic and foreign entities (% of gross loans)1.2e1.1e1.1p1.1Labour marketUnemployment rate (3 year average)10%3.3 b3.5 b3.5 b3.3 3.1 Unemployment rate (year level)3.1 (10)3.7 b3.7 3.1 3.1 3.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.3 b1.0 1.4 2.2 1.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.4 b-0.2 -0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp0.8 b0.4 -0.2 forecast 
 
 
 
 
 
 
 
      
 
ESTONIA 

In  Estonia,  cost  competitiveness  pressures  persist,  although  associated  macroeconomic  risks 
appear to be  limited. Nominal  unit labour  costs have been growing sharply. Core inflation is high 
compared with the euro area overall, although it is declining fast. External sustainability concerns 
remain limited, and the current account is expected to return to a small surplus this year. Nominal 
house price growth moderated recently. 

Real GDP growth was -0.5% in 2022 and is forecast at -2.6% in 2023 and 1.9% in 2024. Headline 
inflation stood at 5% year-on-year in October 2023. This is below the peak of 25.2% recorded in 
August 2022 but above the euro area average. Core inflation also decreased, from a peak of 13% 
in October 2022 to 6.6% in September 2023, which is also above the euro area average. Nominal 
wages  per  person  grew  less  than  prices  in  2022,  but  are  expected  to  rise  faster  than  prices  in 
2023. 

The  scoreboard  reading  for  Estonia  shows  that  three  indicators  were  beyond  their  indicative 
thresholds  in  2022,  namely  the  real  effective  exchange  rate,  unit  labour  costs,  and  the  youth 
unemployment rate. Relevant developments worth highlighting:  

•  Cost  competitiveness  concerns  persist  and  are  widening.  After  several  years  of  significant 
increases,  nominal  unit  labour  costs  accelerated  further  and  grew  sharply  in  2022,  driven  by 
significant  nominal  wage  increases  amid  labour  shortages.  In  2023,  unit  labour  costs  are 
expected  to  continue  growing  at  the  highest  rate  in  the  euro  area.  The  HICP-based  real 
effective exchange rate appreciated markedly in 2022, including when measured on the basis 
of  core  inflation.  It  is  high  compared  with  Estonia’s  euro  area  peers,  but  is  declining  fast. 
Appreciation has continued in 2023.  

•  External  sustainability  concerns  remain  limited.  The  current  account  balance,  which  had 
been in surplus before the pandemic, declined to -3.2% in 2022, primarily due to a decline in 
both the energy and non-energy goods balances. It is expected to return to a small surplus this 
year due to a lower energy balance and still buoyant export of services. 

•  The  non-financial  corporate  debt-to-GDP  ratio  remains  high  compared  to  regional  peers. 
The  ratio  decreased  slightly  to  58%  in  2022,  below  its  2019  level.  It  remained  broadly 
unchanged in the first two quarters of 2023. Credit flows accelerated to 5.7% of GDP in 2022. 

•  The household debt-to-GDP ratio  was 37% in 2022 and is set to decrease further in 2023, 
helped by high nominal GDP growth due to inflation. Credit flows have slowed down as the cost 
of borrowing doubled between mid-2022 and mid-2023. Risk factors for the household sector 
include the high prevalence of variable rate loans and the low savings rate.  

•  Despite  a  sharp  acceleration  in  house  price  growth  at  the  start  of  2022,  house  prices 
stabilised towards the end of the year as economic growth faltered. Overall, prices nevertheless 
increased by 22% in the year as a whole. Despite strong growth, they are estimated to be in 
line  with  fundamentals,  as  growth  prior  to  that  was  not  substantially  higher  than  incomes, 
limiting the possibility of a correction. 

•  The banking sector remains resilient with one of the lowest non-performing loans ratios and 
one of the highest capital ratios in the EU, despite the latter’s decrease in 2022. Stage 2 loans 
increased slightly in 2022 and remain rather high. Profitability increased in 2022 and is above 
the EU average.  

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Graph 3.6: Selected graphs: Estonia 

Source: AMECO, Eurostat and European Commission 

Table 3.6:  Key economic and financial indicators, Estonia 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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0204060801001201401601802000246810121414Q415Q416Q417Q418Q419Q420Q421Q422Q42015=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 axis951001051101151201251920212223Data up to 2023-09a) Real effective exchange ratevs. 42 partners, based on headline inflationvs. EA19, based on headline inflationvs. EA19, based on core inflationvs. 42 partners, based on core inflationThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.5 -0.7 -2.6 -1.7 -0.5 Current account balance, balance of payments (% of GDP)-0.8 (1)-1.7 (2)-1.9 -2.6 -3.2 0.7 1.1 Net international investment position (% of GDP)-35%-58.8 (3)-14.7 (4)-21.0 -13.4 -20.2 -15.8 -11.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)42.0 41.8 28.7 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)14.6 10.0 19.0 31.9 33.3 Nominal unit labour cost index (% y-o-y change)2.6 2.1 13.6 13.7 3.2 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)4.9 1.9 8.8 13.9 12.8 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.6 1.5 6.5 5.1 0.5 Export market share - % of world exports (5 year % change)-6%15.8 18.6 17.0 9.7 6.1 Export market share - % of world exports (1 year % change)4.5 9.1 -1.5 -4.6 -0.9 Private sector debtPrivate sector debt, consolidated (% of GDP)133%101.5 96.9 94.3 92.1 88.9 Private sector credit flow, consolidated (% of GDP)14%2.9 6.8 9.2 2.8 2.1 Household debt, consolidated (% of GDP)186.4 (6)38.5 (7)40.6 38.4 36.8 36.1Non-financial corporate debt, consolidated (% of GDP)185.8 (6)61.0 (7)60.958.557.556.0Housing marketHouse price index, deflated (1 year % change)6%7.0 10.4 4.5 -10.6 0.4 House price index, nominal (1 year % change)1.6 (8)6.015.122.2-0.74.0Government debtGeneral government gross debt (% of GDP)60%18.6 17.8 18.5 19.2 20.5 General government balance (% of GDP)-5.4-2.5-1.0-2.9-2.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%18.0 18.5 1.6 2.2 Return on equity (%)7.49.510.9Common Equity Tier 1 ratio10.6 (9)27.023.320.9Gross non-performing loans, domestic and foreign entities (% of gross loans)1.6e1.1e0.8p0.9Labour marketUnemployment rate (3 year average)10%5.6 5.9 6.2 6.3 6.5 Unemployment rate (year level)6.2 (10)6.9 6.2 5.6 7.0 6.9 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.4 -0.2 2.0 3.1 2.5 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.8 0.3 0.4 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp6.2 4.7 7.0 forecast 
 
 
 
 
 
           
 
    
 
IRELAND 

In Ireland, external, household and non-financial corporate and government debt-to-GDP ratios are 
high but continue to decline, and associated macroeconomic risks appear to be limited. Debt ratios 
in  Ireland  are  affected  by  the  statistical  impact  of  the  extensive  operations  of  multinational 
corporations. Nominal house price growth moderated recently, but housing affordability remains a 
concern, with household debt being high as a share of household income. 

Real  GDP  growth  reached  9.4%  in  2022  and  is  forecast  at  -0.9%  in  2023  and  3.0%  in  2024. 
Headline  inflation  stood  at  3.6%  year-on-year  in  October  2023.  This  is  below  the  peak  of  9.6% 
recorded  in  June  2022  but  abovlse the  euro  area  average.  Core inflation  also  decreased,  from  a 
peak  of  5.8%  in  August  2022  to  4%  in  September  2023  which  is  below  the  euro  area  average. 
Nominal wages per person grew less than prices in 2022 and are expected to rise broadly in line 
with prices in 2023. 

The  scoreboard  reading  for  Ireland  shows  that  three  indicators  were  beyond  their  indicative 
thresholds in 2022, namely the current account balance, net international investment position and 
private sector debt. Relevant developments worth highlighting:  

•  External sustainability concerns continued to subside. The external sector is inflated by the 
activities  of  multinational  corporations.  The  current  account  surplus  declined  from  13.7%  in 
2021  to  10.8%  in  2022  mainly  due  to  a  deterioration  in  the  service  and  primary  income 
balances. The net international investment position (NIIP), which had nearly reached -200% of 
GDP before the pandemic, increased to -116.8% of GDP in 2022. A continued improvement in 
this  position  is  expected  over  the  forecast  period  owing  to  current  account  surpluses.  Cost 
competitiveness concerns are limited, supported by inflation below the euro area average.  

•  The non-financial corporate debt-to-GDP ratio is one of the highest in the EU, although it is 
on  a  declining  path.  It  reached  122%,  which  corresponds  to  a  more  substantial  226%  of 
modified  gross  national  income  (GNI*)  in  2022.  The  share  of  domestic  corporate  loans 
denominated in foreign currency is one of the highest among euro area countries, partly due to 
cross-border  intra-group  lending.  The  corporate  non-performing  loans  ratio  is  moderate,  but 
increased slightly in 2022. Non-financial corporate vulnerabilities are mitigated by a high and 
increasing  profit  share  and  savings,  together  with  the  high  share  of  cross-border  intra-group 
lending in corporate debt.  

•  The  household  debt-to-GDP  ratio  is  low,  at  26%  of  GDP  in  2022  and  has  declined  sharply 
over  time.  However,  Irish  GDP  is  overstated  by  the  activities  of  multinationals  and,  when 
expressed  as  a  share  of  household  gross  disposable  income,  household  debt  remains  high 
around 95%, despite significant reductions. The cost of borrowing increased recently, albeit less 
than in other EU countries and credit flows turned weakly positive between mid-2022 and mid-
2023 after several years. While the share of variable rate loans is very low among new loans 
issued, it was high for loans issued earlier (especially before the great financial crisis), exposing 
a  pool  of  households  to  interest  rate  shocks.  Banks’  non-performing  loans  to  households 
declined in 2022 by 2 percentage points to 3%. 

•  House price growth remains a concern, despite some moderation this year. Over 2022 as a 
whole,  house  price  growth  accelerated,  reaching  over  12%.  However,  a moderation  in  growth 
rates was evident from the middle of the year and a small reduction took place in the first half 

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of 2023. Despite strong increases in 2021 and 2022, largely exceeding incomes, house prices 
do  not  show  signs  of  overvaluation (84).  Nevertheless, further  increases  would  be  a  source  of 
concern, and strong income growth may support the borrowing capacity of households despite 
higher interest rate. 

•  The  banking  sector  is  well  capitalised,  and  the  profitability  of  banks  (both  domestic  retail 
banks and international investment ones) increased markedly over 2022 and in the first half of 
2023,  in  line  with  the  EU  average.  The  non-performing  loans  ratio  remains  very  low,  but  the 
Stage 2 ratio is rather high and further increased in 2022 and in the first half of 2023. Credit 
provision remained muted over the same period. 

•  Concerns  related  to  the  government  debt-to-GDP  ratio  remain  contained  and  continue  to 
recede. Debt decreased to 44.4% in 2022 and is forecast to continue falling in 2023 and 2024. 
In  contrast,  government  debt  relative  to  gross  national  income  remains  large,  at  about  90%. 
The government balance turned into a surplus in 2022 and the surplus is forecast to continue 
in the future. The long-term fiscal sustainability risks are medium (85). 

Graph 3.7: Selected graphs: Ireland 

Source: AMECO, Eurostat and European Commission 

(84)  For  Ireland  the  under/overvaluation  estimative  is  affected  by  the  house  price  of  the  first  decade  of  this  century  which 
contained a large house price boom (followed by a strong correction) and possibly underestimates the current overvaluation 
gap. 

(85) Estimated based on the Commission’s 2023 spring forecasts. 

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-30-20-1001020304004Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q422Q4Rate 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)050100150200250300350400091011121314151617181920212223f% of GDPb) Debt decomposition by sector, consolidatedGovernmentHouseholdNon financial corporationsPrivate sector 
 
 
 
 
 
 
           
 
 
 
 
 
 
Table 3.7:  Key economic and financial indicators, Ireland 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-7.1 -4.2 6.0 11.5 10.4 Current account balance, balance of payments (% of GDP)4.7 (1)0.0 (2)-6.5 13.7 10.8 9.9 10.6 Net international investment position (% of GDP)-35%-168.4 (3)18.1 (4)-165.0 -130.9 -116.8 -106.5 -95.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-293.8 -323.4 -234.0 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)-6.5 -9.4 -10.6 3.7 13.9 Nominal unit labour cost index (% y-o-y change)-5.5 -5.5 0.1 9.6 3.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)-1.3 -2.6 -4.6 -2.2 -3.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.3 -0.1 -4.7 1.7 -1.2 Export market share - % of world exports (5 year % change)-6%51.7 40.4 32.1 21.1 10.4 Export market share - % of world exports (1 year % change)23.5 -3.7 -4.7 -2.6 0.0 Private sector debtPrivate sector debt, consolidated (% of GDP)133%190.3 168.1 147.1 134.9 131.5 Private sector credit flow, consolidated (% of GDP)14%-3.8 1.9 2.0 4.3 3.9 Household debt, consolidated (% of GDP)48.0 (6)77.9 (7)34.8 29.7 25.5 25.0Non-financial corporate debt, consolidated (% of GDP)78.3 (6)94.5 (7)155.5138.4121.6109.9Housing marketHouse price index, deflated (1 year % change)6%-0.4 4.2 5.0 -1.0 -0.3 House price index, nominal (1 year % change)-5.9 (8)0.38.312.35.02.9Government debtGeneral government gross debt (% of GDP)60%58.1 54.4 44.4 43.0 41.4 General government balance (% of GDP)-5.0-1.51.70.90.6Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%7.6 18.9 -4.0 0.4 Return on equity (%)-2.24.53.3Common Equity Tier 1 ratio10.6 (9)22.322.221.3Gross non-performing loans, domestic and foreign entities (% of gross loans)3.4e2.4e1.7p1.6Labour marketUnemployment rate (3 year average)10%5.6 5.7 5.5 5.0 4.3 Unemployment rate (year level)4.6 (10)5.9 6.2 4.5 4.2 4.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp-1.8 1.8 3.5 6.9 3.3 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.6 -0.3 -0.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp1.4 0.7 -2.4 forecast 
 
 
 
 
 
 
 
     
 
GREECE 

In  Greece,  concerns  related  to  the  external  position  and  government  debt  remain,  although 
government debt is on a strongly declining path. The current account has been deeply negative and 
is  expected  to  remain  in  a  substantial  deficit  in  the  near  future,  despite  improvements.  Nominal 
house prices have increased  strongly last year and this year. Concerns remain about the banking 
sector, which is burdened by non-performing loans that are still high as a ratio to total loans and 
have not declined much recently.  

Real  GDP  growth  reached  5.6%  in  2022  and  is  forecast  at  2.4%  in  2023  and  2.3%  in  2024. 
Headline inflation stood at  3.9% year-on-year in October 2023. This is below the peak of 12.1% 
recorded in September 2022, but above the euro area average. Core inflation also decreased, from 
a  peak  of  7.3%  in  May  2023  to  3.6%  in  October  2023,  which  is  below  the  euro  area  average. 
Nominal  wages  per  person  grew  less  than  prices  in  2022,  but  are  expected  to  rise  faster  than 
prices in 2023. 

The  scoreboard  reading  for  Greece  shows  that  four  indicators  were  beyond  their  indicative 
thresholds  in  2022,  namely  the  current  account  balance,  net  international  investment  position, 
government debt  and unemployment rate. Relevant developments worth highlighting:  

•  The  external  sustainability  outlook  significantly  deteriorated  and  remains  a  cause  for 
concern. The current account, which stood between -1 to -2% in the most recent years before 
the pandemic, fell from -6.8% of GDP in 2021 to -10.3% in 2022. Strong investment activity, 
partially financed via the Recovery and Resilience Facility, will keep it elevated in the following 
years.  The  current  account  is  set  to  remain  deeply  negative,  at  -6.7%  in  2023  and  -5.8%  in 
2024,  far  below  the  estimated  norms  and  prudential  benchmarks.  The  net  international 
investment position (NIIP) improved from -173% in 2021 to -144.2% of GDP in 2022 owing to 
strong  nominal  growth  and  valuation  effects,  and  is  expected  to  improve  somewhat  in  2023 
and 2024.  

•  Cost  competitiveness concerns  are  limited.  Nominal  unit  labour  costs  were  stable  in  2022, 
with nominal wage growth being contained. Unit labour costs are expected to grow somewhat 
in 2023 and 2024 but by less than in the rest of the euro area. The HICP-based real effective 
exchange rate depreciated in 2022 and is continuing to do so in 2023. When measured on the 
basis of core inflation, the real effective exchange rate depreciated in 2022 and is appreciating 
somewhat in 2023.  

•  The  non-financial  corporate  debt-to-GDP  ratio  decreased  to  56%  of  GDP  in  2022,  and 
declined  slightly  in  the  first  half  of  2023.  It  is  slightly  above  its  2019  level.  Corporate 
indebtedness is flanked by high corporate liquidity buffers, which mitigate risks.  

•  The  household  debt-to-GDP  ratio  declined  to  45%  in  2022.  Net  credit  flows  have  been 
negative for several years and the cost of borrowing has remained relatively high compared to 
the  euro  area  average,  hovering  around  3%  for  the  last  decade.  Non-performing  loans  to 
households declined by 1 percentage point in 2022, but remain high at 11%. 

•  House prices started to rise just before the pandemic on the  back of both reviving domestic 
and foreign demand, and limited supply due to years of subdued construction investment. They 
increased strongly in 2022, by 11%, and continued rising swiftly in 2023. As a result, there is a 
risk of house prices have becoming slightly overvalued. They are expected to continue to grow 
amid strong demand, albeit at a slower pace.  

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•  The banking sector situation improved, but some vulnerabilities persist. Return to equity and 
credit  growth  turned  positive  in  2022  after  being  in  negative  territory  for  several  years. 
Profitability was well above the EU average amid an increase in net interest income driven by a 
widening of the interest rate spread. The Common Equity Tier 1 capital ratio remained stable in 
2022, still one of the lowest in the EU. The non-performing loans ratio decreased slightly, but 
at  6.3%  (as  of  first  quarter  of  2023)  remains  the  highest  in  the  EU.  The  reduction  of  non-
performing  loans  in  recent  years  is  notable,  but  risks  have  largely  migrated  to  the  non-bank 
financial  sector  and  to  a  lesser  extent  to  the  state. Stage  2  loans  and  the  share  of  forborne 
loans are above the euro area average.  

•  Concerns  related  to  government  debt  remain  high,  although  debt  is  declining.  The 
government debt-to-GDP ratio is among the highest in the EU, although it fell below its 2019 
level to 172.6% of GDP in 2022. Debt is forecast to decrease further in 2023 and 2024, driven 
by  nominal  growth  and  a  narrowing  deficit.  The  government  deficit  narrowed  significantly  to 
2.4%  in  2022,  as  the  primary  balance  turned  positive,  a  year  earlier  than  expected  and  is 
forecast  to  continue  improving.  As  Greece’s  debt  is  predominantly  held  by  official  lenders  at 
favourable interest rates and long average maturities, interest expenditure is contained in the 
short and medium term. In addition, Greece continues to hold a sizeable cash buffer that allows 
for  efficient  liquidity  management  and  reduces  rollover  risks.  Short  and  long-term  fiscal 
sustainability risks are low, reflected in the Greek sovereign bonds regaining investment grade 
in 2023, but are high in the medium term (86). 

•  Labour  market  weaknesses  continue  to  recede.  The  unemployment  rate  declined 
substantially, and is set to continue falling, but at 12.5% in 2022 remains among the highest in 
the EU. The activity rate is relatively low, albeit increasing. Youth and long-term unemployment 
rates declined but remain the highest in the EU.  

Graph 3.8: Selected graphs: Greece 

Source: AMECO, Eurostat and European Commission 

(86) Estimated based on the Commission’s 2023 spring forecasts.  

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-25-20-15-10-5051015161718192021222323*24*25*% of GDPa) Decomposition of current account Goods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing-250-200-150-100-5005010016Q317Q318Q319Q320Q321Q322Q323Q3% of GDPb) Decomposition of NIIPGeneral governmentPrivate sectorMFI (excl central bank)Central bank (incl reserves)Net int'l investment position (NIIP) 
 
 
 
 
 
 
           
 
 
Table 3.8:  Key economic and financial indicators, Greece 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-3.7 -5.0 -7.9 -7.9 -7.6 Current account balance, balance of payments (% of GDP)-0.9 (1)-1.0 (2)-6.6 -6.8 -10.3 -6.7 -5.8 Net international investment position (% of GDP)-35%-48.4 (3)-46.2 (4)-174.3 -173.0 -144.2 -142.4 -141.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-155.4 -151.1 -120.7 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)6.0 3.7 p3.5 p0.6 6.8 Nominal unit labour cost index (% y-o-y change)7.0 -3.1 p-0.2 p4.0 2.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.3 -3.3 -2.5 -1.8 -2.9 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.3 -1.5 -1.3 -0.1 -2.5 Export market share - % of world exports (5 year % change)-6%-10.9 8.6 12.6 9.5 10.5 Export market share - % of world exports (1 year % change)-19.7 19.3 8.9 4.5 1.4 Private sector debtPrivate sector debt, consolidated (% of GDP)133%125.6 122.0 p100.8 p93.2 98.1 Private sector credit flow, consolidated (% of GDP)14%5.5 0.8 p1.1 p5.5 9.4 Household debt, consolidated (% of GDP)27.3 (6)30.2 (7)59.6 55.6p45.2pNon-financial corporate debt, consolidated (% of GDP)48.4 (6)53.4 (7)66.066.455.6Housing marketHouse price index, deflated (1 year % change)6%5.7 e6.5 e4.4 e-0.7 1.2 House price index, nominal (1 year % change)5.7 (8)4.57.611.13.14.0Government debtGeneral government gross debt (% of GDP)60%207.0 195.0 172.6 160.9 151.9 General government balance (% of GDP)-9.7-7.0-2.4-2.3-0.9Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%27.7 14.3 -0.5 -1.7 Return on equity (%)-7.9-20.112.7Common Equity Tier 1 ratio10.6 (9)15.013.614.4Gross non-performing loans, domestic and foreign entities (% of gross loans)26.5e8.6e6.2p6.2Labour marketUnemployment rate (3 year average)10%18.4 16.7 14.9 12.9 11.5 Unemployment rate (year level)9.5 (10)17.6 14.7 12.5 11.4 10.7 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp-2.9 -0.8 0.9 5.4 4.0 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-3.8 -3.3 -3.6 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-6.5 -5.7 -6.1 forecast 
 
 
 
 
 
 
 
 
      
 
SPAIN 

In  Spain,  concerns  related  to  household  and  non-financial  corporate  debt,  government  debt,  and 
external debt remain, but debt ratios have continued declining further. Strong nominal GDP growth 
has helped the resumption of the broad deleveraging process by the private sector, , and to a lesser 
extent  by  the  public  sector.  The  external  sector  is  posting  current  account  surpluses  that  further 
support debt reduction. 

Real  GDP  growth  reached  5.8%  in  2022  and  is  forecast  at  2.4%  in  2023  and  1.7%  in  2024. 
Headline  inflation  stood  at  3.5%  year-on-year  in  October  2023.  This  is  well  below  the  peak  of 
10.7% recorded in July 2022 but above the euro area average. Core inflation also decreased, from 
a  peak  of  5.2%  in  February  2023  to  3.9%  in  September  2023,  which  is  below  the  euro  area 
average. Nominal wages per person grew less than prices in 2022, but are expected to rise faster 
than prices in 2023.  

The scoreboard reading for Spain shows that five indicators were beyond their indicative thresholds 
in 2022, namely the net international investment position, export market share, nominal unit labour 
cost, government debt, and the unemployment rate. Relevant developments worth highlighting: 

•  External sustainability concerns have continued to abate. The current account surplus posted 
0.6%  of  GDP  in  2022,  down  from  0.8%  of  GDP  in  2021,  primarily  driven  by  a  larger  energy 
deficit.  The  current  account  surplus  increased  to  2%  in  the  second  quarter  of  2023, 
underpinned by higher goods and services balances. While the travel balance is approaching the 
levels  recorded  in  2019,  non-tourism  services  also  expanded  markedly.  The  net  international 
investment position, at -60.2% of GDP in 2022, experienced a notable improvement compared 
to previous years, with further increases expected for 2023 and 2024. 

•  Cost competitiveness concerns remain limited. Nominal unit labour costs grew very little in 
2022 against a backdrop of productivity gains in times of a marked expansion of output  and 
contained  nominal  wage  growth.  Nominal  unit  labour  costs  are  expected  to  grow  somewhat 
more in 2023, amid higher wage increases, but still by less than in the euro area. The HICP and 
core  inflation-based  real  effective  exchange  rates  depreciated  in  2022.  Export  market  shares 
edged  up  significantly  in  2022,  and  offset  some  of  the  losses  recorded  in  previous  years, 
especially during the COVID-19 crisis in 2020. 

•  Vulnerabilities  related  to  the  high  non-financial  corporate  debt-to-GDP  ratio  remain, 
although the ratio is on a declining path. It moderated to 71% in 2022, slightly below its 2019 
level,  and  continued  improving  in  the  first  two  quarters  of  2023.  The  non-performing  loans 
ratio for the corporate sector was moderate and further decreased in 2022 and in the first half 
of 2023. Bankruptcies continued to increase in the first half of 2023, although starting from 
low levels. 

•  The household debt-to-GDP ratio is on a steady downward trend. It reached 52% in 2022 and 
has  since  decreased  further  to  its  lowest  level  since  2002.  As  a  result  of  the  tightening  of 
financing conditions  that  started  last year, the cost of borrowing for new mortgages doubled 
between  mid-2022  and  mid-2023.  The  impact  on  existing  loans  is  partially  mitigated  by  the 
low incidence of floating rate mortgages among new loans, as only 21% of new loans have a 
fixation  period  below  1  year,  down  from  68%  a  decade  ago.  At  the  same  time,  the  stock  of 
existing  mortgages  with  variable  rates  remains  significant.  Non-performing  loans  kept 
decreasing in 2022 but still make up more than 3% of all household loans. House price growth 
accelerated to 7.4% in 2022, contributing to house prices being overvalued by around 15%. In 

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recent  quarters,  however,  house  price  growth  has  moderated  on  the  back  of  higher  interest 
rates and falling transactions. 

•  The  banking  sector  remained  resilient.  Profitability  exceeded  the  EU  average  in  2022  but 
capitalisation remains one of the lowest in the EU. The non-performing loans ratio was stable 
at 2.7% as of the first quarter of 2023, above the EU average, while the ratio of Stage 2 loans 
remains on a declining trend. 

•  Concerns related to government debt remain high, but the public debt ratio has kept falling in 
recent years, reaching 111.6% of GDP in 2022. It is forecast to moderate further in 2023 and 
2024, to 107.5% and 106.5%, respectively. The government deficit narrowed to 4.7% in 2022. 
It  is  projected to  further  decrease  in  2023  to  4.1%,  and  in  2024,  to  3.2%,  still  above  3%  of 
GDP.  Fiscal  sustainability  risks  are  high  in  the  medium  term  and  medium  in  the  long  term, 
primarily due to the high level of public debt and the unfavourable initial budgetary position, as 
well as the effects of population ageing on pension and health expenditure (87). 

•  Labour market weaknesses continue to recede. The unemployment rate remains the highest 
in the EU, at 12.9% in 2022, although it has declined substantially over the past decade, and is 
forecast to continue decreasing in 2023 and 2024. Youth and long-term unemployment rates 
remain among the highest in the EU, despite the recent falls. Moreover, the share of temporary 
employees  in  the  private  sector  continued  to  fall  following  the  2021  labour  market  reform 
included in the recovery and resilience plan, while they remain high in the public sector. 

Graph 3.9: Selected graphs: Spain 

Source: AMECO, Eurostat and European Commission 

(87) Estimated based on the Commission’s 2023 spring forecasts. 

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050100150200250300091011121314151617181920212223f% of GDPa) Debt decomposition, consolidatedNon financial corporationsHouseholdGeneral government-6-4-2024681008091011121314151617181920212223*24*25*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 EU27 
 
 
 
 
 
           
 
 
Table 3.9:  Key economic and financial indicators, Spain 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-3.7 -5.0 -7.9 -7.9 -7.6 Current account balance, balance of payments (% of GDP)-0.9 (1)-1.0 (2)-6.6 -6.8 -10.3 -6.7 -5.8 Net international investment position (% of GDP)-35%-48.4 (3)-46.2 (4)-174.3 -173.0 -144.2 -142.4 -141.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-155.4 -151.1 -120.7 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)6.0 3.7 p3.5 p0.6 6.8 Nominal unit labour cost index (% y-o-y change)7.0 -3.1 p-0.2 p4.0 2.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.3 -3.3 -2.5 -1.8 -2.9 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.3 -1.5 -1.3 -0.1 -2.5 Export market share - % of world exports (5 year % change)-6%-10.9 8.6 12.6 9.5 10.5 Export market share - % of world exports (1 year % change)-19.7 19.3 8.9 4.5 1.4 Private sector debtPrivate sector debt, consolidated (% of GDP)133%125.6 122.0 p100.8 p93.2 98.1 Private sector credit flow, consolidated (% of GDP)14%5.5 0.8 p1.1 p5.5 9.4 Household debt, consolidated (% of GDP)27.3 (6)30.2 (7)59.6 55.6p45.2pNon-financial corporate debt, consolidated (% of GDP)48.4 (6)53.4 (7)66.066.455.6Housing marketHouse price index, deflated (1 year % change)6%5.7 e6.5 e4.4 e-0.7 1.2 House price index, nominal (1 year % change)5.7 (8)4.57.611.13.14.0Government debtGeneral government gross debt (% of GDP)60%207.0 195.0 172.6 160.9 151.9 General government balance (% of GDP)-9.7-7.0-2.4-2.3-0.9Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%27.7 14.3 -0.5 -1.7 Return on equity (%)-7.9-20.112.7Common Equity Tier 1 ratio10.6 (9)15.013.614.4Gross non-performing loans, domestic and foreign entities (% of gross loans)26.5e8.6e6.2p6.2Labour marketUnemployment rate (3 year average)10%18.4 16.7 14.9 12.9 11.5 Unemployment rate (year level)9.5 (10)17.6 14.7 12.5 11.4 10.7 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp-2.9 -0.8 0.9 5.4 4.0 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-3.8 -3.3 -3.6 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-6.5 -5.7 -6.1 forecast 
 
 
 
 
 
 
 
     
 
 
 
 
 
FRANCE 

In  France,  concerns  related  to  cost  competitiveness  and  government  debt  remain.  Nominal  unit 
labour  costs  grew  visibly  in  2022.  However,  core  inflation  has  been  lower  than  in  the  euro  area 
average.  The  government  debt-to-GDP  ratio  has  been  declining  somewhat,  but  the  government 
deficit remains high. Private sector debt remains high despite recent declines. 

Real  GDP  growth  reached  2.5%  in  2022  and  is  forecast  at  1.0%  in  2023  and  1.2%  in  2024. 
Headline  inflation  stood  at  4.5%  year-on-year  in  October  2023.  This  is  below  the  peak  of  7.3% 
recorded in February 2023 but above the euro area average. Core inflation also decreased, from a 
peak  of  4.7%  in  April  2023  to  3.5%  in  October  2023,  which  is  below  the  euro  area  average. 
Nominal wages per person grew broadly in line with prices in 2022, and are expected to rise less 
than prices in 2023. 

The  scoreboard  reading  for  France  shows  that  four  indicators  were  beyond  their  indicative 
thresholds  in  2022,  namely  the  export  market  share,  unit  labour  costs,  private  sector  debt  and 
government debt. Relevant developments worth highlighting:  

•  External sustainability concerns  remain  contained,  although  close monitoring  is  warranted. 
The current account shifted from a surplus of 0.4% of GDP in 2021 to a deficit of 2% in 2022, 
primarily  due  to  a  deterioration  in  the  energy  goods  balance.  2023  data  show  only  a  minor 
improvement as a deterioration in the services balance counteracts the increase in the goods 
balance. The forecast is for the current account deficit to decrease to its pre-pandemic levels in 
2023  and  remain  largely  stable  in  2024.  The  net  international  investment  position  (NIIP) 
improved  to  -23.8%  of  GDP  in  2022,  after  having  worsened  markedly  in  the  last  5  years. 
Looking  ahead,  the  position  is  projected  to  remain  around  its  2022  level  over  the  forecast 
period. 

•  Cost competitiveness concerns remain. Nominal unit labour costs grew visibly in 2022 amid 
stagnant  productivity  and  notable  nominal  wage  rises  in  response  to  high  inflation.  In  2023, 
unit labour costs are expected to grow further, but are slightly behind the euro area. The HICP-
based real effective exchange rate depreciated significantly in 2022 owing to lower inflation at 
home, including vis-à-vis the rest of the euro area, and to some depreciation of the euro. It is 
appreciating in 2023 before depreciating somewhat over the forecast  period. When measured 
on  the  basis  of  core  inflation,  the  real  effective  exchange  rate  depreciated  in  2022,  and  is 
showing some appreciation in 2023 on account of the nominal appreciation of the euro. Export 
market shares declined in 2022. They are expected to stabilise in 2023, before declining further 
in 2024.  

•  The non-financial corporate debt-to-GDP ratio remains among the highest in the EU, but it 
has been declining recently. It declined to 98% in 2022, and continued falling in the first two 
quarters  of  2023  amidst  positive  credit  flows,  at  5.5%  of  GDP,  which  have  slowed  down 
recently. Nevertheless, the debt ratio remains around 7 percentage points. higher than before 
the pandemic, when debt increased sharply. However, corporate indebtedness is flanked by high 
corporate liquidity buffers, mitigating risks. 

•  After a period of steady growth up to 2020, the household debt-to-GDP ratio declined to 66% 
in 2022 and is forecast to continue doing so, while remaining high and above the pre-pandemic 
level in 2023, in contrast with most other EU countries. High nominal output growth has driven 
the recent reduction, more recently complemented by a strong deceleration in credit flows. The 
cost  of  borrowing  remains  among  the  lowest  in the  EU.  Recent  2021  Household  Finance  and 

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Consumption  Survey  data  suggest  that  the  debt-service-to-income  ratio  is  higher  in  France 
than in most other euro area countries. Risks are mitigated by the high share of loans at fixed 
rates,  recent  reforms  that  introduced  more  prudent  lending  standards  and  macroprudential 
policy measures. Gross savings also remain relatively high.  

•  House  price  growth  was  solid  in  2022,  at  6.3%,  but  in-year  data  show  that  price  falls  are 
underway.  Following  sustained  growth  in  recent  years,  house  prices  are  estimated  to  be 
overvalued by nearly  20%, and  some correction is expected, as house prices adjust to higher 
interest rates. 

•  The capitalisation of the banking sector remained below the EU average as did profitability, 
which even declined slightly in 2022. The NPL ratio has been close to the EU average, but Stage 
2 loans increased. Credit growth remains  one of the most stable in the EU. The correction of 
commercial  real  estate  prices  warrants  attention  given  the  relatively  high  exposure  of  the 
banking sector.  

•  Concerns  related  to  government  debt  remain  high.  The  high  government  debt-to-GDP  ratio 
decreased slightly in 2022 to 111.8% of GDP and is forecast to edge down marginally over the 
forecast  period,  while  remaining  above  the  2019  level.  The  government  deficit  remains  high, 
although it  narrowed  to  4.8%  in  2022.  It is  expected  to  remain  at  that  level  in  2023,  before 
declining moderately again in 2024 while staying significantly above 3%. Fiscal  sustainability 
risks remain high in the medium term and medium in the long term (88). 

Graph 3.10: Selected graphs: France 

Source: AMECO, Eurostat and European Commission 

(88) Estimated based on the Commission’s 2023 spring forecasts. 

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050100150200250300350091011121314151617181920212223f% of GDPa) Debt decomposition by sector, consolidatedGovernmentHouseholdNon financial corporationsPrivate sector8090100110120130140201920202021202220232024202520262027202820292030203120322033% of GDPb) Public debt projectionsBaselineFinancial stress scenarioAdverse 'r-g' scenario 
 
 
 
 
 
           
 
 
 
 
 
Table 3.10:  Key economic and financial indicators, France 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-0.6 -0.2 -1.1 -0.7 -1.0 Current account balance, balance of payments (% of GDP)0.1 (1)-0.8 (2)-1.6 0.4 -2.0 -0.5 -0.6 Net international investment position (% of GDP)-35%-75.7 (3)6.4 (4)-29.4 -30.9 -23.8 -23.7 -23.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-41.9 -39.3 -33.4 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)4.5 5.0 p11.1 p12.3 13.4 Nominal unit labour cost index (% y-o-y change)4.4 1.3 p5.1 p5.5 2.3 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.6 -0.5 -3.8 -3.8 -4.3 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.5 -0.4 -4.7 1.3 -1.0 Export market share - % of world exports (5 year % change)-6%-8.6 -11.8 -10.7 -10.7 -10.9 Export market share - % of world exports (1 year % change)-6.9 -1.4 -1.9 0.3 -1.3 Private sector debtPrivate sector debt, consolidated (% of GDP)133%173.9 167.5 p163.9 p153.0 150.8 Private sector credit flow, consolidated (% of GDP)14%13.5 6.7 p8.7 p5.2 3.9 Household debt, consolidated (% of GDP)39.7 (6)61.6 (7)68.2 66.6p66.2p62.8Non-financial corporate debt, consolidated (% of GDP)45.6 (6)62.5 (7)105.7100.997.790.2Housing marketHouse price index, deflated (1 year % change)6%4.1 4.8 1.5 -3.8 -1.0 House price index, nominal (1 year % change)20.2 (8)5.26.36.32.32.0Government debtGeneral government gross debt (% of GDP)60%114.6 112.9 111.8 109.6 109.5 General government balance (% of GDP)-9.0-6.5-4.8-4.8-4.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%11.7 8.3 -1.3 p2.5 Return on equity (%)4.17.16.1Common Equity Tier 1 ratio10.6 (9)16.016.215.8Gross non-performing loans, domestic and foreign entities (% of gross loans)2.2e1.9e1.8p1.9Labour marketUnemployment rate (3 year average)10%8.5 8.1 d7.7 d7.5 7.3 Unemployment rate (year level)8.1 (10)8.0 7.9 d7.3 d7.2 7.4 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp-0.4 0.2 d1.0 d2.3 1.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.0 -0.2 d-0.3 dYouth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-2.0 -3.1 d-3.4 dforecast 
 
 
 
 
 
 
 
 
      
 
 
CROATIA 

In  Croatia,  cost  competitiveness  pressures  have  increased  recently  and  house  prices  have  grown 
strongly in nominal terms. Nominal unit labour costs are expected to accelerate in 2023 and core 
inflation has been above the euro area overall. Nominal house price growth remains high.  Overall 
associated macroeconomic risks appear to be limited. External sustainability concerns are limited.  

Real  GDP  growth  reached  6.3%  in  2022  and  is  forecast  at  2.6%  in  2023  and  2.5%  in  2024. 
Headline  inflation  stood  at  6.7%  year-on-year  in  October  2023.  This  is  below  the  peak  of  13% 
recorded in November 2022 but above the euro area average. Core inflation also decreased, from a 
peak  of  11.3%  in  January  2023,  to  7.4%  in  October  2023,  which  is  also  above  the    euro  area 
average. Nominal wages per person grew more than prices in 2022 and are expected to also do so 
in 2023. 

The scoreboard reading for Croatia shows that one indicator was beyond its indicative threshold in 
2022, namely government debt. Relevant developments worth highlighting:  

•  External  sustainability  concerns  remained  contained.  The  current  account  shifted  from  a 
surplus of 1.0% to a deficit of 2.8% in 2022. The travel balance performed well, surpassing its 
2019 level. The current account balance increased to -1.1% in the second quarter of 2023 and 
is expected to increase further, as the negative terms of trade shock abate. A current account 
balance  of  2.6%  is  projected  for  2024.  The  net  international  investment  position  (NIIP) 
improved,  moving  from  -33%  in  2021  to  -25%  of  GDP  in  2022,  owing  to  nominal  growth, 
valuation  effects,  and  net  transaction  effects  excluding  investment  income.  The  NIIP  net  of 
non-defaultable instruments was 14% of GDP. The NIIP is expected to improve further in 2023 
and 2024. 

•  Cost competitiveness concerns have increased recently. Nominal unit labour costs increased 
significantly  in  2022, visibly  more than  the  euro  -area  or  EU  averages.  The  unit  labour  costs 
growth is also expected to stay high in 2023. However, as this growth in the euro area should 
also  speed  up,  the  relative  change  should  be  more  contained.  The  HICP-based  real  effective 
exchange  rate  depreciated  very  marginally  in  2022  but  has  then  appreciated  more  clearly  in 
2023.  The  core  inflation-based  real  effective  exchange  rate  recorded  a  recent  but  relatively 
significant appreciation too. In both cases, nominal appreciation vis-à-vis trade partners, as well 
as higher inflation led to real appreciation. Export market shares continued increasing strongly 
in 2022, both for goods and services.  

•  The  household  debt-to-GDP  ratio  is  low,  at  31%  in  2022,  following  a  longer-term  decline. 
Unlike  other  countries  in  the  EU,  credit  flows  continued  to  grow  in  2023  as  the  cost  of 
borrowing  increased  only  slightly,  amid  a  weak  pass-through  of  monetary  tightening  and  a 
positive  impact  of  euro  adoption  on  risk  perception.  The  share  of  highly  variable  rate  loans 
among  new  loans  dropped  from  71%  in  mid-2013  to  almost  zero  by  mid-2023.  Non-
performing loans declined but still make up more than 4% of all loans to households up to Q2-
2023.  The  non-financial  corporate  debt-to-GDP  ratio  decreased  in  2022  to  49%  of  GDP  and 
remained broadly unchanged in the first half of 2023. Credit flows accelerated to 4.4% of GDP 
in 2022 and accelerated further in the first half of 2023. 

•  House  price  growth  remains  a  concern  as  prices  continue  to  grow  strongly,  further 
deteriorating affordability. Nominal house price growth accelerated to nearly 15% over 2022, 
and  continued  to  grow  strongly  in  2023.  In  real  terms  house  price  growth  continued  its  slow 
deceleration  to  3.2%.  The  latest  quarterly  data  show  some  moderation,  but  nominal  growth 

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remains  strong.  House  price  growth  has  been  substantial  since  just  before  the  pandemic. 
However, while house prices are estimated to be broadly in line with the fundamentals, housing 
affordability is among the lowest in the EU. House prices are expected to continue to grow at 
the annual level in 2023 albeit at a somewhat slower pace. Growth is expected to stall in 2024, 
with real prices declining slightly. A government programme of subsidised mortgages that has 
been contributing to house price growth in recent years, including in 2023, is legislated to end 
by the end of the year. 

•  The  banking  sector  is  stable.  The  non-performing  loans  ratio  dropped  to  3%  (as  of  first 
quarter  2023),  but  remains  above  the  euro  -area  average.  Stage  2  loans  have  been  on  an 
increasing trend since 2020, but declined a little in the first quarter of 2023. Bank profitability 
further increased in 2022 and is above the EU average. The Common Equity Tier 1 capital ratio 
also declined slightly in 2022, but is still one of the highest in the EU. Credit growth has been 
slowing down, but remains strong.  

•  Concerns  related  to  government  debt  are  declining.  The  government  debt-to-GDP  ratio 
decreased significantly to 68.2% in 2022, falling below its 2019 level. It is forecast to decrease 
further  in  2023  and  2024  to  just  below  59%  of  GDP.  Sovereign  bond  yield  spreads  have 
decreased but remain above the euro -area average. The fiscal  balance reached a surplus of 
0.1% of GDP in 2022 but is forecast to turn into a small deficit in 2023, which is set to widen 
in 2024. Fiscal sustainability risks are medium in the medium- term (89).  

Graph 3.11: Selected graphs: Croatia 

Source: AMECO, Eurostat and European Commission 

(89) Estimated based on the Commission’s 2023 spring forecasts. 

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050100150200-5-3-113579111317Q418Q419Q420Q421Q422Q42015=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 axis050100150200250091011121314151617181920212223*% of GDPb) Debt decompositionFinancial corporations (MFI)GovernmentHouseholdNon financial corporationsPrivate sector 
 
 
 
 
 
 
           
 
 
 
 
 
Table 3.11:  Key economic and financial indicators, Croatia 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%1.0 0.8 -0.9 0.2 0.7 Current account balance, balance of payments (% of GDP)-0.2 (1)-2.1 (2)-1.0 1.0 -2.8 2.4 2.6 Net international investment position (% of GDP)-35%-51.9 (3)-21.1 (4)-45.2 -32.5 -25.4 -16.5 -18.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)2.5 10.8 13.5 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)13.5 3.6 11.0 p11.5 21.9 Nominal unit labour cost index (% y-o-y change)9.4 -5.4 7.2 p9.9 3.4 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.5 -1.5 -0.6 5.7 4.4 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.5 0.5 -0.6 3.0 -0.7 Export market share - % of world exports (5 year % change)-6%-1.4 4.0 12.1 9.2 4.5 Export market share - % of world exports (1 year % change)-16.1 15.0 10.3 -1.5 -0.3 Private sector debtPrivate sector debt, consolidated (% of GDP)133%97.2 86.7 79.3 p75.0 Private sector credit flow, consolidated (% of GDP)14%1.3 3.0 6.0 p5.2 Household debt, consolidated (% of GDP)50.3 (6)18.0 (7)37.8 34.0 30.7p29.3Non-financial corporate debt, consolidated (% of GDP)73.0 (6)38.0 (7)59.452.748.645.7Housing marketHouse price index, deflated (1 year % change)6%7.1 4.9 3.2 -1.8 1.0 House price index, nominal (1 year % change)2.2 (8)7.77.314.95.74.0Government debtGeneral government gross debt (% of GDP)60%86.8 78.1 68.2 60.8 58.8 General government balance (% of GDP)-7.3-2.50.1-0.1-1.8Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%7.2 11.8 9.5 1.4 Return on equity (%)4.77.79.4Common Equity Tier 1 ratio10.6 (9)22.723.822.1Gross non-performing loans, domestic and foreign entities (% of gross loans)5.3e4.2e3.0p2.9Labour marketUnemployment rate (3 year average)10%7.5 7.2 7.4 7.0 6.6 Unemployment rate (year level)7.2 (10)7.5 7.6 7.0 6.5 6.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.7 2.4 3.4 4.3 3.9 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-2.5 -0.6 0.0 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-6.3 -1.8 1.4 forecast 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITALY 

In  Italy,  concerns  related  to  the  high  government  debt  remain.  The  debt-to-GDP  ratio  has  been 
falling but is expected to broadly stabilise in the future, while the government deficit remains high. 
The  increased  average  debt  maturity  has  helped  cushion  the  impact  of  higher  interest  rates  on 
borrowing costs. Despite improvements in the banking sector, the risk of feedback loops between 
the government and financial sectors remains. 

Real  GDP  growth  reached  3.7%  in  2022  and  is  forecast  at  0.7%  in  2023  and  0.9%  in  2024. 
Headline inflation stood at 1.9% year-on-year in October 2023. This is below the peak of 12.6% 
recorded in October 2022 and below the euro area average. Core inflation also decreased, from a 
peak  of  5.5%  in  February  2023,  to  3.9%  in  October  2023,  which  is  also  below  the  euro  area 
average. Nominal wages per person grew less than prices in 2022 and are expected to also do so in 
2023. 

The scoreboard reading for Italy shows that three indicators were beyond their indicative thresholds 
in  2022,  namely  the  export  market  share,  government  debt,  and  the  activity  rate.  From  an 
economic reading of the scoreboard, relevant developments worth highlighting:  

•  External sustainability concerns remain limited. The current account balance worsened from 
a surplus of 2.4% in 2021 to a deficit of  -1.5% in 2022, primarily  due to a declining energy 
balance. However, the current account is expected to return to a surplus in 2023 and broadly 
stabilise in 2024.  

•  Cost  competitiveness  concerns  remain  limited.  Nominal  unit  labour  costs  rose  modestly  in 
2022 and, though accelerating in 2023, are expected to continue increasing less than the rest 
of the euro area. Productivity growth exceeded its historical average in 2022, while it is set to 
fall  in  2023.  The  HICP-based  real  effective  exchange  rate  depreciated  in  2022,  but  is 
appreciating  marginally  in  2023.  This  reflects  in  part  the  fact  that the  headline  inflation  rate 
has  been  higher  in  the  first  half  of  the  year  than  in  the  euro  area  even  if  core  inflation  has 
been lower. Export market shares have been declining. 

•  The non-financial corporate debt-to-GDP ratio decreased to 65% in 2022, close to its 2019 
level. The ratio continued to fall in the first half of 2023. Bankruptcies increased recently, albeit 
from a historically low level. 

•  At 41% in 2022, the  household debt-to-GDP ratio remains moderate. After spiking in 2020, 
the ratio dipped below its pre-pandemic level on the back of high nominal GDP growth. It is set 
to  continue  declining  in  2023  as  inflation  remains  strong  and  credit  flows  have  contracted 
following  a  rise in interest  rates.  By mid-2023,  41%  of  new  loans  carry variable  rates,  down 
from  78%  10  years  ago.  Non-performing  loans  have  declined  but  still  made  up  2.7%  of 
household loans by mid-2023.  

• 

Improvements  have  continued  in  the  banking  sector,  but  vulnerabilities  remain.  The  non-
performing loans ratio declinedto below 3% in 2022 but remains above the euro -area average. 
Bank  profitability  improved  significantly,  driven  by  an  increase  in  net  interest  income.  The 
Common  Equity  Tier  1  capital  ratio  has  declined  slightly  and  remains  below  the  EU  average. 
Bank  lending volumes declined  significantly  as  financial  conditions  tightened  from mid-2022. 
The  funding  cost  of  banks  is  expected  to  increase  with  the  maturing  of  the  longer-term 
refinancing operations. The link between the government and financial sectors still represents a 

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risk of feedback loops. Exposure of the financial sector to commercial real estate at a time of 
significant correction across the EU requires close monitoring. 

•  Concerns  related  to  the  high  government  debt  remain.  The  debt-to-GDP  ratio  declined  to 
141.7% in 2022 and is forecast to fall further in 2023, albeit followed by an increase in 2024 
and  is  expected  to  remain  above  the  2019  level.  The  government  deficit  remains  large, 
although it is forecast to continue narrowing by 2024. Sovereign bond yields have risen, while 
the  increased  average  maturity  of  outstanding  debt  has  helped  cushion  the  increase  in 
borrowing costs. Fiscal sustainability risks are high in the medium term and medium in the long 
term (90). 

•  Labour market weaknesses continue to recede, with employment steadily rising. In 2022, the 
unemployment rate fell to 8.1% and is forecast to continue falling. The youth unemployment 
rate  dropped  to  23.7%,  19  percentage  points  less  than  the  2014  peak.  The  activity  rate 
increased, but remains well below the euro area average, notably for women. 

Graph 3.12: Selected graphs: Italy 

Source: AMECO, Eurostat and European Commission 

(90) Estimated based on the Commission’s 2023 spring forecasts. 

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-1.0-0.50.00.51.0081012141618202224'Rate of change, y-o-y (%)a) Contribution to potential growthCapital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growth110120130140150160170180201920202021202220232024202520262027202820292030203120322033% of GDPb) Public debt projectionsBaselineFinancial stress scenarioAdverse 'r-g' scenario 
 
 
 
 
 
 
           
 
 
 
 
 
 
 
 
Table 3.12:  Key economic and financial indicators, Italy 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%3.2 3.2 1.6 0.6 0.1 Current account balance, balance of payments (% of GDP)1.6 (1)0.4 (2)3.9 2.4 -1.5 0.8 0.9 Net international investment position (% of GDP)-35%-67.2 (3)12.1 (4)0.9 7.5 4.7 5.0 5.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)0.4 5.6 1.6 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)6.5 3.5 4.9 6.0 10.9 Nominal unit labour cost index (% y-o-y change)3.1 -0.9 2.7 4.2 3.7 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)0.5 -1.8 -1.9 -5.2 -6.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.8 -0.4 -2.3 0.2 -1.4 Export market share - % of world exports (5 year % change)-6%-3.1 -6.7 -8.4 -8.3 -7.7 Export market share - % of world exports (1 year % change)-2.9 -1.1 -2.5 -0.6 -1.0 Private sector debtPrivate sector debt, consolidated (% of GDP)133%118.4 111.3 105.5 98.7 96.7 Private sector credit flow, consolidated (% of GDP)14%4.0 3.3 2.9 1.3 1.4 Household debt, consolidated (% of GDP)36.2 (6)26.3 (7)44.9 42.5 40.9 38.3Non-financial corporate debt, consolidated (% of GDP)61.3 (6)28.8 (7)73.568.864.660.4Housing marketHouse price index, deflated (1 year % change)6%1.8 1.0 -3.2 -2.0 -0.5 House price index, nominal (1 year % change)-9.3 (8)1.92.63.83.22.0Government debtGeneral government gross debt (% of GDP)60%154.9 147.1 141.7 139.8 140.6 General government balance (% of GDP)-9.6-8.8-8.0-5.3-4.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%7.4 8.0 -5.7 -2.0 Return on equity (%)1.05.79.1Common Equity Tier 1 ratio10.6 (9)15.515.115.2Gross non-performing loans, domestic and foreign entities (% of gross loans)4.5e3.5e2.9p2.8Labour marketUnemployment rate (3 year average)10%9.9 9.6 9.0 8.4 7.7 Unemployment rate (year level)9.2 (10)9.3 9.5 8.1 7.6 7.4 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp-1.8 -1.1 -0.2 2.4 1.5 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.8 -1.1 -1.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-4.8 -2.5 -5.5 forecast 
 
 
 
 
 
 
 
 
     
 
CYPRUS 

In Cyprus, concerns related to household and non-financial  corporate debt, government debt, and 
external  debts  remain,  but  are    receding  overall.  The  current  account  continues  to  record  large 
deficits.  Despite  visible  improvements,  non-financial  corporate  and  household  debt-to-GDP  ratios 
continue  to  be  high.  The  banking  sector  situation  improved  but  vulnerabilities  persist,  including 
related to non-performing loans. Government debt has been declining significantly. 

Real GDP growth reached 5.1% in 2022 and is forecast to slow down to 2.2% in 2023 and 2.6% in 
2024.  Headline  inflation  stood  at  3.3%  year-on-year  in  October  2023.  This  is  below  the  peak  of 
10.6% recorded in July 2022 but above the euro -area average. Core inflation also decreased, from 
a peak of 7.2% in August 2022 to 2.8% in October 2023, which is below the  euro area average. 
Nominal wages per person grew less than prices in 2022 but are growing more than prices in 2023.  

The  scoreboard  reading  for  Cyprus  shows  that  five  indicators  were  beyond  their  indicative 
thresholds  in  2022,  namely  the  current  account  balance,  net  international  investment  position, 
private  sector  debt,  government  debt,  and  the  youth  unemployment  rate.  Relevant  developments 
worth highlighting:  

•  External sustainability remains a concern. The current account deficit widened from 6.1% in 
2021  to  7.9%  in  2022,  far  exceeding  the  deficits  recorded  before  the  COVID-19  pandemic. 
Energy  and  non-energy  goods  balances  were  key  contributors.  The  current  account  balance 
deteriorated markedly in the first quarter of 2023 mostly due to a large transfer of economic 
ownership  of transport equipment, mainly  ships.  The current account is  therefore expected to 
deteriorate to almost -10% of GDP in 2023 before improving to  -8.8% in 2024, considerably 
below  levels  explained  by  fundamentals.  The  net  international  investment  position  (NIIP) 
improved from -104% in 2021 to -96.2% of GDP in 2022 owing to strong nominal growth, and 
is  expected  to  remain  stable  in  2023  and  2024.  Although  the  NIIP  remains  very  negative,  it 
largely  reflects  the  activities  of  special  purpose  entities.  The  NIIP  net  of  non-defaultable 
instruments  improved  markedly  and  came  close  to  balance,  reducing  concerns  related  to  the 
external position. 

•  Cost competitiveness concerns are limited. Nominal unit labour costs marginally fell in 2022, 
against  a  backdrop  of  marked  expansion  of  output  per  worker  and  moderate  nominal  wage 
growth. In 2023, unit labour costs are expected to grow fast, but below the euro -area average. 
The HICP-based real effective exchange rate depreciated visibly in 2022, but is appreciating in 
2023 due to appreciation in the nominal exchange rate, while inflation has been below the euro 
-area average.  

•  The non-financial corporate debt-to-GDP ratio remains among the highest in the EU, but is 
on  a  declining  path  and  well  below  its  2019  level.  It  reached  142%  in  2022  and  continued 
falling  in  the  first  half  of  2023.  The  high  share  of  foreign  debt  of  non-financial  ship-owning 
special purpose entities and high liquidity buffers mitigate risks. The corporate non-performing 
loans  ratio  decreased  further  in  2022,  but  some  risks  remain  as  non-performing  loans  have 
been transferred out of the banking system but are held by credit acquiring companies.  

•  The household debt-to-GDP ratio fell to 72% in 2022 and is set to fall further in 2023, but 
remains high. Net credit flows turned negative in the face of rising interest rates. By mid-2023, 
almost  70%  of  new  loans  carried  variable  interest  rates,  down  from  more  than  90%  a  year 
earlier. 2021 Household Finance Consumption Survey data suggest a high median debt service-
to-income ratio compared with other EU countries, especially for debtors in the bottom 40% of 

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the income distribution, which make up around 11% of all households. Households’ aggregate 
gross savings rate decreased in 2022 amid a strong contraction of real compensation. On the 
upside, real wages are forecasted to grow in 2023-2024, supporting household balance sheets. 
Non-performing loans have been declining but remain very high, at 11% of all household loans 
by mid-2023.  

•  The  banking  sector  situation  has  improved  but  vulnerabilities  persist.  The  non-performing 
loans and Stage 2 loans ratios further declined in 2022, reaching 4.3% in the first quarter of 
2023 but remaining above the EU average. However, the non-performing loans coverage ratio 
has increased and now exceeds the EU average. While the Common Equity Tier 1 capital ratio is 
close  to  the  EU  average,  return  on  equity  is  still  well  below  it  despite  some  improvement  in 
2022 amid higher interest rate income. The increase in lending rates also represents risk in the 
face  of  high  private  sector  indebtedness,  but  the  overall  quality  of  the  loan  portfolios  has 
remained broadly stable. Credit provision remained very muted in 2022 and in the first half of 
2023. 

•  Concerns  related  to  the  government  debt-to-GDP  ratio  remain  but  are  receding.  The 
government  debt  ratio  decreased  by  nearly  14  percentage  points  to  85.6%  of  GDP  in  2022, 
which is below the 2019 level and is forecast to decrease further to 66.3% in 2025. Sovereign 
bond spreads tend to be higher than in other euro area countries. The fiscal balance turned into 
a surplus in 2022 and is projected to remain positive. Primary surpluses are expected to keep 
government  gross  financing  needs  at  relatively  low  levels.  Furthermore,  Cyprus  has  sizeable 
cash buffers. The fiscal sustainability risks are medium in the medium-term (91). 

Graph 3.13: Selected graphs: Cyprus 

Source: AMECO, Eurostat and European Commission 

(91) Estimated based on the Commission’s 2023 spring forecasts. 

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-40-30-20-100102030161718192021222323*24*25*% of GDPa) Decomposition of current accountGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing02040608010012014012Q213Q214Q215Q216Q217Q218Q219Q220Q221Q222Q223Q2% of GDPb) Debt liabilities, households, consolidatedLong-term bank loansShort-term bank loansLoans by OFIsOther domestic debt liab.ForeignTotal consolidated 
 
 
 
 
 
 
 
           
 
 
 
Table 3.13:  Key economic and financial indicators, Cyprus 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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106 

ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-6.5 -7.2 -8.0 -7.9 -8.8 Current account balance, balance of payments (% of GDP)-1.8 (1)-0.9 (2)-10.0 -6.1 -7.9 -9.7 -8.8 Net international investment position (% of GDP)-35%-62.1 (3)-39.1 (4)-133.4 -104.0 -96.2 -96.7 -98.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-110.4 -2.2 39.9 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)5.8 2.4 p-1.2 p1.4 6.6 Nominal unit labour cost index (% y-o-y change)1.8 -2.1 p-0.9 p4.5 3.0 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)-0.4 -2.4 -3.0 -0.6 -1.3 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.3 -0.2 -3.1 2.2 -0.9 Export market share - % of world exports (5 year % change)-6%38.5 32.5 20.7 14.6 8.4 Export market share - % of world exports (1 year % change)13.5 3.5 -5.5 -1.8 -0.5 Private sector debtPrivate sector debt, consolidated (% of GDP)133%267.2 242.1 213.4 p195.0 173.9 Private sector credit flow, consolidated (% of GDP)14%-1.4 6.5 -3.9 p-5.7 -10.0 Household debt, consolidated (% of GDP)40.7 (6)91.1 (7)88.6 79.9 71.7p64.4Non-financial corporate debt, consolidated (% of GDP)64.3 (6)132.0 (7)178.6162.2141.7130.6Housing marketHouse price index, deflated (1 year % change)6%0.8 -4.2 -3.1 -1.2 -3.0 House price index, nominal (1 year % change)-14.0 (8)-0.2-3.43.22.90.0Government debtGeneral government gross debt (% of GDP)60%114.9 99.3 85.6 78.4 71.5 General government balance (% of GDP)-5.7-1.92.42.32.1Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%-7.0 3.6 -2.3 0.1 Return on equity (%)-3.30.65.1Common Equity Tier 1 ratio10.6 (9)17.617.617.8Gross non-performing loans, domestic and foreign entities (% of gross loans)11.0e5.6e4.5p4.2Labour marketUnemployment rate (3 year average)10%7.7 7.4 7.3 6.9 6.4 Unemployment rate (year level)8.0 (10)7.6 7.5 6.8 6.4 6.1 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.9 1.7 2.2 2.1 1.4 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-2.4 -0.1 0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-6.5 -3.1 2.0 forecast 
 
 
 
 
 
 
 
 
 
      
 
LATVIA 

In  Latvia,  cost  competitiveness  pressures  persist  and  house  price  growth  remains  elevated, 
although associated macroeconomic risks appear to be limited. Nominal unit labour costs are set to 
continue increasing, driven by weakening productivity growth. Core inflation has started to decrease 
but remains above the  euro area overall. Nominal house price growth has moderated recently, but 
house prices still show signs of overvaluation. 

Real  GDP  growth  reached  3.4%  in  2022  and  is  forecast  at  -0.2%  in  2023  and  2.4%  in  2024. 
Headline  inflation  stood  at  2.4%  year-on-year  in  October  2023.  This  is  below  the  peak  of  22% 
recorded in September 2022 and below the  euro area average. Core inflation also decreased, from 
a  peak  of  11.1%  in  February  2023  to  7.2%  in  September  2023,  which  is  above  the    euro  area 
average. Nominal wages per person grew less than prices in 2022 but are expected to grow more 
than prices in 2023. 

The  scoreboard  reading  for  Latvia  shows  that  four  indicators  were  beyond  their  indicative 
thresholds in 2022, namely the real effective exchange rate, unit labour costs, the activity rate, and 
the youth unemployment rate. Relevant developments worth highlighting:  

•  External  sustainability  concerns  are  limited  but  warrant  close  monitoring,  as  the  current 
account deficit is expected to remain sizeable.  It increased from 3.9% of GDP in 2021 to 4.7% 
in  2022  but  is  expected  to  narrow  to  4.2%  in  2023  and  to  3.2%  in  2024,  supported  by 
improvements in the goods balance and the capital account. The net international investment 
position (NIIP) remained broadly stable at -27% of GDP in 2022. Since Latvia’s liabilities largely 
consist of government bonds and foreign direct investment, the NIIP excluding non-defaultable 
instruments is positive. 

•  Cost  competitiveness  concerns  persist  and  are  widening.  Nominal  unit  labour  costs  have 
been  increasing  rapidly  for  several  years  and  grew  particularly  sharply  in  2022  amid 
substantial nominal wage increases and low labour productivity. In 2023, unit labour costs are 
expected  to  continue  growing  at  a  similarly  high  rate,  driven  by  high  wage  increases  amid 
labour  shortages,  well  above  the  rest  of  the  euro area.  For  2024,  they  are projected to  slow 
down significantly. The HICP-based real effective exchange rate appreciated markedly in 2022 
with higher inflation at home. Appreciation has continued in 2023. 

•  The non-financial corporate debt and household debt-to-GDP ratios are low and declined 
further in 2022. The non-financial corporate debt ratio remained broadly unchanged in the first 
half of 2023, while household debt continued to edge down. 

•  House price growth accelerated to 13.8% in 2022 but appears to have moderated in recent 
quarters. As a result of recent increases, house prices are estimated to be overvalued by 12%. 

•  The  banking  sector  is  sound  and  well  capitalised.  The  Common  Equity  Tier  1  capital  ratio 
declined in 2022 but remains the highest in the EU. Profitability improved in 2022 and is close 
to the EU average. The non-performing loans ratio declined slightly to 1.3% (as of first quarter 
of 2023) and the Stage 2 loans ratio also fell. Credit dynamics have been rather muted. 

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Graph 3.14: Selected graphs: Latvia 

Source: AMECO, Eurostat and European Commission 

Table 3.14:  Key economic and financial indicators, Latvia 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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106 

050100150200250-10-8-6-4-2024681013Q414Q415Q416Q417Q418Q419Q420Q421Q422Q42015=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 axis90951001051101151201920212223b) Real effective exchange ratevs. 42 partners, based on headline inflationvs. EA19, based on headline inflationvs. EA19, based on core inflationvs. 42 partners, based on core inflationThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.7 -0.5 -1.9 -4.3 -4.0 Current account balance, balance of payments (% of GDP)-0.5 (1)-3.1 (2)2.9 -3.9 -4.7 -4.2 -3.2 Net international investment position (% of GDP)-35%-52.1 (3)-13.2 (4)-34.0 -27.3 -26.5 -24.4 -22.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)14.5 19.4 16.9 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)19.2 12.0 16.7 22.9 30.2 Nominal unit labour cost index (% y-o-y change)5.6 -0.9 11.6 11.2 4.9 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)5.9 2.3 5.7 7.1 7.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)2.0 0.3 3.3 2.5 0.5 Export market share - % of world exports (5 year % change)-6%20.3 13.1 15.3 7.3 6.9 Export market share - % of world exports (1 year % change)12.5 -2.6 3.6 -4.2 -1.8 Private sector debtPrivate sector debt, consolidated (% of GDP)133%65.2 58.5 52.5 50.7 48.6 Private sector credit flow, consolidated (% of GDP)14%-1.8 0.9 3.0 1.6 1.3 Household debt, consolidated (% of GDP)50.3 (6)18.2 (7)20.4 19.5 17.7 16.9Non-financial corporate debt, consolidated (% of GDP)73.4 (6)67.9 (7)44.839.034.833.8Housing marketHouse price index, deflated (1 year % change)6%3.5 7.2 -1.0 -4.5 -1.2 House price index, nominal (1 year % change)11.7 (8)3.510.913.84.62.0Government debtGeneral government gross debt (% of GDP)60%42.2 44.0 41.0 41.7 42.3 General government balance (% of GDP)-4.5-7.2-4.6-3.2-3.1Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%10.6 13.3 4.1 -0.1 Return on equity (%)5.24.510.2Common Equity Tier 1 ratio10.6 (9)25.729.223.6Gross non-performing loans, domestic and foreign entities (% of gross loans)4.6e2.1e1.4p1.2Labour marketUnemployment rate (3 year average)10%7.3 7.3 7.5 7.1 6.8 Unemployment rate (year level)6.5 (10)8.1 7.6 6.9 6.8 6.6 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.1 -1.8 -0.5 -1.3 1.1 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.2 -1.1 -0.7 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-2.1 2.6 2.6 forecast 
 
 
 
 
 
           
 
 
 
     
 
LITHUANIA 

In Lithuania, cost competitiveness pressures persist and house price growth remains high, although 
associated  macroeconomic  risks  appear  to  be  limited.  Nominal  unit  labour  cost  growth  remains 
high.  Core  inflation  started  to  decrease  but  remains  well  above  the  euro  area  overall.  Nominal 
house price growth moderated in recent quarters but remains high.  

Real  GDP  growth  reached  2.4%  in  2022  and  is  forecast  at  -0.4%  in  2023  and  2.5%  in  2024. 
Headline  inflation  stood  at  3%  year-on-year  in  October  2023.  This  is  below  the  peak  of  22.5% 
recorded  in  September  2022  but  slightly  above  the    euro  area  average.  Core  inflation  also 
decreased,  from  a  peak  of  12.7%  in  November  2022  to  8.2%  in  September  2023,  which  is  also 
above  the   euro  area  average.  Nominal  wages  per person  grew  less  than  prices  in  2022  but  are 
expected to grow faster than prices in 2023. 

The  scoreboard  reading  for  Lithuania  shows  that  two  indicators  were  beyond  their  indicative 
thresholds  in  2022,  namely  the  real  effective  exchange  rate  and  unit  labour  costs.  Relevant 
developments worth highlighting:  

•  External sustainability concerns remain contained. In 2022, the current account underwent 
the largest deterioration in the EU, shifting from a 1.1% surplus to a deficit of 5.5%, primarily 
driven by a much wider energy goods deficit. There was a noticeable rebound to 2.4% in the 
second  quarter  of  2023  due  to  an  increase  in  the  primary  income  and  energy  balances.  The 
current account balance is forecast to return to a small surplus in 2023. The net international 
investment position (NIIP) remained slightly negative in 2022, at -7% of GDP, and is expected 
to remain broadly stable over the forecast period. As liabilities largely consist of foreign direct 
investment, the NIIP net of non-defaultable instruments is positive. 

•  Cost  competitiveness  concerns  persist  and  are  widening.  After  several  years  of  significant 
increases,  nominal  unit  labour  costs  increased  sharply  in  2022  on  account  of  significant 
nominal wage increases, labour shortages, and falling output per worker amid large increases 
in  employment.  In  2023,  unit  labour  costs  are  expected  to  grow  less  than  before,  but  still 
strongly  and  visibly  more  than  in  the  euro  area  on  account  of  large  nominal  wage  increases 
and  much  more  limited  productivity  gains  amid  weak  activity.  The  HICP-based  real  effective 
exchange rate appreciated markedly in 2022, including when measured based on core inflation, 
on  account  of  much  higher  inflation  at  home  relative  to  most  relevant  trading  partners. 
Appreciation has continued in 2023. 

•  The  non-financial  corporate  and  household  debt-to-GDP  ratios  are  low  and  declined 

further in 2022. Both ratios remained relatively stable in the first half of 2023. 

•  House  price  growth  remains  a  concern,  despite  some  moderation.  It  accelerated  to  19%  in 
2022.  Over  recent  quarters,  house  price  growth  has  moderated  but  remains  high.  Despite 
strong  growth  in  recent  years,  house  prices  are  estimated  to  be  valued  in  line  with 
fundamentals  as  over  the  medium  term,  strong  house  price  growth  was  nearly  matched  by 
income growth. 

•  The  banking  sector  is  sound  and  well  capitalised.  While  the  Common  Equity  Tier  1  capital 
ratio declined in 2022, it remains one of the highest in the EU. Profitability improved in 2022, 
with return on equity at 13.5%, and is above the EU average. The  non-performing loans ratio 
and the Stage 2 loans ratio are slightly below 1% (as of first quarter of 2023). Credit provision 
remains dynamic, although it has declined. 

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Graph 3.15: Selected graphs: Lithuania 

Source: AMECO, Eurostat and European Commission 

Table 3.15:  Key economic and financial indicators, Lithuania 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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0501001502002500246810121416Q417Q418Q419Q420Q421Q422Q42015=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 axis951001051101151201251920212223Lithuania -Real effective exchange rate (2019=100)vs. 42 partners, based on headline inflationvs. EA19, based on headline inflationvs. EA19, based on core inflationvs. 42 partners, based on core inflationThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%3.7 4.0 1.0 -1.4 -1.7 Current account balance, balance of payments (% of GDP)0.3 (1)-1.5 (2)7.3 1.1 -5.5 0.3 0.1 Net international investment position (% of GDP)-35%-61.8 (3)1.1 (4)-15.7 -7.4 -7.0 -6.7 -6.1 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)15.1 22.1 21.2 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)17.3 18.7 27.7 36.4 34.7 Nominal unit labour cost index (% y-o-y change)5.0 6.5 14.2 12.1 5.2 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)6.7 4.4 9.8 13.4 10.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)3.2 1.9 4.5 3.8 -1.1 Export market share - % of world exports (5 year % change)-6%38.3 36.6 28.8 16.0 8.9 Export market share - % of world exports (1 year % change)8.8 2.7 3.2 -5.4 -0.1 Private sector debtPrivate sector debt, consolidated (% of GDP)133%54.3 53.6 51.4 50.3 50.9 Private sector credit flow, consolidated (% of GDP)14%0.3 5.8 6.8 4.3 3.3 Household debt, consolidated (% of GDP)52.1 (6)15.8 (7)24.1 23.4 21.8 21.2Non-financial corporate debt, consolidated (% of GDP)70.9 (6)48.8 (7)30.230.229.629.1Housing marketHouse price index, deflated (1 year % change)6%6.0 10.9 0.4 -2.8 1.1 House price index, nominal (1 year % change)-1.8 (8)7.316.119.06.44.0Government debtGeneral government gross debt (% of GDP)60%46.2 43.4 38.1 37.3 38.3 General government balance (% of GDP)-6.5-1.1-0.7-1.6-2.3Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%32.6 22.6 1.0 1.4 Return on equity (%)10.010.413.5Common Equity Tier 1 ratio10.6 (9)21.523.220.2Gross non-performing loans, domestic and foreign entities (% of gross loans)2.2e1.2e0.9p1.0Labour marketUnemployment rate (3 year average)10%7.0 7.3 7.2 6.6 6.5 Unemployment rate (year level)6.0 (10)8.5 7.1 6.0 6.8 6.7 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.6 0.9 0.6 -0.1 0.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.2 0.6 0.4 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp6.3 3.2 0.0 forecast 
 
 
 
 
 
           
 
 
 
     
 
LUXEMBOURG 

In Luxembourg, house prices and household debt remain high, although associated macroeconomic 
risks  appear  to  be  limited.  Nominal  house  prices  decreased  in  recent  quarters  but  prices  are  still 
estimated  to  be  overvalued  in  the  faceof  a  high  but  declining  household  debt-to-GDP  ratio.  The 
banking sector is resilient but faces some risks. Nominal unit labour costs have increased markedly 
and are expected to continue growing strongly again this year. 

Real  GDP  growth  reached  1.4%  in  2022  and  is  forecast  at  -0.6%  in  2023  and  1.4%  in  2024. 
Headline inflation stood at 2.1% year-on-year in October 2023. This is below the peak of 10.3% 
recorded  in  June  2022  and  below  the    euro  area  average.  Core  inflation  also  decreased,  from  a 
peak  of  5.1%  in  August  2022  to  3.8%  in  September  2023,  which  is  also  below  the    euro  area 
average.  Nominal  wages  per  person  grew  less  than  prices  in  2022  and  are  expected  to  grow 
broadly in line with prices in 2023. 

The  scoreboard  reading  for  Luxembourg  shows  that  three  indicators  were beyond  their indicative 
thresholds in 2022, namely the current account balance, unit labour costs and private sector debt. 
Relevant developments worth highlighting:  

•  Cost competitiveness concerns have increased recently. Nominal unit labour costs increased 
markedly  in  2022  and  are  expected  to  grow  as  strongly  again  in  2023.  This  denotes  higher 
growth  than  in  the  rest  of  the  euro  area  on  account  of  nominal  wage  increases  amid  the 
widespread  indexation  of  wages  to  past  inflation  and  compounded  by  receding  average 
productivity per worker. Despite this, inflation has been lower than in the rest of the euro area, 
mainly due to measures to cap gas prices and freeze electricity prices until  the end of 2024. 
Core  inflation  has  also  been  below  the    euro  area  average.  As  a  result,  the  HICP  and  core 
inflation-based real effective exchange rate depreciated in 2022. The real effective exchange 
rate  is  expected  to  be  largely  muted  in  2023.  External  sustainability  concerns  remain 
limited, amid gradually declining current account surpluses expected over the forecast period. 

•  The non-financial corporate debt-to-GDP ratio is the highest in the EU, although it declined 
to 259% in 2022 and continued decreasing in the first two quarters of 2023. Nonetheless, it 
remains  some  27  percentage  points  higher  than  in  2019.  Credit  flows  to  non-financial 
corporates  declined  substantially  in  2022  and  contributed  to  the  reduction  in  debt  that  was 
also  facilitated  by  high  nominal  GDP  growth.  At  11%,  the  share  of  domestic  corporate  loans 
denominated  in  foreign  currency  is  one  of  the  highest  among  euro  area  countries.  The  high 
share of cross-border intra-group lending in corporate debt reduces risks. 

•  Following  a  long-term  upward  trend,  the  household  debt-to-GDP  ratio  is  high,  at  67%  in 
2022, and is expected to remain high in 2023. When expressed as a share of household gross 
disposable income, household debt is among the highest in  the EU, at almost 180% in 2022. 
Net  credit  flows  have  contracted  in  response  to  a  tripling  of  borrowing  costs,  but  remain 
incentivised by increasing fiscal support. Risk factors include a still high share of variable rate 
mortgages, a high median debt service-to-income ratio (16%), reaching 35% for debt holders 
in the bottom quintile of the income distribution, which make up 9% of all households, and a 
high price-to-income ratio. On the upside, the gross savings rate is high, and 2023 and 2024 
are expected to bring robust real wage growth.  

•  Concerns  related  to  the  housing  market  persist,  and  house  prices  have  turned  negative  in 
recent  quarters.  Mortgage  lending  and  the  number  of  transactions  have  fallen  significantly. 
House price growth decelerated to just under 10% in 2022, building on years of strong growth, 

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which  has  resulted  in  house  prices  being  estimated  to  be  overvalued  by  over  60%.  A  very 
strong decline in house prices is unlikely in the medium term as demand is supported by high 
population  growth,  the  large  number  of  cross-border  workers,  tax  measures  and  structurally 
low housing supply. However, some continued short-term reductions can be expected as house 
prices adjust to higher interest rates in 2023 and 2024. 

•  The  banking  sector  is  well  capitalised,  but  profitability  remained  below  the  EU  average  in 
2022.  The  ratio  of  non-performing  loans  has been very low  despite  a mild increase  in  2022. 
Credit  dynamics  have  declined  significantly  amid  the  tightening  of  financing  conditions.  High 
household indebtedness, coupled with overvalued house prices, represents the main risk for the 
domestically  oriented  banking  sector.  The  financial  sector  is  significantly  exposed  to  the 
commercial  real  estate  sector,  although  mainly  via  investment  funds  without  a  direct  link  to 
domestic  real  estate.  An  ongoing  correction  of  commercial  real  estate  prices  therefore 
represents a limited risk for the financial sector. Government debt remains very low despite 
recent increases. 

Graph 3.16: Selected graphs: Luxembourg 

Source: AMECO, Eurostat and European Commission 

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106 

03691215182124273033363942454810012014016018020007080910111213141516171819202122% of total financial assets% of disp. incomeb) Household indebtedenessDebt / disposable income, HouseholdsDebt / Total financial assets, Households (rhs)-15-10-505101520051015202505Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q422Q4Rate 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 axis 
 
 
 
 
 
 
           
 
 
 
 
 
 
 
 
 
Table 3.16:  Key economic and financial indicators, Luxembourg 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%8.0 8.5 8.0 7.2 6.2 Current account balance, balance of payments (% of GDP)5.3 (1)2.2 (2)8.6 7.9 7.7 5.9 5.0 Net international investment position (% of GDP)-35%-167.6 (3)55.9 (4)42.4 42.6 47.0 52.8 58.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-4063.1 -4598.7 -3753.7 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)12.4 7.4 13.2 17.9 21.5 Nominal unit labour cost index (% y-o-y change)3.9 0.9 7.9 8.3 4.0 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.5 0.7 -0.5 -0.3 -1.0 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.4 0.8 -1.7 -0.1 0.1 Export market share - % of world exports (5 year % change)-6%21.7 16.7 -0.8 -1.8 -8.0 Export market share - % of world exports (1 year % change)15.8 -1.6 -16.6 -2.4 -0.8 Private sector debtPrivate sector debt, consolidated (% of GDP)133%327.8 343.9 325.5 p312.2 308.1 Private sector credit flow, consolidated (% of GDP)14%45.7 64.1 -19.5 p6.9 11.3 Household debt, consolidated (% of GDP)99.4 (6)79.3 (7)68.8 66.6 66.8 66.7Non-financial corporate debt, consolidated (% of GDP)123.2 (6)86.3 (7)259.0277.3258.7245.5Housing marketHouse price index, deflated (1 year % change)6%12.7 12.5 4.0 2.1 0.9 House price index, nominal (1 year % change)62.7 (8)14.513.99.65.84.0Government debtGeneral government gross debt (% of GDP)60%24.6 24.5 24.7 26.8 28.7 General government balance (% of GDP)-3.40.6-0.3-1.9-2.1Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%-2.2 13.1 -4.9 0.4 Return on equity (%)4.45.55.2Common Equity Tier 1 ratio10.6 (9)19.518.317.6Gross non-performing loans, domestic and foreign entities (% of gross loans)0.7e0.6e1.2p0.8Labour marketUnemployment rate (3 year average)10%6.0 5.9 5.6 5.1 5.3 Unemployment rate (year level)5.8 (10)6.8 5.3 4.6 5.5 5.9 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.0 2.1 1.5 1.5 0.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.4 0.4 0.0 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp7.8 2.7 0.6 forecast 
 
 
 
 
 
 
 
     
 
HUNGARY 

In Hungary, concerns related to strong price and cost pressures, government and external financing 
needs,  and  house prices  remain.  Nominal  unit  labour  costs  are  forecast  to  continue increasing  at 
high rates and core inflation remains well above the euro area average, albeit it is declining fast. 
The  very  large  current  account  deficit  has  narrowed  markedly  in  the  course  of  2023;  the 
government deficit remains very high.  

Real  GDP  growth  reached  4.6%  in  2022  and  is  forecast  at  -0.7%  in  2023  and  2.4%  in  2024. 
Headline inflation remained high, at 12.2% year-on-year in September 2023. This is below the peak 
of 26.2% recorded in January 2023 but above the EU and  euro area averages. Core inflation also 
decreased, from a peak of 17.4% in March 2023, to 12% in September 2023, which is also above 
the EU and  euro area averages. Nominal wages per person grew more than prices in 2022 and are 
expected to grow less than prices in 2023. 

The  scoreboard  reading  for  Hungary  shows  that  four  indicators  were  beyond  their  indicative 
thresholds in 2022, namely the current account balance, net international investment position, unit 
labour costs, and government debt. Relevant developments worth highlighting:  

•  Concerns  about  external  sustainability  persist,  despite  an  improvement  in  the  current 
account driven by the cyclical downturn on the top of falling energy prices. The current account 
balance, which recorded a surplus in the years before the pandemic, deteriorated to a deficit of 
8.3%  of  GDP  in  2022.  In  the  second  quarter  of  2023,  the  current  account  balance  improved 
to -5.4%, as domestic demand softened. It is projected to turn positive this year before falling 
slightly  in  2024.  The  negative  net  international  investment  position  (NIIP)  improved  sligthly 
to -50.8% in 2022 and is expected to remain broadly unchanged this year and next. The NIIP 
net  of  non-defaultable  instruments is  around  balance.  In  September  2023,  Hungary's  foreign 
reserves exceeded short-term external debt, but they covered less than 3 months of imports in 
2022. 

•  Cost  competitiveness  concerns  persist  and  are  widening.  After  several  years  of  marked 
increases,  nominal  unit  labour  costs  have  continued  to  grow  sharply  in  2022  and  2023  on 
account of significant nominal wage growth. Their expected growth in 2023 is much faster than 
in trading partners. However, a slowdown in unit labour cost growth is projected for 2024. The 
HICP-based  real  effective  exchange  rate  depreciated  in  2022,  as  a  significant  nominal 
depreciation more than offset the clearly higher inflation at home relative to trading partners. 
However, a strong appreciation is underway in 2023, driven by both nominal appreciation and 
persistently  higher  inflation.  Core  inflation  has  declined  in  recent  months  but  remains  in 
double-digit territory.  

•  The  non-financial  corporate  debt-to-GDP  ratio  is  high  compared  to  regional  peers  and  it 
remained unchanged in 2022, at 60%, 11 percentage points above its 2019 level. Credit flows 
to non-financial corporates remained high, at 8.2% of GDP in 2022, but decreased at the end 
of 2022 and in the first half of 2023. The corporate debt-to-GDP ratio decreased in the first 
two quarters of 2023. Over 2022 and 2023, the interest rate burden has been increasing more 
than in most other EU countries though. The share of domestic corporate loans denominated in 
foreign  currency  is  very  high,  at  40%,  and  is  increasing.  Part  of  this  high  share  may  be 
accounted for by borrowers in non-tradable sectors and therefore with less revenue in foreign 
currencies. Corporate borrowing in euro has expanded recently. Bankruptcies increased sharply 
in recent quarters, partly following the 2021 update of the insolvency law. 

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•  House  price  growth  accelerated  to  nearly  22%  in  2022,  coming  on  top  of  many  years  of 
strong growth that has led to an estimated overvaluation of house prices by nearly 20%. Since 
the  end  of  2022,  a  moderation  in  house  prices  is  evident,  as  house  prices  adjust  to  higher 
interest rates and demand is tempered by the sharp slowdown in the economy. The household 
debt-to-GDP  ratio  remains  low,  and  credit  flows  have  decreased,  but  non-performing  loans 
remain relatively high at almost 5% of all loans to households by mid-2022.  

•  The  banking  sector  remains  sound  overall,  but  some  vulnerabilities  remain.  Profitability 
declined in 2022 and is close to the EU average, as is the Common Equity Tier 1 capital ratio. 
While the non-performing loans ratio has been gradually declining (2.8% in the first quarter of 
2023),  the  Stage  2  loans  ratio  has  increased  significantly  since  2020.  Government  debt 
accounts for almost  a fifth of bank assets. Lending rates have increased sharply, dampening 
mortgage credit growth. Government policies, including specific taxes on the banking sector and 
caps on certain lending rates, have a significant impact on profitability. 

•  Public finances continue to be under pressure. The government debt-to-GDP ratio decreased 
slightly, to 73.9% in 2022 as strong nominal GDP growth affected the denominator despite a 
sizeable government deficit. Debt is forecast to fall to around 70% in 2023, before rising again 
in 2024 due to a high deficit and lower nominal GDP growth. The government deficit narrowed 
to  6.2%  of  GDP  in  2022  and  is  forecast  to  recede  to  5.8%  of  GDP  in  2023  and  somewhat 
further in 2024. A significant share of government debt is denominated in foreign currencies or 
held  by  non-residents.  Sovereign  bond  yields  have  been  elevated  and  government  gross 
financing needs are high. Fiscal sustainability risks are high in the medium and long term (92). 

Graph 3.17: Selected graphs: Hungary 

Source: AMECO, Eurostat and European Commission 

(92) Estimated based on the Commission’s 2023 spring forecasts. 

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-15-10-5051015161718192021222323*24*25*% of GDPa) Current accountGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowingHUEA20-2024681012141618201920212223% growth year on yearb) Core inflation in HU, other non-EA countries, and the EA 
 
 
 
 
 
 
     
 
 
 
Table 3.17:  Key economic and financial indicators, Hungary 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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107 

ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-0.6 -2.0 -4.5 -3.8 -2.5 Current account balance, balance of payments (% of GDP)0.0 (1)-4.6 (2)-1.0 -4.1 -8.3 0.8 0.0 Net international investment position (% of GDP)-35%-53.7 (3)-15.5 (4)-52.1 -52.2 -50.8 -49.7 -48.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-2.5 -1.2 -5.3 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)13.7 13.3 23.1 p32.6 38.9 Nominal unit labour cost index (% y-o-y change)6.7 2.9 12.1 p14.9 7.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)-4.9 -4.1 -8.1 8.4 7.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-3.7 0.3 -4.9 10.4 -0.8 Export market share - % of world exports (5 year % change)-6%7.1 -2.7 -3.5 -3.8 -4.6 Export market share - % of world exports (1 year % change)2.5 -6.1 -0.4 -0.6 0.1 Private sector debtPrivate sector debt, consolidated (% of GDP)133%77.0 80.9 78.8 p68.6 67.7 Private sector credit flow, consolidated (% of GDP)14%8.2 12.9 9.2 p5.3 3.7 Household debt, consolidated (% of GDP)37.8 (6)30.6 (7)20.8 21.1 18.6p16.5Non-financial corporate debt, consolidated (% of GDP)54.3 (6)44.2 (7)56.259.860.252.1Housing marketHouse price index, deflated (1 year % change)6%1.5 9.6 5.1 p-9.9 -2.1 House price index, nominal (1 year % change)23.0 (8)4.916.522.3p5.63.0Government debtGeneral government gross debt (% of GDP)60%79.3 76.7 73.9 69.9 71.7 General government balance (% of GDP)-7.6-7.2-6.2-5.8-4.3Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%55.0 16.5 8.6 0.0 Return on equity (%)7.612.711.9Common Equity Tier 1 ratio10.6 (9)15.917.716.2Gross non-performing loans, domestic and foreign entities (% of gross loans)3.6e3.2e3.1p2.7Labour marketUnemployment rate (3 year average)10%3.7 3.8 3.9 3.9 4.0 Unemployment rate (year level)3.2 (10)4.1 4.1 3.6 4.1 4.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.0 2.1 2.5 3.6 2.9 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.5 -0.1 0.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp2.0 3.6 -0.6 forecast 
 
 
 
 
 
 
 
 
      
 
MALTA 

In  Malta,  the  current  account  balance  remains  negative  and  non-financial  corporate  and 
government debt elevated, although associated risks appear to be limited. The high non-financial 
corporate  debt-to-GDP  ratio  remains  on  a  declining  path.  The  government  debt-to-GDP  ratio  is 
forecast to increase amidst a high government deficit.  

Real GDP growth reached 6.9% in 2022 and is forecast at 4% in 2023 and 4% in 2024. Headline 
inflation stood at 4.3% year-on-year in October 2023. This is below the peak of 7.4% recorded in 
September 2022 but above the  euro area average. Core inflation also decreased, from a peak of 
7.2% in September 2022 to 3.8% in October 2023, which is below the  euro area average. Nominal 
wages per person grew less than prices in 2022 and are expected to also do so in 2023. 

The  scoreboard  reading  for  Malta  shows  that  no  indicator  was  beyond  its  indicative  threshold  in 
2022. Relevant developments worth highlighting:  

•  External sustainability concerns remain limited. The current account balance fell from 1.2% 
in 2021 to -3.0% in 2022 and remained in a slight deficit in the first half of 2023. The balance 
of  trade  in  goods  has been  a  key  driver  of  the  current  account  changes.  The current  account 
balance is expected to increase to almost 2% in 2023 and increase further in 2024. The net 
international investment position remains large and positive, reflecting the country’s position as 
an international financial centre. Cost competitiveness concerns seem to be limited.  

•  The  non-financial  corporate  debt-to-GDP  ratio  remains  high,  although  it  is  on  a  declining 
path.  It  reached  66%  in  2022,  8  percentage  points  lower  than  in  2019,  and  continued 
decreasing in the first half of 2023.  

•  At  56%  in  2022,  the  household  debt-to-GDP  ratio  remains  moderately  high.  It  is  set  to 
decrease in 2023. Credit flows are among the largest in the EU and  are easing only slowly in 
the face of relatively stable interest rates. Almost 70% of new mortgages had a variable rate 
(<1  year  fixation  period)  in  mid-2023,  down  from  93%  a  decade  ago.  House  price  growth 
accelerated slightly in 2022 overall, but a moderation is evident in recent quarters.  

•  The  banking  sector  remains  sound  overall  with  high  levels  of  capitalisation,  but  with  some 
risks. The non-performing loans ratio, at 2.4% (as of first quarter of 2023), has been slightly 
above the EU average. The Stage 2 loans ratio declined slightly in 2022. Profitability declined in 
2022  and  is  well  below  the  EU  average.  The  high  exposure  of  the  financial  sector  to  the 
housing market may represent a risk factor. 

•  Moderate  concerns  related  to  government  debt  remain.  The  government  debt-to-GDP  ratio 
decreased  to  52.3%  of  GDP  but  is  forecast  to  increase  in  2023  and  2024.  The  government 
deficit narrowed to 5.7% of GDP in 2022 and is forecast to continue narrowing gradually while 
remaining above 4%. Fiscal sustainability risks are medium in the medium term and high in the 
long term (93). 

(93) Estimated based on the Commission’s 2023 spring forecasts. 

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Graph 3.18: Selected graphs: Malta 

Source: AMECO, Eurostat and European Commission 

Table 3.18:  Key economic and financial indicators, Malta 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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050100150200250091011121314151617181920212223f% of GDPb) Decomposition of debt by sectorGovernmentHouseholdNon financial corporationsPrivate sector-40161718192021222323*24*25*% of GDPa) Current accountSecond. inc. bal.Primary inc. bal.Travel balanceServices excl travelEnergy balanceGoods excl energyServices, fcastGoods, fcastCurrent accountNet lending/borrowingThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%5.9 4.1 0.1 0.0 0.8 Current account balance, balance of payments (% of GDP)-2.0 (1)2.6 (2)2.2 1.2 -3.0 1.9 3.4 Net international investment position (% of GDP)-35%-77.3 (3)-17.1 (4)59.4 97.0 78.8 81.2 84.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)265.4 114.5 111.8 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)20.3 8.4 8.6 1.5 8.5 Nominal unit labour cost index (% y-o-y change)11.0 -4.4 2.4 3.6 2.3 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.9 -1.2 -3.1 -1.8 -1.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.4 -1.1 -3.4 0.9 -0.6 Export market share - % of world exports (5 year % change)-6%30.6 13.4 2.7 7.9 -6.3 Export market share - % of world exports (1 year % change)8.6 -10.2 -6.1 1.9 0.5 Private sector debtPrivate sector debt, consolidated (% of GDP)133%142.7 132.7 121.8 116.2 114.3 Private sector credit flow, consolidated (% of GDP)14%5.8 8.8 6.4 6.6 6.0 Household debt, consolidated (% of GDP)43.5 (6)40.0 (7)61.0 58.5 55.7 53.6Non-financial corporate debt, consolidated (% of GDP)54.4 (6)60.8 (7)81.774.266.162.6Housing marketHouse price index, deflated (1 year % change)6%2.2 3.8 1.2 p-2.1 -0.5 House price index, nominal (1 year % change)5.5 (8)3.45.16.7p3.13.0Government debtGeneral government gross debt (% of GDP)60%52.2 54.0 52.3 53.3 55.8 General government balance (% of GDP)-9.6-7.5-5.7-5.1-4.6Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%4.9 11.1 5.9 0.2 Return on equity (%)0.33.54.3Common Equity Tier 1 ratio10.6 (9)21.320.619.7Gross non-performing loans, domestic and foreign entities (% of gross loans)3.6e3.0e2.3p2.1Labour marketUnemployment rate (3 year average)10%3.9 3.8 3.6 3.0 2.8 Unemployment rate (year level)3.3 (10)4.4 3.4 2.9 2.7 2.7 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp4.9 3.5 4.1 3.6 2.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.9 -0.9 0.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp0.3 0.3 -1.0 forecast 
 
 
 
 
 
           
 
 
 
     
 
THE NETHERLANDS 

In  the  Netherlands,  concerns  related  to  the  current  account  surplus,  high  private  debt  and  house 
prices  remain.  The  current  account  surplus  warrants  close  monitoring,  including  from  the 
perspective of  euro area rebalancing.;  Cost competitiveness developments in 2022 contributed to 
a more symmetric euro -area adjustment. Nominal house price growth turned negative, but prices 
are still estimated to be overvalued. 

Real  GDP  growth  reached  4.3%  in  2022  and  is  forecast  at  0.6%  in  2023  and  1.1%  in  2024. 
Headline  inflation  stood  at  -1%  year-on-year  in  October  2023.  This  is  below  the  peak  of  17.1% 
recorded in September 2022 and below the  euro area average. Core inflation also decreased, from 
a  peak  of  8.2%  in  May  2023  to  4.7%  in  October  2023,  which  is  above  the    euro  area  average. 
Nominal  wages  per  person  grew  less  than  prices  in  2022,  but  are  expected  to  rise  faster  than 
prices in 2023. 

The scoreboard reading for the Netherlands shows that four indicators were beyond their indicative 
thresholds in 2022, namely the current account balance, unit labour costs, house price index, and 
private sector debt. Relevant developments worth highlighting:  

•  External  sector  concerns  related  to  the  high  and  long-standing  current  account  surplus 
remain. In 2022, the Netherlands witnessed a decline in its substantial current account surplus, 
which fell from 12.1% in 2021 to 9.3%, primarily driven by a decline in the primary income and 
goods  balances.  The  current  account  is  forecast  at  9.2%  in  2023  and  in  2024.  The  net 
international investment position fell to 75% of GDP in 2022, driven by valuation effects, but is 
expected to increase strongly in 2023 and 2024, owing to high current account surpluses.  

•  Cost competitiveness developments may facilitate a more symmetric  euro area adjustment. 
Nominal unit labour costs grew on a par with the  euro area average in 2022, but are expected 
to  grow  more  strongly in 2023  and  2024,  which  may  marginally  contribute to  facilitatinge  a 
symmetric adjustment in the euro area. Core inflation has been above the  euro area average, 
but headline inflation recently dropped below the  euro area average with sharp falls in energy 
prices playing an significant role. 

•  The  non-financial  corporate  debt-to-GDP  ratio  remains  among  the  highest  in  the  EU, 
although it is on a declining path. It decreased to 118% in 2022, 13 percentage points below 
its  2019  level,  and  continued  falling  in  the  first  two  quarters  of  2023.  Credit  flows  to  non-
financial corporates decreased to 4.3% as a share of GDP in 2022 and decelerated further in 
2023. The high share of cross-border intra-group  lending and high corporate liquidity  buffers 
mitigate risks. 

•  Despite more than a decade of deleveraging, the household debt-to-GDP ratio is the highest 
in  the  EU,  at  92%.  Deleveraging is  set to  continue in  2023  on  the back  of high  inflation  and 
tightening financial conditions. As of mid-2023, around 20% of new mortgages have variable 
interest  rates,  and  net  interest  payments  have  increased  markedly.  Risk  factors  include  a 
median  debt  -service-to-income  ratio  of  41%  for  debt  holders  in  the  bottom  quintile  of  the 
income distribution, which make up around 9% of all households in the Netherlands.  

•  House prices remain high after several years of strong growth, despite recent falls. In 2022, 
house  prices  grew  by  over  13%,  leaving  prices  overvalued  by  an  estimated  25%.  As 
households’ borrowing capacity dropped, quarterly growth rates turned negative in the second 

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half  of  2022.  However,  supply  constraints  can  be  expected  to  keep  prices  elevated  in  the 
medium term.  

•  The  banking  sector  is  stable.  Capitalisation  dropped  below  the  EU  average  in  2022. 
Profitability increased only marginally and is below the EU average. The non-performing loans 
ratio remained very low and Stage 2 loans increased slightly but remain below the EU average. 
Credit growth has declined amid tightening financial conditions. High exposure of the financial 
sector,  including  non-banks,  to  real  estate,  and  particularly  commercial  real  estate,  which  is 
undergoing a price correction at EU level, represents a risk factor. 

Graph 3.19: Selected graphs: The Netherlands 

Source: AMECO, Eurostat and European Commission 

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-10-505101520250708091011121314151617181920212223*24*25*% of GDPa) Net lending/borrowing by sectorCorporationsGeneral governmentHouseholds and NPISHTotal economyNLEA20-10-505101520251920212223% growth year on yearb) House price growth, year-on-year 
 
 
 
 
 
           
 
 
 
 
 
 
 
 
 
 
 
 
Table 3.19:  Key economic and financial indicators, The Netherlands 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%7.1 8.1 8.8 10.2 9.2 Current account balance, balance of payments (% of GDP)1.8 (1)2.6 (2)5.1 12.1 9.3 9.2 9.2 Net international investment position (% of GDP)-35%-91.4 (3)34.0 (4)113.0 93.3 75.2 89.0 103.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)10.3 21.4 18.5 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)14.1 9.3 p9.8 p8.8 16.6 Nominal unit labour cost index (% y-o-y change)8.1 -2.0 p3.6 p7.2 5.0 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)3.7 2.3 3.2 1.0 0.9 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.8 0.1 1.2 2.5 0.0 Export market share - % of world exports (5 year % change)-6%6.5 3.2 -0.1 -2.3 -3.1 Export market share - % of world exports (1 year % change)4.9 -2.8 -2.1 -0.7 -2.3 Private sector debtPrivate sector debt, consolidated (% of GDP)133%233.1 223.7 210.1 p190.7 185.6 Private sector credit flow, consolidated (% of GDP)14%-0.7 9.6 6.9 p6.2 3.7 Household debt, consolidated (% of GDP)47.3 (6)67.9 (7)103.8 98.9 92.4p86.4Non-financial corporate debt, consolidated (% of GDP)74.1 (6)104.2 (7)129.3124.8117.7104.3Housing marketHouse price index, deflated (1 year % change)6%6.2 11.6 6.1 -10.9 -4.6 House price index, nominal (1 year % change)25.0 (8)7.615.013.4-3.1-1.0Government debtGeneral government gross debt (% of GDP)60%54.7 51.7 50.1 47.1 46.6 General government balance (% of GDP)-3.7-2.2-0.1-0.5-1.8Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%1.4 0.2 -3.7 p1.0 Return on equity (%)3.18.37.7Common Equity Tier 1 ratio10.6 (9)17.917.816.5Gross non-performing loans, domestic and foreign entities (% of gross loans)1.9e1.4e1.3p1.3Labour marketUnemployment rate (3 year average)10%4.7 4.5 4.2 3.8 3.7 Unemployment rate (year level)4.2 (10)4.9 4.2 3.5 3.6 3.9 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.2 1.0 1.3 1.7 1.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.0 -0.4 -0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp0.2 0.4 -0.9 forecast 
 
 
 
 
 
 
 
     
 
AUSTRIA 

In  Austria,  house  prices  remain  high  and  non-financial  corporate  and  government  debt-to-GDP 
ratios  elevated,  although  associated  macroeconomic  risks  appear  to  be  limited.  Nominal  house 
price growth turned negative recently, but prices are still estimated to be overvalued. The corporate 
debt-to-GDP ratio remains high, but is declining. Government debt is decreasing, but is still higher 
than in 2019.  

Real  GDP  growth  reached  4.8%  in  2022  and  is  forecast  at  -0.5%  in  2023  and  1.0%  in  2024. 
Headline inflation stood at 4.9% year-on-year in October 2023. This is below the peak of 11.6% 
recorded in October 2022 but above the  euro area average. Core inflation also decreased, from a 
peak of 8.3% in April 2023 to 6.9% in September 2023 which is also above the  euro area average. 
Nominal  wages  per  person  grew  less  than  prices  in  2022,  but  are  expected  to  rise  faster  than 
prices in 2023. 

The  scoreboard  reading  for  Austria  shows  that  two  indicators  were  beyond  their  indicative 
thresholds in 2022, namely unit labour costs and government debt. Relevant developments worth 
highlighting:  

•  Cost  competitiveness  concerns  have  increased  recently.  Nominal  unit  labour  costs  are 
expected  to  accelerate  markedly  in  2023  following  more  modest  increases  in  2022,  visibly 
above  the    euro  area  average.  The  HICP-based  real  effective  exchange  rate  depreciated  in 
2022, largely  reflecting the effects of nominal  depreciation of the euro; some appreciation is 
being observed in 2023. Core inflation has been above the euro area and, as a result, the core 
inflation-based real effective exchange rate has appreciated in 2023. External sustainability 
concerns remain limited. 

•  Vulnerabilities  related  to  the  high  non-financial  corporate  and  household  debt-to-GDP 
ratios  remain,  although  they  are  on  a  declining  path.  The  corporate  debt-to-GDP  ratio 
decreased to 73% in 2022, but is still slightly higher than in 2019. The household debt-to-GDP 
ratio stood at 49% in 2022. Half of new mortgages have variable interest rates.  

•  Concerns related to house prices remain, despite some recent moderation. Following years of 
noticeable  growth,  house  prices  grew  by  just  over  11%  in  2022,  and  are  estimated  to  be 
overvalued  just over 30%. Prices broadly stabilised over the later part of the year and a recent 
small  reduction  appears  to  have  stalled  in  the  most  recent  data.  The  stabiliszation  in  house 
prices can be expected to continue as house prices adjust to higher interest rates. 

•  The banking sector is sound overall. The Common Equity Tier 1 capital ratio and profitability 
remained stable in 2022 and are slightly above the EU average. The non-performing loans ratio 
was  low,  but the  Stage  2 ratio  was  well  above  the EU  average.  The existing exposure  of  the 
banking  sector  to  Russia  represents  a  source  of  risk.  The  provision  of  mortgage  credit  has 
declined significantly. 

•  Concerns  related  to  government  debt  are  limited  and  debt  levels  are  declining.  overnment 
debt  decreased  to  78.4%  of  GDP  in  2022,  and  is  forecast  to  decrease  further,  but  remains 
higher than in 2019. The government deficit narrowed to 3.5% of GDP in 2022 and is forecast 
to continue narrowing. Fiscal sustainability risks are medium in the long term. 

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Graph 3.20: Selected graphs: Austria 

Source: AMECO, Eurostat and European Commission 

Table 3.20:  Key economic and financial indicators, Austria 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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-10-50510152002040608010012014016018020005Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q422Q4Rate 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 axis0501001502002503003500910111213141516171819202122% of GDPb) Decomposition of debt by sectorNon financial corporationsHouseholdGovernmentFinancial corporations (MFI)ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%2.2 2.5 1.6 0.7 0.4 Current account balance, balance of payments (% of GDP)1.3 (1)0.6 (2)3.4 1.6 -0.3 0.7 0.7 Net international investment position (% of GDP)-35%-83.8 (3)10.1 (4)12.3 15.6 17.6 15.0 12.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-4.1 -2.6 -1.5 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)12.2 10.6 10.7 13.1 19.8 Nominal unit labour cost index (% y-o-y change)7.2 0.7 2.6 9.5 6.6 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)3.1 1.2 0.1 -0.1 0.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)2.1 0.2 -2.1 2.0 0.3 Export market share - % of world exports (5 year % change)-6%4.9 -3.8 -4.7 -7.2 -7.9 Export market share - % of world exports (1 year % change)0.1 -4.4 -2.3 -0.5 -0.9 Private sector debtPrivate sector debt, consolidated (% of GDP)133%130.6 130.7 121.9 114.6 102.1 Private sector credit flow, consolidated (% of GDP)14%4.4 7.6 5.0 -2.3 -6.2 Household debt, consolidated (% of GDP)46.3 (6)67.2 (7)53.2 52.2 48.7 44.9Non-financial corporate debt, consolidated (% of GDP)66.4 (6)70.3 (7)77.478.573.269.7Housing marketHouse price index, deflated (1 year % change)6%6.4 10.1 3.7 -3.3 -1.1 House price index, nominal (1 year % change)33.8 (8)7.712.411.43.23.0Government debtGeneral government gross debt (% of GDP)60%83.0 82.5 78.4 76.3 75.6 General government balance (% of GDP)-8.0-5.8-3.5-2.6-2.4Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%11.8 8.2 -3.0 0.6 Return on equity (%)4.16.410.0Common Equity Tier 1 ratio10.6 (9)16.116.016.3Gross non-performing loans, domestic and foreign entities (% of gross loans)2.0e1.8e1.8p1.7Labour marketUnemployment rate (3 year average)10%5.3 5.7 5.7 5.4 5.2 Unemployment rate (year level)5.3 (10)6.0 6.2 4.8 5.3 5.4 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp-0.4 0.1 0.5 2.0 1.7 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.6 0.3 -0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp1.2 1.0 0.4 forecast 
 
 
 
 
 
         
 
 
      
 
POLAND 

In  Poland,  developments  related  to  unit  labour  costs  and  the  high  fiscal  deficit  are  of  increasing 
relevance.  Nominal  unit  labour  costs  increased  visibly,  and  are  expected  to  grow  even  more 
markedly this year. Inflation remains above the euro area average, amid recently looser monetary 
policy and an increasing government deficit.  

Real  GDP  growth  reached  5.3%  in  2022  but  is  forecast  at  0.4%  in  2023  and  2.7%  in  2024. 
Headline inflation stood at 7.7% year-on-year in September 2023. This is below the peak of 17.2% 
recorded in February 2023 but above the EU and euro area averages. Core inflation also decreased, 
from a peak of 12% in November 2022, to 7.4% in September 2023, which is also above the EU 
and euro area averages. Nominal wages per person grew broadly in line with prices in 2022, and 
are expected to also do so in 2023. 

The scoreboard reading for Poland shows that one indicator was beyond its indicative threshold in 
2022, namely unit labour costs. Relevant developments worth highlighting:  

•  External  sustainability  concerns  remain  contained.  The  current  account  deficit  increased 
from  1.3%  in  2021  to  2.4%  in  2022  due  to  a  decrease  in  both  the  non-energy  and  energy 
goods balances. As domestic demand weakened in the first half of 2023, the current account 
balance  improved  to  -0.1%.  The  current  account  balance  is  expected  to  return  to  surplus  in 
2023,  at  1.4%  of  GDP  and  remain  broadly  stable  in  2024.  The  net  international  investment 
position  (NIIP)  slightly  improved  in  2022  to  -33%  and  is  no  longer  beyond  the  indicative 
scoreboard  threshold.  The  NIIP  excluding  non-defaultable  loan  instruments  was  broadly  in 
balance. The NIIP is projected to continue improving over the forecast period. 

•  Cost  competitiveness  concerns  have  been  increasing.  Nominal  unit  labour  costs  increased 
visibly  in  2022,  and  are  expected  to  grow  even  more  markedly  in  2023.  Unit  labour  costs 
growth in 2022 and 2023 is well in excess of the euro area trading partners and the rest of the 
EU.  Those  patterns  have  been  driven  by  very  significant  nominal  wage  increases  amid  high 
inflation in a tight labour market. Wage increases were mitigated by large labour productivity 
gains in 2022 but not in 2023, amid a stagnant economy. Both headline and core inflation have 
been above the euro area and EU averages even if both have declined visibly since late 2022. 
The HICP-based real  effective exchange rate depreciated marginally in 2022 amid a sizeable 
nominal depreciation. However, strong appreciations of both the HICP and core-inflation based 
real effective exchange rates have taken place in 2023 driven by much higher inflation rates at 
home  than  in  trading  partners,  as  well  as  nominal  appreciation.  In  September  2023,  the 
Monetary Policy Council cut the National Bank of Poland reference rate by 75 basis points to 
6.0%, which was followed by depreciation of the zloty against the euro. 

•  The household debt-to-GDP ratio is low, at 27% in 2022, and is set to decline further in 2023. 
Credit flows turned negative in 2022 as interest rates for new loans surpassed the  8% mark. 
By  mid-2023,  around  35%  of  new  loans  had  a  variable  rate  (<1  year  fixation  period),  down 
from  around  100%  a  decade  ago.  The  gross  savings  rate  dropped  from  4.6%  to  -0.8%  over 
2019-2022,  the  lowest  in  the  EU,  but  is  set  to  pick  up  in  the  future.  Non-performing  loans 
declined to 4.8% of all loans to households by mid-2023, a still relatively high level. The non-
financial corporate debt-to-GDP ratio has been decreasing from a low level. 

•  House  price  growth  dynamics  are  of  limited  concern.  Nominal  house  prices  grew  by  almost 
12%  in  2022  on  the  back  of  strong  increases  in  incomes,  a  continuation  of  recent  trends. 
However,  this  year  prices  have  moderated  ,  and  house  prices  showed  some  stability  before 

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growing  again  in  the  last  quarter.  Given  that  house  price  growth  was  muted  before  the 
pandemic, house prices are now broadly in line with incomes. House prices have declined in real 
terms  in  2022  and  are  expected  to  do  so  also  in  2023.  Some  moderation  in  nominal  levels 
could  occur  following  the  increase  in  interest  rates,  which  affected  borrowing  capacity 
significantly  in  2022.  While  the  change  in  borrowing  capacity  is  expected  to  stabilise,  some 
delayed impact on house prices can still occur in 2023. 

•  The  banking  sector  remains  sound.  Profitability  increased  in  2022  and is,  together  with  the 
capital  ratio,  slightly  below  the  EU  average.  In  the  future,  the  profitability  of  banks  can  be 
affected  by  legal  risks  related  to  previously  granted  foreign  currency  mortgages.  The  overall 
non-performing loans ratio remained stable in 2022, but at 4.3% (as of first quarter of 2023) 
is well above the EU average. After a significant increase  in interest rates in 2022, the credit 
dynamics slowed down significantly.  

•  Concerns related to government debt remain limited for now, but the increasing deficit is a 
concern.  The  government  debt-to-GDP  ratio  decreased  in  2022  to  49.3%.  It  is  forecast  to 
increase in 2023 and 2024, but is still set to remain below the Treaty reference value of 60% 
of  GDP.  The  fiscal  deficit  widened  to  3.7%  of  GDP  in  2022  and  is  forecast  to  increase 
substantially in 2023. It is also forecast to remain above 4% in 2024. Fiscal sustainability risks 
are medium both in the medium- and long-term (94). 

Graph 3.21: Selected graphs: Poland 

Source: AMECOAMECO, Eurostat and European Commission 

(94) Estimated based on the Commission’s 2023 spring forecasts. 

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PLEA19-20246810121920212223%, y-o-y a) Core inflation, year-on-yearPLEA190246810121920212223%a) Av. interest rate for new hh. mortgage business: Poland compared to non-EA MS 
 
 
 
 
 
 
           
 
 
 
 
 
Table 3.21:  Key economic and financial indicators, Poland 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.1 0.3 -0.4 -0.8 0.1 Current account balance, balance of payments (% of GDP)0.3 (1)-2.8 (2)2.5 -1.3 -2.4 1.4 1.2 Net international investment position (% of GDP)-35%-55.4 (3)-5.1 (4)-43.9 -39.8 -33.4 -28.1 -25.1 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-4.5 0.7 2.7 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)14.0 12.1 16.9 p21.1 28.1 Nominal unit labour cost index (% y-o-y change)7.5 0.4 8.4 p11.3 6.1 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.1 -0.4 -0.2 7.3 9.4 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.1 -0.5 -0.7 7.2 1.4 Export market share - % of world exports (5 year % change)-6%33.3 23.7 16.6 9.7 4.9 Export market share - % of world exports (1 year % change)11.2 -1.4 -0.9 -2.6 -0.9 Private sector debtPrivate sector debt, consolidated (% of GDP)133%76.1 71.3 63.5 56.9 55.1 Private sector credit flow, consolidated (% of GDP)14%1.8 3.8 1.9 2.7 2.7 Household debt, consolidated (% of GDP)41.9 (6)18.6 (7)34.6 32.2 26.6 23.7Non-financial corporate debt, consolidated (% of GDP)61.8 (6)27.9 (7)41.539.136.933.2Housing marketHouse price index, deflated (1 year % change)6%6.7 3.5 -1.9 -8.1 -2.0 House price index, nominal (1 year % change)1.9 (8)10.59.211.82.14.0Government debtGeneral government gross debt (% of GDP)60%57.2 53.6 49.3 50.9 54.4 General government balance (% of GDP)-6.9-1.8-3.7-5.8-4.6Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%11.6 12.3 3.0 1.3 Return on equity (%)3.14.87.3Common Equity Tier 1 ratio10.6 (9)17.516.116.3Gross non-performing loans, domestic and foreign entities (% of gross loans)6.0e5.0e4.3p4.4Labour marketUnemployment rate (3 year average)10%3.5 3.3 3.2 3.1 2.9 Unemployment rate (year level)2.8 (10)3.2 3.4 2.9 3.0 2.8 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.4 3.4 3.6 3.8 1.4 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.9 -0.1 0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-4.0 0.1 0.9 forecast 
 
 
 
 
 
 
 
 
 
     
 
PORTUGAL 

In  Portugal,  concerns  related  to  household  and  non-financial  corporate,  government  and  external 
debt-to-GDP ratios remain but debt ratios have continued to decrease. Nominal house price growth 
moderated in recent quarters, but prices are still estimated to be overvalued. Risks associated with 
financial and public sector feedback loops remain but have decreased.  

Real  GDP  growth  reached  6.8%  in  2022  and  is  forecast  at  2.2%  in  2023  and  1.3%  in  2024. 
Headline inflation stood at 3.3% year-on-year in October 2023. This is below the peak of 10.6% 
recorded in October 2022 but above the euro area average. Core inflation also decreased, from a 
peak of 6.5% in May 2023, to 5.1% in September 2023 which is also above the euro area average. 
Nominal  wages  per  person  grew  less  than  prices  in  2022  but  are  expected  to  grow  more  than 
prices in 2023. 

The  scoreboard  reading  for  Portugal  shows  that  four  indicators  were  beyond  their  indicative 
thresholds  in  2022,  namely  the  net  international  investment  position,  unit  labour  costs,  private 
sector debt, and government debt. Relevant developments worth highlighting:  

•  External sustainability concerns continue to subside despite a small reduction in the current 
account in 2022. The current account balance declined to -1.1% of GDP in 2022. In the second 
quarter of 2023, the annualised current account moved to a surplus of 0.6% of GDP due to a 
rebound in the energy and travel balances. The current account is forecast to increase to 1.6% 
of  GDP  in  2023.  The  net  international  investment  position  continued  improving  in  2022, 
from  -94%  in  2021  to  -84%  of  GDP,  and  a  further  increase  is  expected  for  2023.  Cost 
competitiveness concerns remain limited.  

•  Vulnerabilities related to the high non-financial corporate debt-to-GDP ratio remain but are 
on a declining path. It declined to 80% in 2022 and continued falling in the first two quarters of 
2023. The debt ratio is below its level in 2019. 

•  The  household  debt-to-GDP  ratio  continued  to  decrease  in  2022,  but  remains  elevated,  at 
61%.  It  has  been  on  a  downward  trend  since  2009,  with  a  temporary  uptick  in  2020. 
Deleveraging  is  set  to  continue  at  a  fast  pace  in  2023.  Risk  factors  include  a  high  share  of 
variable  rate  loans,  at  68%  of  new  loans  in  mid-2023,  and  a  modest  savings  rate.  On  the 
upside,  real  wages  and  employment  are  set  to  grow  in  2023.  A  series  of  temporary  policy 
support  measures  have  been  introduced  to  mitigate  the  impact  of  rising  interest  rates  on 
housing loans.  

•  House  prices  remain  a  concern.  They  grew  by  over  12%  in  2022,  building  on  years  of 
increases above income. As a result, house prices are estimated to be overvalued by 20-25%. 
Despite  some  moderation  in  recent  quarters,  house  price  growth  continues  amid  strong 
demand, including from foreign investors, and a slowdown in the construction of new buildings.  

•  The banking sector recorded a strong performance in 2022 while some vulnerabilities remain. 
The  CET1  capital  ratio  increased,  reaching  all-time  highs  and  above  the  euro  area  average. 
Profitability  improved  markedly  in  2022  and  the  first  half  of  2023,  above  the  euro  area 
average.  The  non-performing  loans  ratio  declined,  but  at  3.1%  as  of  the  second  quarter  of 
2023 remains above the EU average, as  do Stage 2 loans. Credit dynamics were very muted 
since  the  tightening  of  financial  conditions  in  mid-2022.  Risks  associated  with  financial  and 
public  sector  feedback  loops  remain  but  have  decreased,  partly  due  to  banks’  reduced 
exposures to sovereign bonds and to improvements in banks’ and fiscal performance.  

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•  Concerns  related  to  government  debt  remain  but  are  declining.  In  2022,  government  debt 
decreased  considerably,  by  nearly  12  percentage  points,  reaching  112.4%  of  GDP.  This  is 
already  below  pre-pandemic  levels,  and  the  ratio  is  expected  to  further  contract  over  the 
forecast  period.  The  general  government  deficit  narrowed  to  0.3%  of  GDP  in  2022  and  is 
forecast to turn into a surplus in 2023. Fiscal sustainability risks are low in the short term and 
high in the medium term (95). 

Graph 3.22: Selected graphs: Portugal 

Source: AMECOAMECO, Eurostat and European Commission 

(95) Estimated based on the Commission’s 2023 spring forecasts. 

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010020030040008Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q222Q223Q2% of GDPb) Debt to GDP ratioGovernmentHouseholdNon financial corporationsPrivate non-financial sector0246810121402040608010012014016018020022017Q418Q419Q420Q421Q422Q4Rate of change, y-o-y (%)2015 = 100a) House priceNominal House Price Index (2015=100), left axisNominal House Price Index (y-o-y growth rate), right axis 
 
 
 
 
 
 
           
 
 
 
 
 
 
 
 
 
 
 
 
Table 3.22:  Key economic and financial indicators, Portugal 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%0.0 -0.5 -1.0 -0.1 0.5 Current account balance, balance of payments (% of GDP)-0.1 (1)-0.6 (2)-1.0 -0.8 -1.1 1.6 1.1 Net international investment position (% of GDP)-35%-55.1 (3)-17.1 (4)-104.6 -94.4 -83.6 -73.7 -67.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-46.7 -36.3 -29.6 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)15.6 13.3 10.7 p7.7 9.4 Nominal unit labour cost index (% y-o-y change)8.7 1.3 0.5 p5.7 2.9 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)-0.1 -2.8 -2.9 -1.7 -0.9 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.7 -1.7 -1.9 1.8 -0.9 Export market share - % of world exports (5 year % change)-6%-1.8 -6.0 -1.9 0.5 -1.8 Export market share - % of world exports (1 year % change)-10.3 -0.4 7.3 4.1 -1.7 Private sector debtPrivate sector debt, consolidated (% of GDP)133%163.7 156.6 141.1 p128.1 123.4 Private sector credit flow, consolidated (% of GDP)14%4.4 4.5 2.9 p0.6 0.5 Household debt, consolidated (% of GDP)29.7 (6)31.1 (7)69.1 66.3 60.7p55.2Non-financial corporate debt, consolidated (% of GDP)45.6 (6)55.4 (7)94.690.380.472.9Housing marketHouse price index, deflated (1 year % change)6%8.1 7.3 4.8 -1.2 0.2 House price index, nominal (1 year % change)22.9 (8)8.89.412.63.23.0Government debtGeneral government gross debt (% of GDP)60%134.9 124.5 112.4 103.4 100.3 General government balance (% of GDP)-5.8-2.9-0.30.80.1Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%6.6 7.6 -4.0 -1.2 Return on equity (%)0.04.98.7Common Equity Tier 1 ratio10.6 (9)15.415.515.3Gross non-performing loans, domestic and foreign entities (% of gross loans)4.9e3.6e3.0p3.1Labour marketUnemployment rate (3 year average)10%7.0 6.8 6.5 6.4 6.3 Unemployment rate (year level)5.9 (10)7.0 6.6 6.0 6.5 6.5 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.0 0.7 1.5 3.6 2.6 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-2.3 -0.3 -0.1 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-1.4 3.1 0.7 forecast 
 
 
 
 
 
 
 
     
 
ROMANIA 

In Romania, concerns related  to cost  competitiveness, external  sustainability  and the government 
deficit  remain  substantial.  Although  declining  and  largely  financed  from  sustainable  sources,  the 
current  account  deficit  is  set  to  remain  large  and  the  government  deficit  remains  very  high. 
Nominal unit labour costs are forecast to grow strongly, in the face of labour shortages, while core 
inflation has been well above the EU average and is increasing further.  

Real  GDP  growth  reached  4.6%  in  2022  and  is  forecast  at  2.2%  in  2023  and  3.1%  in  2024. 
Headline inflation stood at 9.2% year-on-year in September 2023. This is below the peak of 14.6% 
recorded in November 2022, but above the EU and euro area averages. Core inflation increased to 
11.6% in September 2023, which is also above the EU and euro area averages. Nominal wages per 
person grew less than prices in 2022, and are expected to grow more than prices in 2023. 

The  scoreboard  reading  for  Romania  shows  that  two  indicators  were  beyond  their  indicative 
thresholds in 2022, namely the current account balance and net international investment position. 
Relevant developments worth highlighting:  

•  The  external  sustainability  outlook  worsened  in  2022,  with  the  current  account  deficit 
increasing  from  7.2%  in  2021  to  9.1%.  This  deterioration  adds  to  a  decade  of  gradual 
increases in the deficit, and is mainly due to a significant decline in the balance of goods, both 
energy and non-energy, with a smaller impact also from primary income. In the second quarter 
of  2023,  the  deficit  narrowed  to  7.4%  mainly  due  to  a  rebound  in  the  goods  balance.  The 
current  account  deficit  is  set  to  remain  large,  at  around  7%  in  2023  and  2024,  but  direct 
investment and EU fund inflows remain a significant source of the current account financing. 
The net international investment position improved in 2022, reaching  -41% of GDP, driven by 
strong nominal GDP growth and favourable valuation effects. A slight decline is projected for 
2024.  The  net  international  investment  position,  excluding  non-defaultable  instruments, 
remains close to balance.  

•  Cost competitiveness concerns are rising due to a strong increase in nominal wages in 2023. 
Nominal  unit labour costs increased in 2022, although not as much as in peer countries, and 
were mitigated by strong productivity gains. However, the increase in unit labour costs adds to 
several  years  of  continued  marked  increases  before  the  pandemic.  Unit  labour  costs  are 
expected to grow much more strongly in 2023, exceeding those in the rest of the EU. The HICP-
based real effective exchange rate appreciated moderately in 2022 driven by higher inflation 
at home and against a backdrop of a stable exchange rate against the euro. An appreciation of 
the core inflation-based real effective exchange rate took place in 2022 and clearly continues 
in  2023  amid  further  rises  in  core  inflation  in  recent  months,  bringing  it  into  double-digit 
territory. 

•  The non-financial corporate debt-to-GDP ratio decreased, to 29% in 2022, slightly below its 
2019 level, and continued to decrease slightly in the first half of 2023. The share of domestic 
corporate loans denominated in foreign currency is high, at 45%, and increased in the first half 
of  2023.  Non-financial  corporate  vulnerabilities  are  mitigated  by  high  and  increasing  profit 
shares and savings. 

•  The  household  debt-to-GDP  ratio  stood  at  14%  in  2022,  the  lowest  level  in  the  EU,  and  is 

expected to decrease further in 2023. 

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•  The banking sector is stable. While the Common Equity Tier 1 capital ratio is close to the EU 
average, profitability was the highest in the EU in 2022. The non-performing loans ratio of the 
banking sector declined in 2022, but at 2.8% (as of first quarter of 2023) remains above the 
EU average. Following monetary tightening, the lending rates have also increased significantly, 
which contributed to the moderation of previously very dynamic credit growth from mid-2022. 

•  The government deficit remains high. It improved in 2022, at 6.3% of GDP, but the structural 
balance remained largely unchanged. Government debt fell to 47.2% of GDP in 2022 helped by 
strong nominal growth. However, it is forecast to increase in the coming years, as growth slows 
down  and  the  deficit  remains  high.  It  continues  to  be  noticeably  higher  than  the  pre-COVID 
levels. Sovereign bond yields are among the highest in the EU and currency risks are high, with 
around half of central government debt denominated in foreign currencies, and about half held 
by non-residents at the end of 2022. Fiscal sustainability risks are medium in the medium and 
long term (96). 

Graph 3.23: Selected graphs: Romania 

Source: AMECO, Eurostat and European Commission 

(96) Estimated based on the Commission’s 2023 spring forecasts. 

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-15-55161718192021222323*24*25*% of GDPa) Current accountGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balanceSecond. inc. bal.Primary inc. bal.DiscrepancyCurrent accountNet lending/borrowing-12-10-8-6-4-2024680910111213141516171819202122% of GDPb) Current account financingDebt flows (net) NENDI excl reservesDirect investment (net)Portfolio investment, equity and inv. fund shares (net)Official reserves (net)Net errors and omissions 
 
 
 
 
 
 
           
 
 
 
 
 
 
 
 
Table 3.23:  Key economic and financial indicators, Romania 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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106 

125 

ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-4.8 -5.7 -7.1 -7.8 -7.7 Current account balance, balance of payments (% of GDP)0.1 (1)-4.5 (2)-4.9 -7.2 -9.1 -7.1 -6.9 Net international investment position (% of GDP)-35%-49.3 (3)-8.1 (4)-47.6 -47.0 -40.6 -39.9 -41.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-7.0 -6.5 -4.2 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)20.7 14.7 p10.4 p17.3 22.3 Nominal unit labour cost index (% y-o-y change)5.8 1.4 p2.9 p12.4 5.7 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)3.4 1.0 2.6 10.2 11.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.4 0.0 1.2 4.4 1.4 Export market share - % of world exports (5 year % change)-6%19.5 9.6 6.7 3.3 1.0 Export market share - % of world exports (1 year % change)1.9 -0.2 0.0 0.2 -0.9 Private sector debtPrivate sector debt, consolidated (% of GDP)133%48.0 47.8 43.3 p39.0 37.0 Private sector credit flow, consolidated (% of GDP)14%1.3 3.8 3.3 p1.9 1.4 Household debt, consolidated (% of GDP)55.2 (6)12.8 (7)16.1 15.8 13.9p12.4Non-financial corporate debt, consolidated (% of GDP)68.4 (6)22.0 (7)31.932.029.426.6Housing marketHouse price index, deflated (1 year % change)6%2.3 -0.2 -6.2 -7.8 -3.7 House price index, nominal (1 year % change)-21.4 (8)4.74.47.21.32.0Government debtGeneral government gross debt (% of GDP)60%46.8 48.5 47.2 47.9 48.9 General government balance (% of GDP)-9.3-7.2-6.3-6.3-5.3Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%13.4 14.3 8.2 0.6 Return on equity (%)9.013.115.7Common Equity Tier 1 ratio10.6 (9)21.819.919.2Gross non-performing loans, domestic and foreign entities (% of gross loans)3.9e3.4e2.8p2.7Labour marketUnemployment rate (3 year average)10%5.4 5.5 5.8 5.5 5.4 Unemployment rate (year level)5.4 (10)6.1 5.6 5.6 5.4 5.2 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp2.3 3.2 3.5 2.6 1.1 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.6 -0.2 0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp-1.4 0.5 1.8 forecast 
 
 
 
 
 
 
 
 
     
 
SLOVENIA 

In Slovenia, cost competitiveness pressures persist, house prices continue to grow strongly and the 
government  deficit  remains  elevated,  but  associated  macroeconomic  risks  appear  to  be  limited. 
Supply  side  constraints,  high  inflation  and  unit  labour  cost  growth  may  weigh  on  medium-term 
competitiveness and growth.  

Real  GDP  growth  reached  2.5%  in  2022  and  is  forecast  at  1.3%  in  2023  and  2.0%  in  2024. 
Headline inflation stood at 6.6% year-on-year in October 2023. This is below the peak of 11.7% 
recorded in July 2022 but above the euro area average. Core inflation also decreased, from a peak 
of  7.6%  in  April  2023,  to  6.6%  in  September  2023  which  is  also  above  the  euro  area  average. 
Nominal  wages  per  person  grew  less  than  prices  in  2022,  but  are  expected  to  grow  more  than 
prices in 2023. 

The  scoreboard  reading  for  Slovenia  shows  that  three  indicators  were  beyond  their  indicative 
thresholds in 2022, namely unit labour costs, government debt, and the youth unemployment rate. 
Relevant developments worth highlighting:  

•  External  sustainability  concerns  remain  limited.  In  2022,  the  current  account  balance  fell 
sharply, from a surplus of 3.3% in 2021 to a deficit of -1%. This change was primarily driven 
by a decrease in the balance of non-energy goods, and a deacrease in the energy balance to a 
lesser extent. The balance of trade in goods improved in the second quarter of 2023, resulting 
in a current account surplus of 2.7%. The net international investment position  (NIIP) came in 
close to balance in 2022 and is projected to improve slightly in 2023 and 2024. The NIIP net of 
non-defaultable instruments is positive.  

•  Cost  competitiveness  concerns  have  increased  recently.  Increases  in    nominal  unit  labour 
costs were sizeable in 2022, and are accelerating further in 2023. Moreover, they are growing 
faster  than  in  the  rest  of  the  euro  area,  driven  by  significantly  higher  wage  increases  amid 
limited  productivity  gains.  The  HICP-based  real  effective  exchange  rate  depreciated  in  2022, 
but appreciation is being observed in 2023. When measured on the basis of core inflation, the 
real effective exchange rate was broadly stable in 2022 and is displaying some appreciation in 
2023 amid higher core inflation than in the euro area in both years.   

•  House price growth remains a concern, despite some moderation. It accelerated to nearly 15% 
in  2022,  building  on  strong  growth  in  recent  years  that  has  left  house  prices  overvalued  by 
nearly  10%.  House  price  growth  has  moderated  in  recent  quarters.  Both  household  and  non-
financial corporations’ debt-to-GDP ratios remain low.  

•  The  banking  sector  is  sound.  While  capitalisation  is  below  the  EU  average, profitability  was 
one of the highest in the EU in 2022. The non-performing loans ratio kept decreasing in 2022 
and at 1.6% (as of first quarter of 2023) is close to the EU average. Credit growth was very 
dynamic  in  the  first  half  of  2022,  but  slowed  down  in  late  2022  amid  tightening  financial 
conditions. The increase in house prices in recent years represents a source of risk. 

•  Concerns  related  to  the  government  debt  remain,  but  are  declining.  Government  debt 
decreased to 72.3% of GDP in 2022, above its pre-pandemic level, and is forecast to continue 
declining.  The  government  deficit  remains  high  but  decreased  to  3%  of  GDP  in  2022.  It  is 

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forecast  to  temporarily  increase  again  in  2023  and  remain  above  3%  in  2024.  Fiscal 
sustainability risks are medium in the medium-term and high in the long term (97). 

Graph 3.24: Selected graphs: Slovenia 

Source: AMECO, Eurostat and European Commission 

(97) Estimated based on the Commission’s 2023 spring forecasts. 

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SIEA20-5051015201920212223% , y-o-ya) House price growth, year-on-year-20-15-10-5051015200708091011121314151617181920212223*24*25*% of GDPb) Net lending borrowing by sectorHouseholds and NPISHGeneral governmentCorporationsTotal economy 
 
 
 
 
 
  
         
 
 
 
Table 3.24:  Key economic and financial indicators, Slovenia 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%6.3 5.5 3.2 1.9 1.4 Current account balance, balance of payments (% of GDP)0.6 (1)0.1 (2)7.2 3.3 -1.0 3.5 1.7 Net international investment position (% of GDP)-35%-63.5 (3)3.0 (4)-15.7 -7.7 -1.5 3.9 8.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)1.4 9.4 15.2 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)14.3 12.7 14.3 16.2 20.4 Nominal unit labour cost index (% y-o-y change)7.2 1.1 5.4 9.0 4.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)1.7 -0.4 -1.3 1.5 1.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.4 -0.3 -1.3 2.4 -0.1 Export market share - % of world exports (5 year % change)-6%19.3 10.6 2.9 -2.8 -4.0 Export market share - % of world exports (1 year % change)1.7 -1.2 -1.9 -1.9 -0.7 Private sector debtPrivate sector debt, consolidated (% of GDP)133%69.5 66.2 66.0 61.0 58.7 Private sector credit flow, consolidated (% of GDP)14%-0.9 3.5 5.2 1.2 1.1 Household debt, consolidated (% of GDP)45.0 (6)36.0 (7)27.7 26.3 25.9 24.1Non-financial corporate debt, consolidated (% of GDP)62.1 (6)55.6 (7)41.839.940.136.9Housing marketHouse price index, deflated (1 year % change)6%5.2 7.9 4.3 -2.6 0.1 House price index, nominal (1 year % change)11.1 (8)4.611.514.84.74.0Government debtGeneral government gross debt (% of GDP)60%79.6 74.4 72.3 69.3 68.4 General government balance (% of GDP)-7.6-4.6-3.0-3.7-3.3Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%14.0 14.1 -1.4 1.3 Return on equity (%)11.39.513.3Common Equity Tier 1 ratio10.6 (9)16.716.915.9Gross non-performing loans, domestic and foreign entities (% of gross loans)3.0e2.1e1.8p1.5Labour marketUnemployment rate (3 year average)10%4.8 4.7 4.6 4.1 3.8 Unemployment rate (year level)5.5 (10)5.0 4.8 4.0 3.6 3.7 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.2 0.6 1.6 2.9 2.3 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.2 -0.3 -0.3 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp3.0 3.9 2.0 forecast 
 
 
 
 
 
 
     
 
SLOVAKIA 

In  Slovakia,  concerns  related  to  cost  competitiveness,  external  accounts,  government  finances, 
house prices and household debt persist. Nominal unit labour cost growth is set to increase further, 
and  core  inflation  remains  well  above  the  euro  area  overall.  Nominal  house  price  growth  turned 
negative recently, but prices still show signs of overvaluation. The current account deficit remains 
sizeable, even if it is declining, and the fiscal deficit which is set to return to high levels, warranting 
close monitoring.  

Real  GDP  growth  reached  1.8%  in  2022  and  is  forecast  at  1.3%  in  2023  and  1.7%  in  2024 
Headline inflation stood at 7.8% year-on-year in October 2023. This is below the peak of 15.4% 
recorded in February 2023 but above the euro area average. Core inflation also decreased, from a 
peak  of  11.9%  in  February  2023,  to  7.8%  in  October  2023,  which  is  also  above  the  euro  area 
average. Nominal wages per person grew less than prices in 2022 and are expected to also do so in 
2023. 

The  scoreboard  reading  for  Slovakia  shows  that  four  indicators  were  beyond  their  indicative 
thresholds in 2022, namely the net international investment position, the export market share, unit 
labour costs and the youth unemployment rate. Relevant developments worth highlighting:  

•  The  external  sustainability  outlook  deteriorated  significantly  in  2022.  The  current  account 
worsened  from  -4%  in  2021  to  -7.3%  of  GDP  in  2022.  The  deterioration  was  driven  by  the 
energy  balance  and,  to  a  lesser  extent,  by  the  non-energy  goods  balance.  The  deficit  fell  to 
4.2%  in  the  second  quarter  of  2023,  owing  to  a  lower  energy  goods  deficit.  For  2023  and 
2024, slightly lower but still sizeable deficits are expected, at 2.7% and 3.4% respectively. The 
negative  net  international  investment  position  (NIIP)  remained  largely  unchanged  at  -61%  of 
GDP  in  2022,  close  to  its  average  since  the  adoption  of  the  euro.  The  NIIP  is  expected  to 
improve  slightly  in  2023  and  remain  stable  in  2024.  The  bulk  of  the  NIIP  consists  of  direct 
investment.  The  NIIP  net  of  non-defaultable  instruments  fell  to  -18.2%  in  2022,  the  lowest 
level in two decades. 

•  Cost  competitiveness  concerns  persist  and  are  widening.  After  several  years  of  continued 
increases,  nominal  unit  labour  costs  increased  significantly  in  2022,  on  account  of  large 
nominal  wage  increases  and  falling  output  per  worker.  In  2023,  unit  labour  costs  growth  is 
expected  to  accelerate  again,  more  than  in  the  euro  area.  The  HICP-based  real  effective 
exchange rate appreciated in 2022, on account of the much higher inflation at home relative to 
most trading partners and despite some nominal depreciation of the euro. However, it remained 
broadly  stable  when  measured  against  the  GDP  deflator.  The  real  effective  exchange  rate 
appreciated  even  more  strongly  when  measured  based  on  core  inflation.  Further  significant 
appreciations are underway in 2023. 

• 

In 2022, the household debt-to-GDP ratio continued its upward trend observed over the last 
two decades despite high nominal GDP growth, helped by dynamic borrowing. This brought the 
ratio to 47%, relatively high compared with regional peers. The ratio is expected to decrease in 
2023 on the back of still high inflation. Credit flows are abating only slowly despite a fourfold 
increase in the cost of borrowing (albeit from a low basis). The gross savings rate halved to 5% 
between 2021 and 2022 , as real gross disposable income contracted while real consumption 
expanded  amidst  high  inflation.  The  low  savings  rate  is  set  to  gradually  recover  over  the 
forecast  period.  The  non-financial  corporate  debt-to-GDP  ratio  remained  unchanged  but 
moderate, at 46% in 2022. 

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•  House prices remain a concern, although growth has moderated strongly. House price growth 
accelerated  to  13.7%  in  2022,  building  on  years  of  sizeable  increases.  However  house  price 
growth moderated in  2022,  and  real  house  prices  have been  falling  since  the  last  quarter  of 
2022. In the short term there may be some further moderation, which would contribute to the 
closing of a valuation gap of around 10%. The banking sector is sound. The non-performing 
loans  ratio  and  profitability  decreased  slightly  in  2022  and  are  close  to  the  EU  average. 
Mortgage  credit  has  been  very  dynamic  and  represents  a  source  of  risk  amid  a  significant 
increase in house prices and household indebtedness in  recent years. However, this growth in 
mortgage credit has slowed recently due to the increase in mortgage interest rates.  

•  Concerns  related  to  government  debt  are  still  contained  for  now,  but  are  increasing. 
Government debt decreased to 57.8% of GDP in 2022 mainly thanks to high GDP growth driven 
by  strong  inflation.  Government  debt  is  expected  to  still  decrease  slightly  in  2023,  while  an 
increase is expected for 2024. The government deficit has improved and reached 2% of GDP in 
2022,  but  is  forecast  to  almost  triple  in  2023  and  further  increase  in  2024,  achieving  the 
largest  deficit estimate in the EU. Fiscal  sustainability  risks are high both in the medium and 
long term due to population ageing (98). 

Graph 3.25: Selected graphs: Slovakia 

Source: AMECO, Eurostat and European Commission 

(98) Estimated based on the Commission’s 2023 spring forecasts. 

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8010012014016003Q404Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q422Q42004=100a) Real effective exchange rate, based on ULC -IC37EA20DEHUSK-8-7-6-5-4-3-2-1002040602011201220132014201520162017201820192020202120222023f% of GDPb) General government balance and general government gross debt Gross public debt (lhs axis)Net lending/borrowing (rhs axis) 
 
 
 
 
 
  
        
   
 
 
 
 
Table 3.25:  Key economic and financial indicators, Slovakia 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-1.7 -2.2 -3.6 -4.7 -4.5 Current account balance, balance of payments (% of GDP)0.0 (1)-1.3 (2)0.6 -4.0 -7.3 -2.7 -3.4 Net international investment position (% of GDP)-35%-49.6 (3)-4.0 (4)-64.7 -60.5 -61.0 -57.2 -56.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-14.8 -14.4 -18.2 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)15.4 12.6 13.3 17.0 22.5 Nominal unit labour cost index (% y-o-y change)5.4 1.4 6.0 8.9 6.2 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)5.2 3.1 3.8 3.9 5.4 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)2.5 0.0 1.3 3.7 1.4 Export market share - % of world exports (5 year % change)-6%7.2 -1.9 -6.6 -10.5 -6.3 Export market share - % of world exports (1 year % change)3.2 -3.0 -6.2 -2.3 2.1 Private sector debtPrivate sector debt, consolidated (% of GDP)133%94.8 92.6 92.7 85.7 83.8 Private sector credit flow, consolidated (% of GDP)14%2.6 4.5 9.3 5.9 3.8 Household debt, consolidated (% of GDP)47.8 (6)29.1 (7)46.5 47.0 47.1 43.6Non-financial corporate debt, consolidated (% of GDP)67.8 (6)45.5 (7)48.345.645.642.1Housing marketHouse price index, deflated (1 year % change)6%7.2 3.0 1.3 -10.3 -3.2 House price index, nominal (1 year % change)10.9 (8)9.66.413.7-1.22.1Government debtGeneral government gross debt (% of GDP)60%58.9 61.1 57.8 56.7 59.9 General government balance (% of GDP)-5.4-5.2-2.0-5.7-6.5Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%9.6 23.7 -9.3 2.3 Return on equity (%)5.38.49.4Common Equity Tier 1 ratio10.6 (9)16.816.716.8Gross non-performing loans, domestic and foreign entities (% of gross loans)2.5e2.0e1.7p1.8Labour marketUnemployment rate (3 year average)10%6.3 6.4 6.5 6.2 5.7 Unemployment rate (year level)6.3 (10)6.7 6.8 6.1 5.7 5.4 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.4 0.2 1.4 1.3 1.2 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-2.2 -0.8 0.2 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp0.4 4.8 2.8 forecast 
 
 
 
 
 
 
 
     
 
FINLAND 

In Finland, household debt is high, although associated macroeconomic risks appear to be limited. 
Household  debt  continuesto  fall,  but  almost  all  loans  for  house  purchase  are  at  variableinterest 
rates,  which  exposes  households  to  the  risks  of  interest  rate  hikes.  The  banking  system  appears 
sound  and  resilient,  despite  significant  cross-border  exposures,  especially  with  other  Nordic 
countries.  

Real  GDP  growth  reached  1.6%  in  2022  and  is  forecast  at  0.1%  in  2023  and  0.8%  in  2024. 
Headline  inflation  stood  at  2.4%  year-on-year  in  October  2023.  This  is  below  the  peak  of  9.1% 
recorded in November 2022 and below the euro area average. Core inflation also decreased, from 
a  peak  of  5.2%  in  March  2023,  to  3.6%  in  October  2023,  which  is  also  below  the  euro  area 
average. Nominal wages per person grew less than prices in 2022, but are expected to grow more 
than prices in 2023. 

The  scoreboard  reading  for  Finland  shows  that  two  indicators  were  beyond  their  indicative 
thresholds in 2022, namely private sector debt and government debt. Relevant developments worth 
highlighting:  

•  Risks related to external sustainability are contained. The current account deteriorated from 
0.4% of GDP in 2021 to -2.5% in 2022, but the deficit is expected to narrow to -0.5% in 2023. 
The net international investment position (NIIP) is projected to remain close to its 2022 level of 
-1.7%  of  GDP  in  both  2023  and  2024.  The  NIIP  net  of  non-defaultable  instruments  was 
positive.  

•  Cost competitiveness concerns remain limited. Nominal unit labour costs increased visibly in 
2022 and a somewhat stronger growth rate is expected for 2023. However,  unit labour costs 
growth is expected to come in below that of the euro area in 2023. The HICP-based and core 
inflation-based  real  effective  exchange  rates  depreciated  visibly  in  2022,  while  some 
appreciation has been observed in 2023.  

•  Vulnerabilities  related  to  the  elevated  non-financial  corporate  debt-to-GDP  ratio  remain, 
although the ratio is on a declining path. It decreased to 79% in 2022, slightly below its 2019 
level, and continued falling slightly in the first half of 2023. 

•  The household debt-to-GDP ratio is high, at 65% in 2022. After doubling over 2000-2020, a 
reduction has been underway since 2021 on the back of strong nominal output growth. This is 
set  to  continue  in  2023,  helped  by  high  inflation  and  a  strong  increase  in  interest  rates. 
Virtually  all  new  loans  have  a  variable  interest  rate,  increasing  the  vulnerabilities  associated 
with  household  debt.  Savings  are  modest,  at  8%  of  gross  disposable  income.  On  the  upside, 
real wage growth is set to pick up. 

•  House  prices  started  to  fall  in  mid-2022  after  having  recorded  a  moderate  growth  in  the 
beginning  of  2022.  Strong  increases  in  interest  rates  and  slowing  economic  growth  are 
expected  to  add  to  the  negative  momentum,  but  prices  are  likely  to  stabilise  as  supply 
constraints bite. House prices are estimated  to be slightly undervalued. 

•  The banking sector is sound. Capitalisation and profitability of the banking sector are close to 
the EU average and the non-performing loans ratio is below 1% (as of first quarter of 2023). A 
correction of house prices represents a risk amid significant household debt and a high share of 
mortgage debt with variable interest rates. 

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•  Concerns  related  to  government  debt  remain  limited.  The  debt  ratio  increased  slightly  to 
73.3%  of  GDP in  2022  and  is  forecast  to  continue  rising  moderately.  The  government deficit 
declined to 0.8% of GDP in 2022 but is forecast to widen in 2023. Fiscal sustainability risks are 
medium both in the medium and long term (99). 

Graph 3.26: Selected graphs: Finland 

Source: AMECO, Eurostat and European Commission 

(99) Estimated based on the Commission’s 2023 spring forecasts. 

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-6-4-2024681008091011121314151617181920212223*24*25*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 EU27050100150200250091011121314151617181920212223f% of GDPa) Debt decomposition by sector GovernmentHouseholdNon financial corporationsPrivate sector 
 
 
 
 
 
           
 
 
Table 3.26:  Key economic and financial indicators, Finland 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%-0.5 0.2 -0.5 -0.9 -1.1 Current account balance, balance of payments (% of GDP)-0.9 (1)-0.1 (2)0.5 0.4 -2.5 -0.5 -0.2 Net international investment position (% of GDP)-35%-78.6 (3)-2.7 (4)-4.0 1.0 -1.7 -2.5 -2.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)5.8 18.3 6.3 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)5.5 6.2 8.6 13.3 11.9 Nominal unit labour cost index (% y-o-y change)0.9 3.2 4.2 5.3 2.0 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)2.3 -0.7 -3.1 -1.9 -2.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.6 -0.7 -3.9 1.3 -1.3 Export market share - % of world exports (5 year % change)-6%10.9 3.8 -2.0 -3.8 -7.3 Export market share - % of world exports (1 year % change)0.5 -3.9 -1.9 -1.0 -1.2 Private sector debtPrivate sector debt, consolidated (% of GDP)133%152.7 150.5 144.7 138.5 135.8 Private sector credit flow, consolidated (% of GDP)14%6.5 6.1 2.3 1.6 1.4 Household debt, consolidated (% of GDP)49.9 (6)60.4 (7)69.0 67.9 65.3 62.1Non-financial corporate debt, consolidated (% of GDP)62.6 (6)83.8 (7)83.782.679.476.4Housing marketHouse price index, deflated (1 year % change)6%1.4 2.8 -4.6 -8.0 -0.3 House price index, nominal (1 year % change)-3.6 (8)1.84.61.2-4.01.6Government debtGeneral government gross debt (% of GDP)60%74.7 72.5 73.3 74.3 76.9 General government balance (% of GDP)-5.6-2.8-0.8-2.4-3.2Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%8.0 9.1 1.7 -2.3 Return on equity (%)5.89.29.6Common Equity Tier 1 ratio10.6 (9)18.117.817.2Gross non-performing loans, domestic and foreign entities (% of gross loans)1.5e1.2e1.0p1.0Labour marketUnemployment rate (3 year average)10%7.3 7.4 7.4 7.2 7.1 Unemployment rate (year level)6.5 (10)7.7 7.7 6.8 7.2 7.3 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp1.5 1.8 2.5 3.1 1.9 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-1.1 -0.2 0.0 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp1.0 -0.2 -3.5 forecast 
 
 
 
 
 
 
 
      
 
SWEDEN 

In  Sweden,  concerns  related  to  house  prices,  high  household  debt  and  corporate  debt  remain. 
Nominal house prices have fallen in recent quarters, but are still estimated to be overvalued. The 
household debt-to-GDP ratio is very high but is set to continue falling. The high share of mortgages 
with  variable  interest  rates  and  long  durations  quickly  transmits  interest  rate  rises  into  the 
economy,  weighing  on  households’  finances  and  consumption.  The  downward  correction  of 
commercial real estate represents another source of risk to macroeconomic stability. 

Real  GDP  growth  reached  2.8%  in  2022  and  is  forecast  at  -0.5%  in  2023  and  -0.2%  in  2024. 
Headline inflation stood at 3.7% year-on-year in September 2023. This is below the peak of 10.8% 
recorded  in  December  2022  and  below  the  EU  and  euro  area  averages.  Core  inflation  also 
decreased, from a peak of 7.7% in July 2023, to 6.8% in September 2023, which is above the EU 
and euro area averages. Nominal wages per person grew less than prices in 2022 and are expected 
to also do so in 2023. 

The  scoreboard  reading  for  Sweden  shows  that  two  indicators  were  beyond  their  indicative 
thresholds  in  2022,  namely  private  sector  debt  and  the  youth  unemployment  rate.  Relevant 
developments worth highlighting:  

•  Cost competitiveness concerns remain limited. The Swedish krona has depreciated markedly 
against the euro in 2022 and so far in 2023, which has led to a significant depreciation of the 
HICP-based real effective exchange rate, while core inflation has exceeded the average rate in 
euro  area  trading  partners.  Nominal  unit  labour  costs  grew  relatively  little  in  2022  and  are 
expected to grow stronger in 2023, but on a par with the euro area partners and the rest of the 
EU. External sustainability concerns are limited and remain largely unchanged.  

•  The  non-financial  corporate  debt-to-GDP  ratio  remains  among  the  highest  in  the  EU, 
although it recently decreased to 120% in 2022. This is still 9 percentage points higher than in 
2019.  It  remained  broadly  unchanged  in  the  first  half  of  2023.  Credit  flows  decreased,  but 
remain high, at 7.3% of GDP in 2022. The interest rate burden is high and increased recently. 
Commercial  real  estate  is  a  particular  source  of  concern  given  falling  prices  and  its  funding 
structure. Risks associated with corporate debt outside commercial real estate are mitigated by 
the high share of cross-border intra-group lending and increasing corporate liquidity buffers. 

•  The household debt-to-GDP ratio is very high, at 87% in 2022. Having doubled between 2000 
and  2020,  the  ratio  declined  the  following  2  years  on  the  back  of  strong  nominal  output 
growth.  This  relative  decline  is  set  to  continue  in  2023,  reflecting  high  inflation  and  a 
contraction  in  credit  flows  (from  very  high levels)  triggered by  a  fourfold  increase  in  interest 
rates. 87% of new mortgages have a variable interest rate, and mortgage maturities are very 
long while amortisation is low, resulting in a high interest component of mortgage costs. These 
two factors are putting pressure on household budgets, reducing household consumption and 
economic growth. Households’ gross savings rate is high at 16% in 2022. Real wages are set to 
decline in 2023 and recover in 2024.  

•  House prices have fallen but concerns related to the housing market persist. After a peak in 
early 2022, house prices started to decline, ending the year 3% lower compared to the end of 
2021.  Transaction  volumes  declined  sharply  in  2022,  falling  by  more  than  half  and  have 
remained at around this level, the lowest since 2014. These reduced transaction volumes likely 
distort  the  price  signal  of  the  average  house  price.  However,  despite  the  recent  fall,  house 
prices still appear to be overvalued by around 20-25% due to the strong growth in excess of 

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incomes over the last decade. In the future, the lower borrowing capacity of households on the 
back  of  higher  interest  rates  is expected  to  further  reduce  house prices  before  long-standing 
supply  constraints  bite.  The  prevalence  of  long  mortgage  maturities  and  limited  mortgage 
amortisation  requirements  increases  the  sensitivity  of  households’  borrowing  capacity  to 
changes in interest rates. 

•  The banking sector remains healthy. The Common Equity Tier 1 capital ratio and profitability 
are  close  to  the  EU  average,  although  profitability  declined  slightly  in  2022.  The  non-
performing loans  ratio,  0.8%  as  of  the  first  quarter  of  2023,  is  among  the  lowest  in  the  EU. 
Credit provision to both corporates and households was still very high in the first half of 2022 
but  declined  significantly  in  late  2022.  The  ongoing  correction  of  house  prices  represents  a 
challenge for the financial sector as well as for households that are highly indebted, although 
mortgages have very long maturities. The high exposure of the financial sector to commercial 
real estate represents another source of risk.  

Graph 3.27: Selected graphs: Sweden 

Source: AMECO, Eurostat and European Commission 

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020406080100120140160-10-505101520253008Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q422Q42015=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 axis05010015020025030035008Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q220Q221Q222Q223Q2% of GDPb) Debt decompositionGovernmentHouseholdNon financial corporationsPrivate non-financial sector 
 
 
 
 
 
 
           
 
 
 
 
 
 
 
 
Table 3.27:  Key economic and financial indicators, Sweden 

Notes: See Annex 1 
Source: Eurostat and ECB as of 31.10.2023, where available; European Commission for forecast figures (Autumn 
forecast 2023) 

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8 

ThresholdsBenchmark IBenchmark II20202021202220232024External positionCurrent account balance, balance of payments (% of GDP, 3-year average)-4%/6%4.6 6.0 5.8 5.6 4.9 Current account balance, balance of payments (% of GDP)0.5 (1)1.3 (2)5.9 6.8 4.8 5.1 4.7 Net international investment position (% of GDP)-35%-88.1 (3)2.8 (4)6.9 20.7 34.8 42.0 46.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-12.6 -3.0 -9.8 CompetitivenessNominal unit labour cost index (3 year % change)9% (EA) 12% (Non-EA)8.7 4.6 5.8 8.5 13.0 Nominal unit labour cost index (% y-o-y change)3.4 -0.3 2.7 6.0 3.8 Real effective exchange rate - 42 trading partners, HICP deflator (3 year % change)±5% (EA) ±11% (Non-EA)-4.8 2.1 -1.4 -8.8 -13.0 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)3.1 3.0 -7.1 -3.8 -1.8 Export market share - % of world exports (5 year % change)-6%2.8 0.9 -2.7 -0.3 -6.1 Export market share - % of world exports (1 year % change)4.0 -1.0 -6.0 0.2 -3.3 Private sector debtPrivate sector debt, consolidated (% of GDP)133%212.7 214.5 207.3 199.6 199.2 Private sector credit flow, consolidated (% of GDP)14%14.5 17.1 10.6 5.7 4.3 Household debt, consolidated (% of GDP)54.2 (6)67.9 (7)93.7 91.9 87.4 82.8Non-financial corporate debt, consolidated (% of GDP)65.4 (6)60.8 (7)119.0122.6119.9116.8Housing marketHouse price index, deflated (1 year % change)6%3.3 8.1 -3.1 -16.2 -2.9 House price index, nominal (1 year % change)29.2 (8)4.210.13.6-9.50.0Government debtGeneral government gross debt (% of GDP)60%39.9 36.5 32.9 30.4 30.1 General government balance (% of GDP)-2.80.01.1-0.2-0.7Banking sectorTotal financial sector liabilities, non-consolidated (1 year % change)16.5%10.4 11.2 3.7 0.0 Return on equity (%)8.410.09.8Common Equity Tier 1 ratio10.6 (9)19.219.218.9Gross non-performing loans, domestic and foreign entities (% of gross loans)1.0e1.0e0.8p0.8Labour marketUnemployment rate (3 year average)10%7.3 b8.1 8.3 8.0 7.9 Unemployment rate (year level)6.8 (10)8.5 8.8 7.5 7.6 8.5 Activity rate - % of population aged 15-64 (3 year change in pp)-0.2 pp0.0 0.6 b1.0 2.4 1.5 Long-term unemployment rate - % of active population aged 15-74 (3 year change in pp)0.5 pp-0.2 0.3 0.4 Youth unemployment rate - % of active population aged 15-24 (3 year change in pp)2 pp6.3 7.9 2.3 forecast 
 
 
 
 
 
 
 
     
 
EURO AREA  

In  the  euro  area,  the  current  account  surplus  turned  to  deficit  as  a  result  of  the  terms  of  trade 
shock  in  2022,  but  has  since  moved  back  into  surplus.  Competitiveness  concerns  remain  limited 
overall although lasting differentials in price and cost developments between euro area members 
can  raise  challenges.  Debt  ratios,  which  remain  high,  are  on  a  declining  path,  while  house  prices 
have been moderating, but the risk of an abrupt correction is limited at the euro area level. 

Real GDP growth in the euro area reached 3.4% in 2022 and is forecast at 0.6% in 2023 and 1.2% 
in 2024. Headline inflation decreased to  2.9% in  October 2023. This is below the peak of 10.6% 
recorded in October 2022. Core inflation also decreased, from a peak of 5.7% in March 2023, to 
4.2% in October 2023. Nominal wages per person grew less than prices in 2022 and are expected 
to grow broadly in line with prices in 2023. 

Relevant developments worth highlighting:  

•  External sustainability concerns remain limited for the euro area as a whole.  In 2022, the 
current  account  balance  fell  into  a  deficit  (-0.6%  of  GDP),  for  the  first  time  in  more  than  a 
decade. This decline was due to the negative terms of trade shock stemming mainly from much 
higher energy prices. The current account balance in the euro area returned to a small surplus 
in the second quarter of 2023 and is expected to continue increasing this year and next. The 
net international investment position (NIIP) of the euro area increased slightly to 3.2% of GDP 
in 2022, and is set to continue trending upward. The NIIP net of non-defaultable instruments 
has been improving and reached -25% of GDP in 2022. 

•  Cost  competitiveness  concerns  remain  limited  for  the  euro  area.  As  higher  inflation  and 
labour  costs  have  also been  a  feature  for  trading  partners,  the  relative positions  of  the  euro 
area and the EU were not affected that much. The nominal depreciation of the euro helped EU 
competitiveness vis-à-vis the rest of the world in 2022. The nominal appreciation of the euro 
and some other EU  currencies in late 2022 and in  most of  2023 has  partially undone earlier 
depreciations, with some of the other EU currencies having appreciated somewhat against the 
euro.  Yet  lasting  differentials  in  prices,  wages,  and  unit  labour  costs  across  the  various  euro 
area members, especially when not underpinned by the fundamentals of their economies, can 
raise a number of challenges. 

•  The  euro  area  aggregate  non-financial  corporate  debt-to-GDP  ratio  declined  by  5 
percentage  points,  reaching  80%  at  the  end  of  2022,  close  to  its  level  before  the  COVID-19 
pandemic. It continued decreasing in the first half of 2023, amid strong nominal GDP growth 
and  weakening  credit  flows.  Tightening  financing  conditions,  and  an  increase  in  bankruptcies 
were mitigated by a sharp increase in unit profits, but these started to decrease in early 2023. 
The  energy  crisis  and  tighter  financial  conditions  could  increase  insolvencies  and  corporate 
vulnerabilities  and  weigh  on  corporate  investment,  fuelling  competitiveness  and  growth 
differentials in the euro area. 

•  The  euro  area  aggregate  household  debt-to-GDP  ratio  peaked  at  61%  in  2020  and  fell  to 
56% by 2022 on the back of high inflation and significant real GDP growth. It is expected to 
continue  decreasing  in  2023.  As  a  share  of  adjusted  disposable  income,  the  household  debt 
decreased from 96% in 2021 to 90% by the second half of 2023. Net credit flows in the euro 
area  peaked  between  mid-2021  and  mid-2022,  and  then  dropped  significantly  in  2023  as  a 

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result  of  soaring  interest  rates.  Aggregate  savings  remain  robust  but  may  vary  along  the 
income distribution. 

•  After  a  sharp  increase  in  house  prices  in  2022,  house  prices  started  to  moderate  in  most 
countries. On aggregate in the euro area, nominal house prices grew by 7.1% in 2022, building 
on years of increases above income. Nominal house price growth has moderated substantially 
in  recent  quarters  and  turned  negative  in  the  second  quarter  of  2023.  House  prices  are 
overvalued in a number of countries, but the risk of an abrupt correction is limited at euro area 
level. 

•  The  euro  area  financial  sector  on  aggregate  remains  sound.  The  Common  Equity  Tier  1 
capital  ratio  marginally  declined,  whereas  profitability  increased  in  2022  and  the  non-
performing  loans  ratio  remained  low.  Credit  dynamics  have  slowed  down  since  mid-2022 
alongside  a  tightening  of  financial  conditions.  The  resilience  of  the  banking  sector  has 
continued into 2023, with a significant increase in profitability in the first half of the year and a 
recovery  of  capital  ratios.  Financing  conditions  for  the  private  sector  remain  tight  and  credit 
growth very muted. 

•  Euro  area  aggregate  government  debt  decreased  by  nearly  4  percentage  points  to  91%  of 
GDP in 2022 and is forecast to decline further. The average government deficit in the euro area 
improved  in  2022  and  reached  3.6%  of  GDP.  The  government balance  is  expected to  further 
improve this year and next. 

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ANNEX 1: NOTE TO THE TABLES OF THE COUNTRY SECTION 

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

Source: European Commission 

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135 

Note: Figures highlighted are the ones at or beyond the threshold. Flags: b: Break in series. d: Definition differs. e: Estimated. p: Provisional. (9) Common equity Tier 1 ratio required by the ECB in the 2021 Supervisory Review and Evaluation Process.(2) Current account required to stabilise the NIIP above -35% of GDP over 20 years: Calculations make use of Commission’s T+10 projections. See L. Coutinho et al. (2018), "Methodlogies for the assemsent of current account benchmarks", European Economy, Discussion Paper 86/2018. (7) Fundamentals-based benchmarks for non-financial corporate and household debt to GDP ratios: assesses private debt from regressions capturing the main determinants of credit growth and taking into account a given initial stock of debt. Bricongne, J. C., Coutinho, L., Turrini, A.,Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42.(6) Prudential threshold for non-financial corporate and household debt to GDP ratio: corresponds to the level above which the risk of crisis becomes elevated. It is derived from regressions minimising the probability of missed crisis and that of false alerts. Bricongne, J. C., Coutinho, L., Turrini, A., Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42.(8) Average house price gap: is the simple average of the price-to income, price-to rent and model valuation gaps. The model valuation gap is estimated in a cointegration framework using a system of five fundamental variables: total population, real housing stock, real disposable income per capita, real long-term interest rate and price deflator of final consumption expenditure. Based on Philiponnet, N., Turrini, A. (2017), "Assessing House Price Developments in the EU," European Economy - Discussion Papers 2015 - 048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.(3) Prudential NIIP/NENDI benchmark: the prudential threshold for NIIP is the country-specific level beyond which estimates suggest that a BoP crisis is more likely. Turrini A. and S. Zeugner (2019) Benchmarks for Net International Investment Positions, European Economy, Discussion Paper 097/ May 2019. (1) Current accounts in line with fundamentals (current account norms): derived from reduced form regressions capturing the main determinant of the saving-investment balance, including fundamental determinants, policy factors and global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessement of current account benchmarks", European Economy, Discussion Paper 86/2018. (4) Fundamentally explained NIIP benchmark (NIIP norm): NIIP achieved if a country had run a current account balance in line with fundamentals since 1994. It thus represents the part of the NIIP that can be explained by fundamentals. Turrini A. and S. Zeugner (2019) Benchmarks for Net International Investment Positions, European Economy, Discussion Paper 097/ May 2019. (5) NIIP net of non-defaultable instruments (NENDI): subset of the NIIP that abstracts from its pure equity-related components, i.e. foreign direct investment (FDI) equity and equity shares, and from intracompany cross-border FDI debt. It represents the NIIP excluding instruments that cannot be subject to default. Turrini A. and S. Zeugner (2019) Benchmarks for Net International Investment Positions, European Economy, Discussion Paper 097/ May 2019.  
 
   
 
 
 
ANNEX 2: MIP SCOREBOARD 

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Table 1.1: MIP Scoreboard 2022     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 (3 year % change)House price index, 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 pp+0.5 pp+2 ppEU1.5 1.5e-1.0 -8.0 7.8 0.5 5.5p133.0p83.5 6.8 -2.3p1.3 -0.3 -1.1   EA1.3 3.2 -1.1 -8.4 7.9 0.4 5.3p136.2p90.9 7.5 -2.4p0.9 -0.4 -1.7 BE0.6 57.7 1.7 -1.9 10.1p-3.8 5.7p161.4p104.3 5.9 -2.7 1.4 0.2 1.9 BG-1.0 -12.9 5.8 15.5 23.6 -2.1b5.9 74.6 22.6 5.2 12.0 0.5 -0.6 -1.4 CZ-2.3 -19.7 13.7 -7.7 14.8 1.6 4.5 76.1 44.2 2.5 3.2 0.5 0.0 1.2 DK10.2 58.2 -1.2 12.4 7.2 -7.4 13.1 188.0 29.8 5.1 -1.6 1.3 -0.3 0.5 DE6.3 70.2 -0.5 -13.0 7.2p-1.3 6.7p118.4p66.1 3.5b1.5 1.4 -0.2 -0.2 EE-2.6 -20.2 8.8 17.0 19.0 4.5 9.2 94.3 18.5 6.2 1.6 2.0 0.4 7.0 IE6.0 -116.8 -4.6 32.1 -10.6 5.0 2.0 147.1 44.4 5.5 -4.0 3.5 -0.3 -2.4 EL-7.9 -144.2 -2.5 12.6 3.5p4.4e1.1p100.8p172.6 14.9 -0.5 0.9 -3.6 -6.1 ES0.7 -60.2 -0.7 -7.8 10.8p0.8 0.3p123.5p111.6 14.4d-4.5 0.2d-0.3d-2.7dFR-1.1 -23.8 -3.8 -10.7 11.1p1.5 8.7p163.9p111.8 7.7d-1.3p1.0d-0.3d-3.4dHR-0.9 -25.4 -0.6 12.1 11.0p3.2 6.0p79.3p68.2 7.4 9.5 3.4 0.0 1.4 IT1.6 4.7 -1.9 -8.4 4.9 -3.2 2.9 105.5 141.7 9.0 -5.7 -0.2 -1.3 -5.5 CY-8.0 -96.2 -3.0 20.7 -1.2p-3.1 -3.9p213.4p85.6 7.3 -2.3 2.2 0.2 2.0 LV-1.9 -26.5 5.7 15.3 16.7 -1.0 3.0 52.5 41.0 7.5 4.1 -0.5 -0.7 2.6 LT1.0 -7.0 9.8 28.8 27.7 0.4 6.8 51.4 38.1 7.2 1.0 0.6 0.4 0.0 LU8.0 47.0 -0.5 -0.8 13.2 4.0 -19.5p325.5p24.7 5.6 -4.9 1.5 0.0 0.6 HU-4.5 -50.8 -8.1 -3.5 23.1p5.1p9.2p78.8p73.9 3.9 8.6 2.5 0.1 -0.6 MT0.1 78.8 -3.1 2.7 8.6 1.2p6.4 121.8 52.3 3.6 5.9 4.1 0.1 -1.0 NL8.8 75.2 3.2 -0.1 9.8p6.1 6.9p210.1p50.1 4.2 -3.7p1.3 -0.2 -0.9 AT1.6 17.6 0.1 -4.7 10.7 3.7 5.0 121.9 78.4 5.7 -3.0 0.5 -0.2 0.4 PL-0.4 -33.4 -0.2 16.6 16.9p-1.9 1.9 63.5 49.3 3.2 3.0 3.6 0.2 0.9 PT-1.0 -83.6 -2.9 -1.9 10.7p4.8 2.9p141.1p112.4 6.5 -4.0 1.5 -0.1 0.7 RO-7.1 -40.6 2.6 6.7 10.4p-6.2 3.3p43.3p47.2 5.8 8.2 3.5 0.2 1.8 SI3.2 -1.5 -1.3 2.9 14.3 4.3 5.2 66.0 72.3 4.6 -1.4 1.6 -0.3 2.0 SK-3.6 -61.0 3.8 -6.6 13.3 1.3 9.3 92.7 57.8 6.5 -9.3 1.4 0.2 2.8 FI-0.5 -1.7 -3.1 -2.0 8.6 -4.6 2.3 144.7 73.3 7.4 1.7 2.5 0.0 -3.5 SE5.8 34.8 -1.4 -2.7 5.8 -3.1 10.6 207.3 32.9 8.3 3.7 1.0 0.4 2.3 2022External imbalances and competitivenessInternal imbalancesEmployment indicators¹1) For employment indicators, see page 2 of the AMR 2016. 2) House price index: b = break in time series due to new data source for BG; e = estimate by NCB for EL. 3)  Private Sector Credit Flow: data for Luxembourg are preliminary estimates until the final structural business statistics survey becomes available.  4) Employment indicators and Unemployment rate: d = Spain and France have assessed the attachment to the job and included in employment those who had an unknown duration of absence from work, but are expected to return to the same job once 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)Figures highlighted are the ones at or beyond the threshold. Flags:b:Break in series. d:Definition differs. e:Estimated. p:Provisional.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.7. Government sector 

137 138 
137 
137 

2022Real GDP (1 year % change) Gross fixed capital formation (% of GDP)Gross domestic expenditure on R&D(1 year % change) Current plus capital account (Net lending-borrowing)(% of GDP)Net international investment position excluding non-defaultable instruments(% of GDP)Direct investment liabilities - flows (% of GDP)Direct investment liabilities - 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)EU3.4 22.5 na0.2 -20.5e-1.8 64.5 -4.1 na-2.6 -4.3 2.5 1.4 1.8pna23.2 5.9 54.8p14.6pEA3.4 22.4 na0.6 -25.8 -2.3 74.5 -4.4 na-3.9 -5.0 2.3 1.1 1.8pna21.6 6.3 56.1p14.7pBE3.0p23.9p3.4p-0.8 28.8 2.0 153.6 -4.1p2.1 1.8 -4.3p0.0p0.9p1.5p-1.5 17.9 6.0p60.0p14.2pBG3.9 17.1 0.8p-0.5 44.4 3.6 68.4 -4.1 4.9 19.8 8.2 6.7 4.3 3.7p63.8 29.3b2.8 22.5 8.8pCZ2.4 26.8 2.0p-6.0 28.4 3.6 76.7 -4.7 13.7 -4.2 -1.9 2.3 0.8 1.4p12.8 51.7 4.3 32.6 13.0pDK2.7 21.7 na13.5 34.9 8.6 59.2 -1.0 -0.9 16.6 4.1 5.9 -1.0 1.5p-4.6 16.9 5.2 84.8 16.4pDE1.8p22.1p3.1p3.7 49.8 1.1 48.8 -3.4p0.3 -9.7 -5.9p-1.6p0.4p1.1p9.5 26.6 7.3p55.0p14.3pEE-0.5 27.5 na-2.9 28.7 4.7 118.3 -2.3 9.5 21.4 3.6 -1.9 -4.8 0.8p36.8 49.1 5.1 36.8 9.0pIE9.4 21.6 1.0e10.6 -234.0 -0.1 366.8 -2.2 -2.0 37.1 -1.3 9.0 2.6 1.7p-38.3 22.0 2.4 25.5 9.3pEL5.6p13.7pna-8.8 -120.7 3.6 25.2 -6.0p-3.1 16.9 -4.2p1.3p3.0p6.2p-23.0 24.9e1.6p45.2p15.0pES5.8p20.1pna1.5 -30.2 3.6 75.4 -3.9p-0.5 -4.3 -6.4p10.3p3.0p2.7p-4.3 13.8 5.7p52.3p16.0pFR2.5p25.2p2.1p-1.6 -33.4 3.8 51.6 -4.3p-3.6 -7.3 -2.6p2.2p-0.2p1.8p-2.5 18.9 7.1p66.2p16.0pHR6.3p19.6p1.4 -0.3 13.5 5.0 53.9 -9.0p-0.4 16.3 -7.0p22.1p3.9p3.0p-11.0 32.7 3.4p30.7p9.0pIT3.7 21.9 1.3p-0.9 1.6 3.0 31.3 -5.6 -1.4 -5.0 -9.5 5.0 2.0 2.9p-5.8 8.5 6.5 40.9 13.7pCY5.1p20.4pna-7.7 39.9 3.4 1509.8 -6.6p-2.5 25.3 -1.6p8.7p2.0p4.5p-18.0 -0.5 8.6p71.7p17.0pLV3.4 21.7 0.7 -4.0 16.9 2.9 61.0 -7.2 6.1 19.6 2.3 5.4 0.6 1.4p33.0 30.6 2.4 17.7 10.2pLT2.4 21.4 1.0 -4.0 21.2 0.9 48.3 -10.5 11.0 33.6 -11.3 7.3 -2.5 0.9p44.8 48.2 3.6 21.8 17.1pLU1.4 17.5 na7.9 -3753.7 -568.7 5083.0 -4.6 -0.2 3.0 0.7 -5.5 -1.9 1.2p17.4 42.9 3.7 66.8 15.2pHU4.6p28.2p1.4 -6.2 -5.3 -5.4 293.4 -9.9p-7.5 0.1 -7.2p7.7p3.0p3.1p20.0 49.5p4.7p18.6p11.4pMT6.9 25.3p0.7 -1.5 111.8 127.7 2679.8 -8.1 -3.9 6.5 0.5 1.9 0.7 2.3p11.7 15.9p4.3p55.7 12.6pNL4.3p20.9pna20.3 18.5 -1.7 516.2 -1.2p3.8 3.7 -2.7p-0.4p0.4p1.3p0.5 40.5 5.4p92.4p15.9pAT4.8 25.3 3.2p-0.2 -1.5 2.1 57.2 -4.4 0.7 -1.2 -4.5 6.3 2.1 1.8p5.1 34.9 5.6 48.7 11.1pPL5.3 16.8 1.5p-1.9 2.7 5.3 46.0 -3.4 0.5 21.0 -2.6 1.8 4.8p4.3p8.2 34.8 2.2 26.6 13.5pPT6.8p20.1p1.7p-0.2 -29.6 3.8 80.3 -4.8p-2.5 1.8 -3.0p12.5p5.2p3.0p4.4 34.0 3.9p60.7p12.3pRO4.6p24.9p0.5 -6.7 -4.2 3.8 42.2 -2.8p2.3 10.7 3.9p4.7p3.4p2.8p33.1 17.1 2.7p13.9p11.2pSI2.5 21.6 na-1.4 15.2 3.6 43.2 -3.8 -1.0 6.8 -4.0 2.3 -0.4 1.8p1.7 33.9 2.8 25.9 10.0pSK1.8 20.1 1.0 -6.2 -18.2 3.5 62.0 -6.6 4.7 -3.1 -5.9 -1.9 0.0 1.7p14.2 32.5 4.3 47.1 10.7pFI1.6 24.2 3.0 -2.5 6.3 4.8 51.0 -3.5 -2.7 1.7 1.1 -1.2 -1.3 1.0p-7.1 7.7 7.2 65.3 17.4pSE2.8 27.1 3.4 4.9 -9.8 9.0 95.6 -1.2 -1.1 0.9 -2.4 2.1 0.1 0.8p1.4 18.8 5.4 87.4 16.3pFlags:b:Break in series. e:Estimated. p:Provisional. 1) House price index: b = break in time series due to new data source for BG; e = estimate by NCB for EL.Source:EuropeanCommission,EurostatandDirectorateGeneralforEconomicandFinancialAffairs(forRealEffectiveExchangeRate),EuropeanCentralBank(forConsolidatedbankingleverageandGrossnon-performingloans,domesticandforeignentities),andInternationalMonetaryFunddata, WEO (for world volume exports of goods and services)Table 2.1: Auxiliary indicators, 2022  
 
.7. Government sector 

138 

Table 2.1 (continued): Auxiliary indicators, 2022      %3 year change in pp%3 year change in pp%3 year change in pp%3 year change in pp%3 year change in ppEU2.0 74.5 2.4 14.5 9.6 -0.9 21.6 0.5 16.5 0.0 6.7 0.0 8.3 0.3 EA2.3 74.5 2.7 14.6 9.5 -1.0 21.8 1.1 16.8 0.4 6.1 0.3 9.1 0.4 BE2.1p70.5 2.3 16.4 6.6 -2.0 18.7 -1.3b13.2 -1.6b5.8 -0.5 11.5 -1.3 BG-0.3 73.6 2.3 10.7 12.5 -1.1 32.2 -1.0 22.9 0.3 18.7 -3.4 8.6 -0.6 CZ1.5 77.2 0.6 6.8 8.0 2.3 11.8 -0.3 10.2 0.1 2.1 0.0 4.5 0.1 DK3.8 80.4 0.5 10.6 6.7 -1.0 17.1 -0.2 12.4 -0.1 3.2 -0.6 8.8 -0.7 DE1.4p79.4 1.0 6.0 6.8 0.4 20.9 3.6 14.7 -0.1 6.1 3.1 9.7 2.1 EE4.6 81.2 1.3 18.6 10.7 3.0 25.2 1.5 22.8 1.1 3.3 0.7 5.7 0.4 IE6.6 76.7 1.3 10.1 6.8 -3.3 20.7 0.3 14.0 0.9 5.8 -1.3 10.5 -3.3 EL2.5p69.4 7.7 31.4 10.6 -0.2 26.3 -2.7 18.8 0.9 13.9 -1.9 9.5 -3.2 ES2.7p74.0d5.0d29.8d10.5d-1.6d26.0 -0.2 20.4 -0.3 7.7 0.0 8.7 -2.2 FR2.6p73.6d2.0d17.3d10.1d-0.4d21.0b2.2b15.6b2.0b7.7b0.4b9.9b2.8bHR2.3 69.9 2.4 18.0 11.9 0.1 19.9 -0.9 18.0 -0.3 4.0 -0.6 6.3 -1.2 IT1.7 65.5 4.6 23.7 15.9 -3.1 24.4 -0.2 20.1 0.0 4.5 -1.9 9.8 0.2 CY3.0p78.2 2.3 18.6 12.9 -0.8 16.7 -1.9 13.9 -0.8 2.7 -0.5 4.1 -2.5 LV2.7 76.8 2.0 15.3 8.6 0.7 26.0 -0.7 22.5 -0.4 7.8 0.3 7.2 -0.2 LT5.1 78.6 2.3 11.9 9.7 1.1 24.6 -0.9 20.9 0.3 6.0 -3.7 8.3 0.7 LU3.4 73.5 1.3 17.6 6.7 1.1 19.4b-0.7b17.4b-0.1b2.0b0.6b3.5b-3.4bHU1.5p77.2 1.2 10.6 9.9 -0.6 18.4 -1.6 12.1 -0.2 9.1 -1.8 6.2 1.3 MT6.2 80.0 1.0 8.3 7.1 -1.5 20.1 -0.6 16.7 -0.4 4.9 -0.1 3.8 -1.1 NL3.9p84.7 0.7 7.6 2.8 -2.7 16.5 0.0 14.5 1.3 2.5 -0.3 8.4 -0.5 AT2.6 77.8 1.2 9.5 8.1 0.3 17.5 1.0 14.8 1.5 2.3 -0.4 5.7 -0.9 PL0.4p73.5 0.9 10.8 8.0 -0.2 15.9 -2.0 13.7 -1.7 2.8 -0.7 3.8 -1.2 PT1.5p76.4 2.7 19.0 6.6 -1.4 20.1 -1.0 16.4 -0.8 5.3 -0.3 5.6 -0.6 RO1.2p66.8 2.2 22.8 17.5 -0.9 34.4 -1.7 21.2 -2.6 24.3 -0.2 4.2 -0.3 SI2.9 76.2 1.6 10.1 8.2 1.9 13.3 -0.4 12.1 0.1 1.4 -0.8 3.8 -0.5 SK1.8 76.1 4.1 19.9 9.6 -0.8 16.5 1.7 13.7 1.8 6.3 0.4 3.8 -2.5 FI2.9 79.8 1.5 14.2 7.6 0.1 16.3b1.8b12.7 1.1 1.9 0.0 10.1b2.0bSE2.7 83.5 1.9 21.7 4.9 -0.4 18.6 0.2 16.0 -1.1 2.3 0.8 8.2 -0.1 Activity rate - % of total population aged 15-64(%)Long-term unemployment rate - % of active population aged 15-74(%) Youth unemployment rate - % of active population aged 15-24(%)Young people neither in employment nor in education and training - % of total population aged 15-24People at risk of poverty or social exclusion -% of total populationPeople at risk of poverty after social transfers -% of total populationSeverely materially and socially deprived people -% of total populationPeople living in households with very low work intensity -% of total population aged 0-64Flags:b:Break in series. d:Definition differs. p:Provisional. 2022Employment(1 year % change)1)Employmentindicators:d=SpainandFrancehaveassessedtheattachmenttothejobandincludedinemploymentthosewhohadanunknowndurationofabsencefromwork,butareexpectedtoreturntothesamejobonceCOVID-19healthmeasuresallowit.2)IncomeandLivingConditions:b=forFR,inclusionoffouroverseasdepartments(FrenchGuiana,Réunion,MartiniqueandGuadeloupe)intheSILCexercise;forLU,introductionofaCAPIcomponentforthenewlyselectedhouseholds; for FI, disruption of the registers’ use for the definition of persons permanently disable or/and unable to work.Source: European Commission, Eurostat