COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2025 prepared in accordance with Article 3 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances
Date: 2024-12-17
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, 17.12.2024  SWD(2024) 700 final  COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2025            prepared in accordance with Article 3 of Regulation (EU) No 1176/2011       on the prevention and correction of macroeconomic imbalances {COM(2024) 702 final} - {SWD(2024) 701 final} - {SWD(2024) 702 final}  
 
 
CONTENTS 

1. 

Introduction 

2.  Macroeconomic context 

3. 

External sector 

Imbalances, risks and adjustment: main developments 
3.1. 
3.2. 
Price competitiveness 
3.3.  Non-financial corporations 
3.4. 
3.5. 
3.6. 
3.7. 

Household debt and saving 

Government sector 

Housing markets 

Financial sector 

4. 

Country sections 

Belgium 

Bulgaria 

Czechia 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Croatia 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

The Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

Euro Area 

1 

3 

10 
10 
17 
30 
41 
47 
57 
63 

70 
70 
73 
76 
79 
82 
85 
88 
91 
94 
97 
100 
103 
106 
109 
112 
115 
118 
121 
124 
127 
130 
133 
136 
139 
142 
145 
148 
151 

 
 
 
A1.  Notes to the tables of the Country section 

A2.  MIP scoreboard 

LIST OF GRAPHS 

2.1. 
2.2. 
2.3. 
3.1. 
3.2. 
3.3. 
3.4. 
3.5. 
3.6. 
3.7. 
3.8. 
3.9. 
3.10. 
3.11. 
3.12. 
3.13. 
3.14. 
3.15. 
3.16. 
3.17. 
3.18. 
3.19. 
3.20. 
3.21. 
3.22. 
3.23. 
3.24. 
3.25. 
3.26. 
3.27. 
3.28. 

Nominal GDP growth 
Annual headline HICP inflation and components, September 2024 
Selected graphs on the macroeconomic context 
Current account and trade balance of the euro area 
Current account and net international investment position 
Selected graphs for external sector 
Inflationary dynamics across the EU 
Cumulated inflation 
Unit labour costs 
Core inflation and ULC based REERs, 2023 
Selected graphs on competitiveness 
Non-financial corporate debt-to-GDP ratios 
Unit profit growth of non-financial corporations 
NFC vulnerabilities 
NFC investment share and real investment growth in selected EU countries 
Selected graphs on non-financial corporations 
House price evolution, over/undervaluation, and household debt 
Borrowing capacity change, from 2013 to 2022 and from 2022 to 2024 
Building permits for residential construction 
Selected graphs on the housing market 
Household debt-to-GDP ratios 
Contributions to changes in household debt-to-GDP ratios 
Net credit flows to households 
Selected graphs on household savings and debt 
Government balances 
Government debt 
Drivers of the evolution of the government debt-to-GDP ratio 
Selected graphs on the government sector 
Banking sector: profitability, capital ratios and non-performing loans 
Domestic sovereign debt (loans and bonds) holdings of banks 
Selected graphs on financial sector 

LIST OF BOXES 

2.1. 
3.1. 
3.2. 
3.3. 
3.4. 

Employment developments 
Euro area labour market tightness and inflation 
Interest expenses and debt service capacity across the EU 
In good and bad days: household income and savings in the EA20 since 2019 
The impact of rising interest rates on households' net interest income in the euro area 

154 

155 

3 
5 
9 
11 
14 
16 
17 
18 
20 
22 
29 
30 
32 
34 
35 
40 
41 
43 
44 
46 
47 
48 
49 
56 
57 
58 
59 
62 
64 
65 
69 

7 
24 
36 
50 
52 

 
 
 
 
 
 
 
 
1. INTRODUCTION 

This  Alert  Mechanism  Report  (AMR) 
initiates  the  fourteenth  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 accompanies a Commission Communication, a staff working document on 
the  AMR  scoreboard  and  a  statistical  annex.  The  Commission  Communication  (1)  provides  the 
outcome  of  the  analysis,  which  this  staff  working  document  presents  and  puts  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 2025 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 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). This year, the AMR is 
based  on  a  revised  scoreboard,  following  a  review  of  the  scoreboard.  The  main  changes  are 
summarised  in  the  Commission  Communication,  and  details  are  provided  in  a  staff  working 
document  (3)  accompanying  this  Communication.  The  annex  that  accompanies  this  publication 
contains the values of the scoreboard (4). The analysis contained in this publication also builds on 
analytical  tools  and  assessment  frameworks,  and  additional  published  data,  notably  in-year 
data (5). 

(1)  Commission communication, Alert Mechanism Report 2025, COM(2024) 702.  
(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)  Commission  staff  working  document  on  the  changes  in  the  scoreboard  of  the  Macroeconomic  Imbalance  Procedure, 

SWD(2024) 702. 

(4)  Commission staff working document, Statistical Annex accompanying the Alert Mechanism Report 2025, SWD(2024) 701 
(5)  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 2024. For any other data, the cut-off date was also 31 October 2024. 

1 

 
 
 
1. Introduction 

The  first  screening  for  imbalances  in  the  AMR  is  forward  looking  with  a  view  of 
detecting  risks  of  emerging  imbalances  early  on.  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 2024 and subsequent years have been estimated using 
Commission  forecast  data  and  nowcasts  are  based  on  in-year  data  (6).  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 
forward-looking  approach  to  the  MIP  has  been  developed  in  recent  years  and  applied  during  the 
2024 cycle. It aims at a stronger preventive role of the MIP in an environment characterised by new 
risks.  

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

2 

 
2. MACROECONOMIC CONTEXT 

This AMR is prepared in the context of a slightly strengthening economic activity, as the 
EU  economy  emerges  from  a  challenging  period,  while  inflation  continues  falling  and 
labour  markets  remain  strong.  In  2023,  the  economic  expansion  nearly  stalled  in  the  EU  and 
the  euro  area,  with  GDP  gaining  0.4%  in  both.  The  weakness  was  widespread.  Real  growth 
moderated in all but three countries and nine Member States saw their real GDP contract. Nominal 
growth also decelerated markedly in most countries, although it was still strong owing to continued 
price increases (Graph 2.1). Consumer inflation fell to a still high 6.4% in the EU and to 5.4% in the 
euro area from record highs of 2022. Labour markets performed well, with sustained job and wage 
growth. In 2024, real GDP growth has picked up to 0.3% q-o-q in the EU in each of the first three 
quarters of the year, but domestic demand has been weak as fixed investment contracted in the 
first  half  of  2024.  Looking  ahead,  the  EU  economy  is  expected  to  continue  growing  as  easier 
financing  conditions,  both  at  home  and  abroad,  should  provide  a  new  stimulus  and  real  incomes 
increase. Overall, real GDP growth in the EU is expected to come in at 0.9% in 2024 and 1.5% in 
2025,  with  the  economies  of  all  countries  expected  to  expand  in  2025.  Nominal  growth  should 
continue moderating, as inflation declines (7). 

Graph 2.1: Nominal GDP growth 

Source: Eurostat and European Commission forecasts and calculations. 

International  trade  has  provided  some  support  to  growth  in  the  EU  recently  despite  a 
strong deceleration in 2023. Economic activity outside the EU has been relatively resilient in the 
past  two  years,  with  growth  in  employment  and  incomes  maintained  despite  tighter  financing 
conditions relative to 2022 (8). Despite this resilience, international trade lost momentum in 2023, 
owing to a cyclical downturn compounded by a surge in cross-border trade restrictions fragmenting 
the  global  trade  network  (9).  Still,  net  exports  had  a  mildly  positive  contribution  to  EU’s  growth 
(Graph  2.3.a).  As  disinflation  continues,  most  central  banks  have  started  cutting  interest  rates, 

(7)  European Commission, European Economic Forecast - Autumn 2024, Institutional Paper 296, November 2024. 
(8)  IMF (2024), World Economic Outlook, July 2024. 
(9)  Gopinath  G.,  Gourinchas  P.,  Presbitero  A.  F.,  Topalova  P.  (2024),  “Changing  Global  Linkages:  A  New  Cold  War?”,  IMF 

WP/24/76, IMF (2024), World Economic Outlook, July 2024. 

3 

-6-303691215182122242224222422242224222422242224222422242224222422242224222422242224222422242224222422242224222422242224222422242224BGHULTROPLIEHREECYPTELLVCZNLBEESDKATMTSIITSKDESELUFIFREAEU% and pps.Real GDP, ppGDP deflator, ppNominal GDP, % 
 
     
 
2. Macroeconomic context 

which remain markedly higher than in recent years. However, growth is unlikely to gain a stronger 
momentum, in part owing to fiscal policy turning contractionary to stem further increases in debt 
levels in an environment of higher interest rates. In addition, structural and cyclical weaknesses in 
China,  on  the  back  of  a  prolonged  real  estate  slump  and  weak  consumer  confidence,  result  in 
persistently weak domestic demand. Still, trade has rebounded somewhat at the beginning of 2024 
and is set to provide a rather strong growth stimulus to the EU economy this year.  

The  inventory  cycle  was  a  major  brake  on  growth  in  2023;  domestic  demand  should 
support  growth  from  2024  following  a  temporary  dip.  In  2023,  high  inflation  and  tight 
financial  conditions  strongly  decelerated  demand  across  the  EU.  Nevertheless,  both  private 
consumption and fixed investment increased in real terms at rates above GDP growth, at 0.5% and 
1.8%,  respectively,  at  an  EU  level.  The  strong  buildup  in  inventories  seen  throughout  2021  and 
2022  was  partly  undone  in  2023,  acting  as  a  brake  on  growth  (Graph  2.3.a).  Since  2022, 
investment activity in the construction sector has been losing momentum, albeit from a high level 
achieved  during  the  pandemic.  Machinery  and  equipment,  and  intellectual  property  products 
investment  gradually  recovered  (Graph  2.3.b).  In  the  first  half  of  2024,  investment  activity 
weakened  across  the  board,  falling  in  real  terms  compared  to  the  previous  period.  Private 
consumption  entered  2024  on  a  solid  footing,  but  the  momentum  seems  to  have  faded  in  the 
second half of the year. Still, both consumption and investment are expected to pick up, owing to 
growing  real  incomes  and  less  costly  financing.  The  ongoing  implementation  of  reforms  and 
investments  under  the  national  Recovery  and  Resilience  Plans  (RRP)  will  continue  bolstering 
investment activity. On the other hand, the underutilisation of capital and a prolonged weakness in 
the  construction  sector,  coming  mainly  from  commercial  real  estate,  are  likely  to  dampen 
somewhat  the  growth  impulse.  Overall,  domestic  demand  is  expected  to  rebound  somewhat  in 
2025. 

The tight EU labour market continued to create jobs  in 2023 and into 2024, but labour 
productivity declined somewhat. The EU economy created nearly 2.5 million jobs in 2023. Job 
growth was widespread, and employment increased in all countries except two. In the first half of 
2024, employment increased further and is likely  to continue doing so in the short-term.  The job 
creation was mostly satisfied by an expansion in the labour force, as the labour supply benefited 
from  immigration,  increasing  female  participation,  and  greater  engagement  from  older  workers. 
After having been at or just above 6% since early 2022, the EU unemployment rate posted a new 
record low in August  2024 when it fell to 5.9%. Unemployment rates remained broadly stable in 
most countries, close to their historical minima. Spain and Greece, two countries with the highest 
unemployment  rates  in  the  EU  experienced  further  sizeable  reductions  throughout  2024  (Graph 
2.3.c).  EU  labour  markets  remained  tight,  although  the  vacancy  rate  has  been  slowly  trending 
downward  since  late  2022.  Nominal  wage  growth  began  to  decelerate,  but  real  wage  growth 
increased and turned positive by the end of 2023, as consumer prices fell faster, contributing to an 
increase in living standards. Compared to historical standards, wage growth remains swift in the EU 
and  in  most  countries  in 2024  and  will likely decelerate  only  gradually,  owing  to  the  widespread 
tightness of labour markets. Labour productivity growth has been muted across the EU since 2019 
and was negative for the EU as a whole in 2023. As a result, unit labour cost has been increasing 
at a substantial pace in most countries over this period. 

The  reduction  in inflation  in  the euro area  and  the  EU  continued in 2023 and 2024,  as 
inflationary shocks have largely faded, and second round effects are subsiding. Since its 
peak in October 2022, HICP inflation has moderated markedly. Consumer inflation in the euro area 
averaged 5.4% in 2023 (6.4% in the EU) and continued falling throughout 2024, to reach 2.0% in 
October. Major shocks, namely energy commodity prices, strong post-pandemic demand and supply 
disruptions, have largely resolved. Energy prices has been slowing total inflation in most  countries 
for over a year and non-energy goods inflation has been very weak since the beginning of 2024. 
Even though gradually abating, second round effects continue to keep underlying inflation elevated. 

4 

2. Macroeconomic context 

Core inflation (10)  came in at 2.7% in the euro area and 2.9% in the EU in September 2024, and 
was  the  main  contributor  to  consumer  price  increases  (Graph  2.2).  Services  inflation  has  been 
hovering  around  4%  since  November  2023,  with  recent  wage  increases  playing  a  role.  Absent 
major surprises, inflation in the euro area is on track to reach target levels before the end of 2025. 
While inflation differentials in the EU fell markedly by the end of 2023 (Graph 2.3.d) and into 2024, 
core inflation variability has remained substantial (Graph  2.2). Owing to the inherent stickiness of 
core  inflation,  this  means  that  further  reductions  in  headline  inflation  differentials  will  likely  be 
gradual. 

Graph 2.2: Annual headline HICP inflation and components, September 2024 

Source: Eurostat. 

Central  banks  have  started  to  lower  their  policy  rates  but  financing  conditions  remain 
tight.  Financing  conditions  in  the  euro  area  and  elsewhere  continued  to  tighten  considerably 
throughout 2023. As inflation appears to be on track to reach its target, the European Central Bank 
decided to lower the degree of monetary policy restriction and has cut its main policy rate by 75 
bps since June 2024. At the same time, real short-term interest rates have been positive due to the 
steep  decline  in  inflation  since  the  end  of  2023,  while  real  long-term  rates  have  not  changed 
significantly  (Graph  2.3.e).  Most  other  central  banks  in  the  EU  began  lowering  their  policy  rates 
earlier than the ECB. Euro area sovereign bond yields have decreased in the past months, but some 
euro area sovereign spreads remain higher than in spring.  

Credit  flows  to  the  private  sector  strongly  decelerated  in  2023  but  are  set  to  become 
growth supportive again. Credit flows to the private sector moderated markedly across the EU 
through 2023, owing mainly to a high cost of borrowing, lower loan demand for fixed investment, 
and tighter credit standards (Graph 2.3.f). Still, net flows remained positive in the euro area and in 
most countries outside the euro area. Although still high, interest rates on loans for non-financial 
corporates (NFCs) as well as on loans to households for house purchases have declined somewhat 
in many EU countries in 2024. In the first half of 2024, net lending flows to NFCs were positive in 
the  euro  area  and  all  countries  outside  the  euro  area.  By  contrast,  net  lending  flows  for  house 

(10)  HICP inflation excluding energy, food, alcohol and tobacco. 

5 

-20246ROBEPLNLEEELHRHUSKCZPTMTATDEESCYLVBGFRSEDKFILUITSILTIEEAEU% and pps.Core inflationEnergyFoodHICP headline     
 
2. Macroeconomic context 

purchase were negative in the euro area, driven mainly by a sharp fall in France. Outside the euro 
area, all countries reported positive net lending flows to households. In the third quarter of 2024, 
both  firms  and  particularly  households  in  the  euro  area  showed  an  increased  demand  for  loans, 
owing mainly to declining interest rates (11). As interest rates are set fall further, credit flows should 
gradually pick up to help strengthen investment and consumer spending growth.  

The  fiscal  stance  was  neutral  in  2023  and  has  likely  turned  contractionary  in  2024. 
During  2020-2023,  strong  policy  support  helped  shield  the  private  sector  from  the  impact  of 
adverse shocks. As a result, on aggregate, both households and corporations were able to reduce 
their debt, as a share of GDP. By contrast, governments face the legacy of the two major shocks of 
recent history. In 2023, deficits remained elevated in most countries compared to 2019. Debt ratios 
declined  in  some,  mainly  thanks  to  strong  nominal  growth.  Fiscal  policy  had  a  neutral  effect  on 
economic  growth  in  2023  and  is  likely  to  have  a  slightly  contractionary  effect  in  2024  before 
turning neutral again in 2025.   

The  outlook  for  global  and  EU  economies  is  subject  to  numerous  risks,  which  can 
exacerbate economic vulnerabilities in the near future. The conflict in the oil-rich Middle East 
region and protracted Russia’s war of aggression against Ukraine continue to jeopardise European 
energy  security.  Although  EU  countries  have  substantially  diversified  their  energy  suppliers,  price 
increases  and  potentially  supply  disruptions  may  reignite  inflationary  pressures  when  the 
economies are still adapting to the previous price shock. An escalation of geopolitical tensions and 
a rise of protectionism would further weaken existing trade and financial linkages, likely leading to 
increased  trade  costs  and  a  reshaping  of  export  markets.  This  comes  at  a  time  when  some  EU 
economies  face  deteriorating  price  competitiveness,  and  some  continue  redirecting  trade  away 
from  Russia.  Political  instability  in  EU  countries  and  rising  polarisation  risk  undermining  policy 
predictability, with potential negative impacts on economic growth. In addition, continued subdued 
productivity growth, also stemming from structural challenges in the manufacturing sector, would 
further exacerbate economic vulnerabilities stemming from high debt and competitiveness losses. 
Despite  elevated  global  economic  uncertainty,  financial  markets  volatility  remains  rather 
subdued (12). However, volatility can rapidly increase, as demonstrated by a brief episode in August, 
prompting  asset  repricing  and  changes  in  capital  flows.  The  realisation  of  the  risks  could  also 
negatively impact the quality of assets in the financial sector.  

(11)  ECB (2024), The euro area bank Lending survey – Third quarter of 2024. 
(12)  IMF (2024), Global Financial Stability Report, October 2024. 

6 

 
2. Macroeconomic context 

(Continued on the next page) 

7 

Box 2.1: Employment developmentsIn 2023 and 2024, the EU labour market remained strong despite weak economic growth. In recent years the EU labour market has shown remarkable resilience amidst challenges including the COVID-19 pandemic, Russia’s war of aggression against Ukraine, the ensuing energy crisis as well as ongoing structural changes related to demographic change and the twin transition. Although economic activity weakened in 2023 and expanded modestly in the first half of 2024, the labour market impact was limited. Labour demand weakened, yet employment growth in 2023 outpaced real GDP growth (1.1% vs 0.4% yearly), and in the first half of 2024, employment kept rising faster than real GDP (1% year-on-year against around 0.7%). The employment rate in the second quarter of 2024 was 75.8%, and is, after having made good progress, well on track towards the at least 78% headline target for 2030 as set by the European Pillar of Social Rights Action Plan. The unemployment rate stayed at 6% for over a year, dropping to 5.9% by September 2024. Although labour shortages have eased, particularly in manufacturing, many firms still report difficulties in finding workers, albeit less than in previous years (Graph 1.a). The job vacancy rate for the business economy, which peaked at 3.1% in the second quarter of 2022, declined to 2.4% in the second quarter of 2024, still higher than pre-pandemic levels. This, along with an unchanged unemployment rate, suggests that the labour market remained tight. Employment growth was stronger in sectors with relatively high labour shortages (Graph 1.b). This suggests that employment growth in sectors with labour shortages, such as trade, transport, accommodation and food services, partly results from labour supply expansion and job reallocation towards high-shortage sectors. The persistence of shortages in sectors marked by high employment growth indicates an untapped potential for further employment gains, including in sectors or occupations complementary to those facing labour shortages (1). This good labour market performance is due to supportive labour demand and supply factors. In 2023, high profit margins and moderate real unit labour costs acted as a positive supply shock for firms, fuelling labour demand in a context of prolonged labour shortages and weakening economic growth. Labour supply also saw substantial gains in the post-pandemic period, with labour force growth accelerating from an average of 0.4% yearly in the 2015-2019 period to nearly 1% in 2022 and 2023. This increase was broad based across all age groups and countries, with third country nationals contributing 1.3 million to the total labour force rise of 2.3 million in 2023 (Graph 1.c). Simultaneously, the decrease in the job vacancy rate alongside stable unemployment suggests a potential inward shift in the empirical Beveridge curve, potentially reflecting improvements in job matching efficiency and/or a lower separation rate (Graph 1.d). The enhanced job matching may stem from reduced mismatches, while a lower separation rate may result from an ageing population – where older workers face lower risks of job loss – and persistent labour shortages, which may encourage employers to retain workers who are increasingly hard to find (Graph 1.e). If these factors persist, the unemployment rate may become less responsive to cyclical fluctuations in the future. Looking ahead, although the labour demand is softening, the unemployment rate is expected to remain low. Employers’ hiring intentions weakened throughout 2023 and into 2024, especially in industry and services (Graph 1.f). Nonetheless, according to the Commission Autumn 2024 forecast the unemployment rate is projected to stay near record lows in 2024 and 2025 with positive employment growth expected to continue. However, short-to medium-term challenges could jeopardize these favourable trends. In the short-term, shrinking profit margins may reduce firms’ incentive to retain workers. In the medium term, persistent labour and skills shortages could hinder labour reallocation, slow progress in the digital and green transitions, and limit the firms’ capacity to innovate. Low total factor productivity growth, in particular in high-tech sectors, may lower firms’ expected profit reducing their incentive to hire.   (1) This box draws on the findings of the “Labour Market and Wage Developments Report in Europe, Annual Review 2024 (forthcoming).   
 
  
 
 
 
Box (continued) 

2. Macroeconomic context 

8 

Graph 1: Selected graphs on employment developments      (1) Chart a): Labour shortages are proxied by the percentage of firms that declare labour a factor limiting production. Chart b): high and low labour shortages are classified on the basis of the sectoral distribution of shortages in the second quarter of 2024 or the criteria used in European Commission (2023a) (ESDE 2023) to identify persistent labour shortages in specific sectors or occupations. Charts c) and e): the zero line represents the pre-pandemic average growth rate. Chart d): the vacancy rate is the number of firms that declare labour a factor limiting production as % of total labour force. The job finding rate is computed from the structure of unemployment by duration (Elsby et al 2015). The matching efficiency is the residual of a linear regression of the job finding rate (in logs) on labour market tightness (in logs). Chart f) 3-terms moving average. Source: European Commission Business and consumer survey and Eurostat labour force survey  56789101112051015202530354015161718192021222324%%a) Labour shortages ConstructionServicesIndustryUnemployment rate (right scale)Sectors with shortages in 2024Q2Sectors with persistent labour shortages …Occupations with persistent labour shortages (ESDE 2023)-20246%Sectors with shortagesSectors with low labour shortagesb) Employment growth for sectors with high and low labour shortages: 22-Q2 to 24-Q1-9-6-30369060810121416182022%c) Growth of the labour force by citizenshipEU27 countries except reporting countryNon-EU27 countries nor reporting countryReporting country2005-Q12007-Q408-Q110-Q111-Q111-Q313-Q2​14-Q115-Q117-Q118-Q119-Q120-Q121-Q121-Q4​22-Q323-Q1​​24-Q2012346789101112Vacancy rate Unemployment rate d) Beveridge curve 05-Q1 to 07-Q408-Q1 to 13-Q213-Q3 to 19-Q420-Q1 to 24-Q21520253035404550012305070911131517192123%%e) Job finding, job separation rates and matching efficiency Job finding rate (right scale)Matching efficiencyTransition employment-unemployment-40-30-20-100102015161718192021222324Pps. deviation from pre-pandemic means f) Hiring expectations over the next three months IndustryConstructionServices 
   
 
 
 
Graph 2.3: Selected graphs on the macroeconomic context 

2. Macroeconomic context 

Source: Eurostat, ECB and European Commission calculations. 

9 

-8-6-4-202468161718192021222324'% change, contribution in pps.a) GDP growth and contributions, EUConsumptionInvestment (GFCF)Inventories investmentNet exportsReal GDP growth8590951001051102021222324index, 2019 = 100b) Gross fixed capital formation, EU TotalDwellingsOther buildings and structuresMachinery and equipmentIntelectual property products-50510152025302021222324%d) Annual headline HICP inflation in EUEAEU-10-8-6-4-20246161718192021222324%e) Euro area benchmark interest ratesShort-term nominal rateLong-term nominal rateShort-term real rateLong-term real rate-10001002003004005006007001617181920212223244-quarter sum, bn EURf) Net credit flows, euro areaNon-financial corporationsHouseholds024681012141618ESELITSEFRFILTPTLVEEHRCYSKROBELUDKATBGIEHUSINLMTDEPLCZEAEU% of labour forcec) Unemployment rateSeptember 2024Average 2019Average 2023  
        
3. IMBALANCES, RISKS AND ADJUSTMENT: MAIN 
DEVELOPMENTS 

3.1.  EXTERNAL SECTOR 

In 2023, the euro area current account balance shifted back to a surplus close to 2% of 
GDP,  largely  driven  by  the  receding  energy  price  shock  and  subdued  demand.  The 
moderation of energy prices was the key contributor to the reversal in the current account balance 
(Graph 3.1.a). Alongside an improvement in the energy goods balance, the trade in goods excluding 
energy also contributed to the increase of the current account balance as high inflation eroding real 
income  and  a  tightening  in  monetary  policy  resulted  in  weaker  domestic  demand  in  most  EU 
countries.  Conversely,  the  trade  balance  in  real  terms  (Graph  3.1.b)  and  the  income  balance 
remained largely stable, despite high interest rates (13). The weakening in domestic demand can be 
seen in consumption, which stagnated in real terms, and investment, which fell in real terms mainly 
due to the contribution of inventories (Graph 3.3.c). Although the euro area current account surplus 
remained  below  pre-pandemic  levels  in  2023,  it  continues  to  exceed  the  levels  implied  by 
fundamentals. The increase in the net external lending position of the euro area in 2023 was driven 
by the private sector.   

Current  account  balances  of  almost  all  Member  States  rose  in  2023.  Concerns  over 
external vulnerabilities eased overall, as current account balances increased in most EU countries in 
2023 (Graph 3.3.a). The exceptions were three Member States, where the current account surplus 
was reduced, and one Member State which saw a widening of the current account deficit compared 
to 2022 (Graph 3.3.b). Nevertheless, the current account balances remained below levels suggested 
by  fundamentals  for  many  countries  (14).  Generally,  a  deceleration  in  domestic  demand  was  a 
major  factor  of  increased  surpluses  and  reduced  deficits  across  the  EU.  Besides  lower  deficits in 
energy  balances,  travel  balances  continued  to  strengthen  in  some  countries  with  large  tourism 
sectors.  Income  balances  remained  broadly  stable,  although  noticeable  movements  in  primary 
income were evident in countries with a large presence of special purpose entities (SPEs).  

(13)  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). 

(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. 

10 

 
 
 
Graph 3.1: Current account and trade balance of the euro area 

3. Imbalances, risks and adjustment: main developments 

(1) ‘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 calculations. 

The net external position increased in almost all EU countries in 2023, mainly driven by 
the  private  sector  savings.  Households  in  most  Member  States  further  increased  their  net 
lending  position  to  above  the  pre-pandemic  average  (Graph  3.3.d).  Non-financial  corporations 
shifted  from  net  borrowers  to  net  lenders  in  2020  and  have  remained  lenders  since  then.  The 
corporate sector has greatly benefited from the government support during the pandemic, while it 
has  also  introduced  cost-cutting  measures  and  deferred  investments  in  times  of  higher  inflation 
and financing costs. Savings have increased as a result of high unit profits (15). At the same time, 
the  government  sector  remained  a  net  borrower  in  most  Member  States,  as  governments  have 
been only gradually withdrawing their support to the private sector amid the pandemic and energy 
crises.  Additionally,  funds  from  the  European  Union,  such  as  the  NextGenerationEU,  have  also 
contributed  to  the  increase  in  the  external  position,  especially  in  Member  States  with  current 
account deficits. 

The euro area current account surplus increased further in the second quarter of 2024, 
reaching  2.6%  of  GDP,  as  the  trade  balance  strengthened.  The  continued  moderation  of 
energy prices and the recovery of international tourism to pre-pandemic levels have contributed to 
the further increase in the current account balance in the euro area (Graph 3.1.a). At the same time, 
foreign demand is picking up, albeit slowly, while a continuous reduction in inventories is keeping a 
lid on domestic demand and imports. This has led to higher net exports of goods, further increasing 
the  current  account  surplus  in  the  euro  area.  The  income  balance  has  remained  stable.  The  euro 
area  current  account  balance  is  forecast  to increase  further  –  with  an  increased  trade  balance  – 
over the rest of 2024 and to remain on the same level in 2025. 

Similarly, current account balances of  most EU countries  have increased further in the 
second  quarter  of  2024,  but  domestic  demand  differs  across  Member  States.  The  main 
positive contributor to the current account balance increase over the last four quarters in almost all 
Member  States  has  been  trade  in  services.  In  most  net-debtor  countries,  the  trade  in  services 
surplus was partly offset by a deficit in the trade in non-energy goods, mainly due to a solid growth 

(15)  Emter,  L.,  Fidora,  M.,  Pastoris,  F.,  &  Schmitz,  M.  (2023).  “The  euro  area  current  account  after  the  pandemic  and  energy 

shock”. Economic Bulletin, (6), European Central Bank. 

11 

-6-4-202461718192021222324% of GDPa) EA current account, 4 quarter sumIncomeTravel servicesServices excl travelGoods excl energyEnergy goodsTrade balanceCurrent account-5-2.502.557.51718192021222324% of GDPb) EA trade balance, 4 quarter sumServices, price effectsServices, realNon-energy goods, price effectsNon-energy goods, realEnergy goods, price effectsEnergy goods, realTrade balance, nominal           
 
3. Imbalances, risks and adjustment: main developments 

in  private  consumption  (16).  Households  are  experiencing  an  increase  in  their  real  income,  due  to 
wage growth and decreasing inflation, creating potential for higher spending. At the same time, in 
net  creditor  countries,  fiscal  consolidation  and  a  continuous  reduction  in  inventories  by  non-
financial corporations have dampened domestic demand, contributing to a further strengthening of 
current account balances. The weight of high financing cost and still rather weak overall economic 
activity have also contributed to reduced investment by corporations. The income balance remained 
largely stable in these countries, although in some cases it is a reflection of the activities of SPEs, 
with limited or no links to the local economies. Overall, current account balances are set to increase 
in  2024  and  to  remain  broadly  unchanged  next  year.  However,  the  current  account  balances  are 
forecast to remain below pre-pandemic levels in most Member States.  

For  most  countries,  current  account  balances  remain  below  their  pre-pandemic  levels, 
and for some net debtor countries markedly so. Despite last year’s improvements, the current 
account  balances  of  more  than  half  of  EU  Member  States  remained  below  pre-pandemic  levels 
(Graph  3.3.e).  In  some  net-debtor  countries,  the  solid  growth  in  domestic  demand,  increasing  the 
net  imports  of  goods,  further  and  markedly  widened  the  current  account  deficits  compared  to 
2019. The current account deficits of  some countries are expected to remain sizeable  and below 
levels suggested by fundamentals. At the same time, some countries with the largest pre-pandemic 
current account surpluses increased their balances in 2023, mainly due to a sizeable deceleration 
in  domestic  demand,  and  in  some  cases  supported  by  exports  of  pharmaceutical  products  and 
sizeable contributions of multinational enterprises.  

In  2023,  the  euro  area did  not  experience a marked  rebalancing between  net  creditors 
and net debtors, as the current account balances of both net debtors and net creditors 
strengthened.  The  current  account  gap  between  creditors  and  debtors  increased  somewhat  in 
2023,  owing  to  stronger  current  account  increases  in  the  net-creditor  countries.  Current  account 
balances of net-creditors continued to increase mainly due to weak domestic demand. By contrast, 
net  debtors  seem  to  have  benefited  more  from  the  moderation  in  energy  prices,  which  helped 
narrow  their  current  account  deficits  amid  rather  strong  domestic  demand  (Graph  3.3.b).  Despite 
the  widening  of  the  current  account  gap,  the  gap  between  the  net  international  investment 
positions  (NIIPs)  somewhat  reduced.  High  nominal  GDP  growth  brought  the  NIIP-to-GDP  ratio  of 
both groups of countries closer to zero. For 2024, it is forecast that the current account gap  will 
slightly decrease again.  

Gross  capital  flows  have  continued  their  decline  that  started  in  2022.  Data  indicate  a 
significant  retrenchment  and  shift  in  the  composition  of  financial  flows  in  recent  years.  With  the 
financial tightening influencing both financing and financial investments, rising geopolitical tensions 
might also have contributed to these shifts. Direct investment flows, which are usually considered a 
safe  long-term  form  of  capital,  have  been  reducing  both  from  and  into  the  EU  since  2022.  This 
retrenchment  has  been  mainly  concentrated  in  disinvestment  in  other  financial  institutions 
(excluding banks), which are usually linked to multinational enterprises, often involved with global 
financial  intermediation  networks.  However,  investment  into  the  non-financial  corporate  sector, 
which is closely related to the real economy, has remained relatively stable (17).  

In  2023,  the  net  international  investment  positions  (NIIP)  continued  to  increase  in 
almost all Member States. The increases can be attributed to higher current account balances in 
most  countries  and  also  high  nominal  GDP  growth  in  most  net-debtor  countries  in  2023  (Graph 
3.3.f). Still, the current account balances recorded in several net-debtor countries remained below 

(16)  If  the  net  international  investment  position  in  percent  of  GDP  is  positive/negative,  the  Member  States  are  considered 

net-credit countries/ net-debtor countries. 

(17)  Emter,  L.,  Schiavone,  M.,  &  Schmitz,  M.  (2023).  “The  great  retrenchment  in  euro  area  external  financial  flows  in  2022  – 

insights from more granular balance of payments statistics”. Economic Bulletin, (4), European Central Bank. 

12 

 
3. Imbalances, risks and adjustment: main developments 

the  levels  necessary  for  the  correction  of  their  negative  NIIPs,  as  estimated  by  prudential  or 
fundamental  benchmarks  (18).  However,  the  NIIPs  of  most  net-creditor  countries  remained 
considerably higher than what can be explained by economic fundamentals (Graph 3.2.b). NIIP-to-
GDP ratios are projected to increase in most Member States for 2024 and 2025, while remaining 
above prudential levels.  

Persistent  geopolitical  uncertainties  continue  to  risk  economic  fragmentation,  while 
easing financing conditions at different paces might pose possible new challenges. Rising 
geopolitical tensions  have prompted a reassessment of global economic alliances, contributing to 
trends like ‘friendshoring’ (19). Although global trade and investment have shown relative resilience, 
mainly  due  to  rerouting  through  other  countries  (20),  strong  conclusions  on  the  impact  of  current 
geopolitical fragmentation cannot be made yet, as its effects remain modest and changes in flows 
are intertwined with cyclical effects. Deepening economic fragmentation may expose supply-chain 
vulnerabilities and disrupt capital flows. At the same time, as inflationary pressures subside, central 
banks  have  begun  cutting  interest  rates  with  varying  paces  across  countries. The  sizeable  cut by 
the US Fed in September 2024 has relieved some pressure on emerging market currencies to the 
benefit  of  global  financial  stability.  However,  potential  new  increases  in  energy  and  commodity 
prices,  exacerbated  by  geopolitical  tensions,  could  hinder  central  banks  from  further  easing  of 
monetary  policy  (21).  The  path  for  global  financial  conditions  ahead  remains  uncertain  and  an 
increased volatility in capital flows might occur along the way. 

(18)  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. 

(19)  Gopinath,  G.,  Gourinchas,  P.-O.,  Pescatori,  A.,  &  Topalova,  P.  (2024).  “Changing  global  linkages:  A  new  cold  war?” 

International Monetary Fund. 

(20)  Bosone,  C.,  &  Stamato,  G.  (2024).  “Beyond  borders:  How  geopolitics  is  reshaping  trade”  (ECB  Working  Paper  Series  No. 

2960). European Central Bank. 
(21)  IMF World Economic Outlook 2024. 

13 

 
Graph 3.2: Current account and net international investment position 

3. Imbalances, risks and adjustment: main developments 

(1) Countries are ranked in increasing order of current account balances in 2023. 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 18.  
Source: Eurostat and European Commission calculations. 

At country level, the following developments are worth highlighting:  

•  In 2023, the current account balances, based on 3-year averages, of five Member States were 
below  the  lower  scoreboard  threshold  of  -4%  of  GDP:  Romania,  Greece,  Cyprus,  Slovakia 
and Latvia. At the same time, five Member States had averages above the upper threshold of 
6%  of  GDP:  Denmark,  Ireland,  the  Netherlands,  Luxembourg,  and  Sweden.  The  surplus, 
based  on  3-year  averages,  in  Germany  fell  below  the  threshold  in  2023.  As  for  the  NIIP 

14 

-15-10-505101520NLIEMTLUDESIESATLTHRPTITFIBEFRSKEELVELCYROCZHUBGPLSEDKEuro areaNon-euro area% of GDPa) Current account balances and benchmarks CA balance, prepandemic averageCA balance 2023CA balance 2024, forecastReq. CA for NIIP target 2023CA norm 2023NIIP-stab. CA 2023-200-150-100-50050100NLIEMTLUDESIESATLTHRPTITFIBEFRSKEELVELCYROCZHUBGPLSEDKEuro areaNon-euro area% of GDPb) NIIPs and benchmarksNIIP 2019NIIP 2023NIIP 2024, forecastNENDI 2023NIIP norm 2023Prudential NIIP 2023BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with curent account balance (3 year average, in % of GDP) above 6% or below 4% in 2023 in blueCountries with NIIP in % of GDP  below 35% in 2023 in blue             
 
3. Imbalances, risks and adjustment: main developments 

readings, they were below the scoreboard threshold of -35% of GDP for eight Member States: 
Greece, Ireland, Cyprus, Portugal, Slovakia, Spain, Romania, and Hungary. 

•  Cyprus  further  deepened  its  significant  current  account  deficit,  while  Greece  and  Romania 
somewhat reduced their sizeable deficits in 2023. The current accounts of Cyprus, Greece, and 
Romania remained below the levels suggested by economic fundamentals. The current account 
deficits are expected to decrease but to remain sizeable by 2025. NIIPs for these countries have 
been improving primarily due to strong nominal  economic growth and valuation effects. While 
very  negative,  the  NIIP  of  Greece  is  forecast  to  continue  improving.  The  NIIP  of  Romania  is 
forecast to remain broadly stable over this year and next, and a slight increase is forecast in the 
case of Cyprus. 

•  Hungary,  Slovakia,  Czechia,  Lithuania,  and  Poland  significantly  reduced  their  current 
account deficits in 2023, mainly due to increases in energy balances due to the moderation in 
energy  prices  and,  except  for  Lithuania,  also  in  non-energy  goods  balances.  The  NIIPs  of 
Hungary  and  Slovakia  remain  beyond  the  threshold  and  are  forecast  to  improve;  the  more 
moderate net debtor positions of Poland and especially Czechia are forecast to continue closing. 
Lithuania  is  forecast  to  turn  into  a  net  creditor  in  2024.  Latvia  and  Estonia  also  saw  their 
current  account  deficit  close  somewhat;  their  moderate  net  debtor  positions  are  forecast  to 
improve in the case of Estonia and to stay broadly stable in the case in Latvia. Portugal and 
Spain  recorded  current  account  surpluses  in  2023.  The  NIIPs  of  these  countries  are  clearly 
negative, but improving, with foreign direct investments representing a large share and making 
their NIIPs excluding non-defaultable instruments more favourable.  

•  In 2023, the current account surpluses of the Netherlands,  Denmark, Ireland, Luxembourg, 
and  Sweden  remained  high.  The  Netherlands  saw  a  notable  increase  in  its  surplus,  Sweden’s 
surplus increased slightly, and Luxembourg, Denmark, and Ireland experienced declines in theirs. 
Current  account  balances  are  expected  to  remain  high,  above  fundamentals,  in  all  these 
countries.  For  the  Netherlands,  Ireland  and  Luxembourg,  the  strong  presence  of  multinational 
enterprises  affects  the  current  account  balances.  The  NIIPs  of  all  these  countries,  except  for 
Ireland  and  Luxembourg,  greatly  exceed  the  levels  suggested  by  economic  fundamentals, 
especially  in  the  cases  of the Netherlands,  Sweden and  Denmark.  The  NIIP  of  Ireland  remains 
deep in negative territory, despite improvements. The positive NIIPs are forecast to continue to 
increase in all countries except Luxembourg. 

•  Malta,  Slovenia,  Croatia,  Bulgaria  Austria,  and  Italy  significantly  increased  their  current 
account balances and, except for Italy, recorded surpluses in 2023, mainly due to increases in 
the  energy  goods  balance  and,  except  for  Croatia,  also  in  non-energy  goods  balances.  In 
addition,  Germany’s  surplus  increased  slightly.  Finland,  Belgium,  and  France  recorded  a 
small current account deficit, improving their balance compared to 2022. The NIIPs of France, 
Croatia,  and  Bulgaria  are  negative  but  remain  above  the  scoreboard  threshold  of  -35%.  The 
NIIPs of the rest of the mentioned countries are positive, and, except for Slovenia, Austria and 
Italy, exceeding their fundamental thresholds.  

15 

Graph 3.3: Selected graphs for external sector 

3. Imbalances, risks and adjustment: main developments 

Source: Eurostat and European Commission calculations 

16 

-40-30-20-10010203040NLDKIESEMTLUDESIESPLATLTBGHUHRPTCZITFIBEFRSKEELVELROCY% of GDPa) Decomposition of current account in 2023-Q4Services excl. travelTravel balanceEnergy balanceGoods excl. energyPrimary income balanceSecondary income balance-20-15-10-5051015NLDKIESEMTDESIESHRCZLTBGPLATHUPTITSKBEEEFIFRLVROELLUCY% of GDPd) NLB by sector in 2023Households and NPISHCorporationsGovernmentPrivate sectorTotal economy-40-2002040FIPTIESKHRHULTCZESSIBGITSEPLCYLVELRODEATEEDKNLFRBEMTLUChange in pp of GDP (y-o-y)f) Decomposition of changes in the NIIP from 2022 to 2023Nominal growth effectInvest. income effectNet transaction effectValuation changesChange in NIIP (y-o-y)-15-10-5051015HUSKLTMTSICZPLELHRBGNLPTESROATEEFIITSELVDEBEFRIELUDKCY% of GDPb) Decomposition of current account changes from 2022-Q4 to 2023-Q4Services excl. travelTravel balanceEnergy balanceGoods excl. energyPrimary income balanceSecondary income balanceCurrent account balance-10-50510151718192021222324in %c) Decomposition of domestic demand growth in EU27ΔC, constant pricesΔI, constant pricesΔC deflatorΔI deflator-15-10-50510NLDKPLSKHUSEESCZFIPTBGBEATFRDESIHRROLULTITEELVCYELMT% of GDPe) Decomposition of current account changes from 2019-Q4 to 2023-Q4Services excl. travelTravel balanceEnergy balanceGoods excl. energyPrimary income balanceSecondary income balanceCurrent account balance-55152535IE               
3. Imbalances, risks and adjustment: main developments 

3.2.  PRICE COMPETITIVENESS 

In 2023, price and cost pressures continued to be strong, with a deceleration in overall 
inflation  but  an  increase  in  labour  costs,  as  wages  made  up  some  of  the  loss  in 
purchasing  power.  In  2023,  overall  inflation  slowed,  while  remaining  high  and  divergent  across 
the euro area and the EU. The easing of inflation rates has continued into 2024. Wage increases, 
which had overall fallen short  of inflation in recent years, accelerated, reaching record highs and 
making  up  for  some  or  all  of  the  recent  loss  in  household  purchasing  power,  depending  on  the 
country. As a result, unit labour costs (ULCs) rose strongly, in many cases also impacted by sluggish 
or falling productivity growth. Unit profits started to slow as of early 2024, a sign that wage and 
cost increases have, at least to some extent, been cushioned by the sizeable accumulated profits 
from  2022  and  2023.  Nominal  effective  exchange  rates  (NEERs)  appreciated  over  2023  as  the 
euro strengthened, while real effective exchange rates (REERs) pushed by NEERs appreciation and, 
in many cases, unfavourable inflation differentials, continued to climb. The terms of trade reversed, 
boosting  the  exports  market  shares  of  many  EU  economies,  while  the  overall  higher  labour  cost 
appreciation  in  net-creditor  countries  relative  to  net-debtors  fuelled  the  prospects  for  a  re-
balancing  of  net  positions  within  the  euro  area  over  the  medium  term.  The  cost  competitiveness 
outlook  remains  clouded  by  the  uncertainty  of  wage  and  price  developments  as  labour  markets 
remain relatively tight and commodity prices are prone to shocks due to geopolitical tensions.  

Graph 3.4: Inflationary dynamics across the EU 

(1)  Quarterly  headline  and  core  inflation  observations  based  on  averages  of  their  respective  monthly  indices.  Private 
consumption deflator refers to final consumption expenditure of households and NPISH. 
Source: Eurostat and European Commission calculations. 

Although consumer inflation has moderated, price pressures in the broader sense remain 
high. The reduction in headline consumer inflation started in late 2022 and continues at present. In 
early 2023, the GDP deflator and core inflation (22) reached their peak, later than consumer prices 
(Graph  3.4.a).  This  is  because  they  are  either  not  affected  directly  by  energy  prices  or  the  direct 
impact is less strong; price shock effects are reflected with a lag as they work their way through 
the economy. Since late 2023, these two measures of price pressures are now above the consumer 
price  index;  they  reflect  the  impact  of  wage  and  profit  increases  to  greater  extent  and  are  less 

(22)  HICP inflation excluding energy, food, alcohol and tobacco. 

17 

02468101218192021222324Y-o-Y % growth ratea) Inflation in EUGDP defl.Private cons. defl.Headline HICPCore HICP​​EU-10-505101520-5051015202023-Q1 to 2024-Q22021-Q3 to 2022-Q4b) % change in cumulated 4-quarters moving average GDP deflatorEAnon-EA45°   
 
3. Imbalances, risks and adjustment: main developments 

affected by base effects and lower energy and food prices. As a result of the reductions in the GDP 
deflator, the accumulated increase in GDP deflator over the last six quarters is now lower than in 
the pre-2023 period in several Member States (as indicated by the observations below the 45° line 
in  Graph  3.4.b).  There  are  nevertheless  countries,  particularly  in  the  euro  area,  where  the  growth 
rates  in  the  recent  period  are  close  to  or  even  exceed  the  values  observed  in  the  previous  six 
quarters, a particularly concerning situation since the exogenous prices shock has passed, meaning 
inflationary pressures are now coming from the domestic sector (i.e. ULC and unit profits).  

The divergence in inflation rates across EU countries has reduced since its peak in 2022, 
but there have been substantial accumulated differences in price levels in recent years. 
In 2023, some Member States recorded annual inflation rates well  above 5%, while some others 
experienced short-lived deflationary episodes. Overall, the annual rates ranged from 0.4% to 7.6%. 
Compared  to  almost  20  pps.  one  year  earlier,  the  inflation  differentials  between  extreme  values 
had  fallen  markedly,  and  they  continue  to  do  so  over  2024.  By  September  2024,  only  three 
countries,  Belgium,  Poland,  and  Romania,  reported  inflation  rates  exceeding  4%.  Core  inflation 
divergence, despite reducing from its peak in the first half of 2023, continued into 2024 with the 
difference between the lowest and highest rates being 5.2 pps. by September 2024. The cumulated 
impact of the inflationary period has resulted in an increase in the overall price level, with the core 
price  index  having  risen  by  around  17%  in  the  EU  since  2021  (Graph  3.5.a).  However,  there  are 
large differences in the cumulated increases, with catching-up countries in the eastern part of the 
EU experiencing increases reaching or surpassing 30% (Graph 3.5.b). Consumer prices in Hungary, 
Poland, and Romania continue to increase at an elevated pace. In particular, core inflation remains 
very  high  in  Romania  and  Hungary,  at  nearly  6.4%  and  5.6%,  respectively,  and  is  set  to  keep 
headline inflation elevated in both countries, further increasing domestic price levels compared to 
those in trading partners. Annual average inflation is projected to stay above 2% in both the euro 
area  and  the  EU in  2024 and  2025  and  to  come  down  to  target in  2026, in the  euro  area,  with 
divergences persisting among the Member States, albeit at smaller magnitudes. 

Graph 3.5: Cumulated inflation 

Source: Eurostat and European Commission calculations. 

In 2023, unit labour costs rose very strongly, as wages responded to past high inflation 
in  a  context  of  tight  labour  markets,  and  productivity  proved  sluggish.  For  the  EU  as  a 
whole,  2023  marked  the  peak  in  decades  in  terms  of  ULC  growth,  exceeding  and  following  the 
strong appreciation in 2022 (Graph 3.6.a). Wages rose strongly, with higher compensation partially 
making up  for the  loss  in real  wages  caused  by  the  inflationary  shock  since 2022.  The  still-tight 
labour markets likely contributed to strengthening the bargaining positions of employees; in some 
EU countries real wages (deflated by consumer inflation) have not caught up to their 2019 levels 

18 

95100105110115120125130135140212223242021m01=100a) Core HICP indexEAEU05101520253035404550IEDKITCYFRELFIESMTEABEATPTEUSEDELUNLSILVSKHRCZEEPLLTROBGHU%b) Cumulated inflation, 2019-2023GDP defl.Priv. cons. defl.Headline HICPCore HICP   
3. Imbalances, risks and adjustment: main developments 

(Graph 3.8.b). Simultaneously, productivity, both per person employed and per hour worked, posted 
disappointing  performances,  with  most  of  the  euro  area  countries  experiencing  losses  or 
stagnation,  as  economic  activity  remained  subdued,  and  the  number  of  hours  worked  increased. 
Outside  of the euro  area, the  picture  was mixed  with  some  Member  States  posting  strong  gains, 
while others stagnating or recording decreases.  

Sectoral  productivity  gains  in  some  small  sectors  were  largely  offset  by  drops  in 
industry  and  market  services.  At  the  sectoral  level  and  in  the  EU  as  a  whole,  wholesale  and 
retail trade, together with industry (excluding construction), displayed drops in productivity per hour 
worked in 2023, which, given the large shares of these sectors, dragged total productivity growth 
into  negative  territory.  Per  hour  productivity  gains  across  the  EU  were  strong  in  agriculture,  real 
estate and arts and recreational activities, sector that nevertheless have low shares in total value 
added.  Overall  gains  in  the  euro  area  were  recorded  in  some  countries  with  large  travel  service 
surpluses,  like  Malta,  Greece,  Cyprus,  Portugal,  and  Spain  (Graph  3.6.b),  as  demand  for  such 
activities remained  strong in 2023, but were still not close enough to compensate for the strong 
increase  in  nominal  compensation.  Over  2024,  productivity  growth  is  expected  to  be  flat  and  to 
only pick up in 2025.  

In  a  number  of  countries,  the  strong  ULC  growth  in  2023  has  resulted  from  wages 
increasing  faster  than  in  trading  partners,  adding  to  previous  appreciations.  Compared 
with 2019 levels, nominal wages kept up with nominal GDP growth in about a third of the Member 
States, implying that wages’ share in the production either remained constant or increased, while 
rising  by  less  than  GDP  in  the  other  countries.  However,  when  benchmarked  against  implied 
constant ULCs relative to EU trading partners, nominal wages overshot, sometimes by substantial 
margins  (Graph  3.8.b),  giving  cause  for  concerns  related  to  losses  in  cost  competitiveness. 
Considerable wage increases over this benchmark were recorded in central and eastern European 
converging economies where cost competitiveness dynamics were already concerning (23). Despite 
some  moderation  foreseen  for  2024  and  2025,  nominal  wage  increases  are  forecast  to  remain 
sizeable,  pushing  the  level  of  2019-2025  cumulative  real  wage  appreciations  (deflated  by  GDP 
deflator) to more than 10% in central and eastern Europe, with increases close to 20% in Lithuania, 
Latvia,  and  Croatia,  and  above  30%  in  Bulgaria  –  strongly  in  excess  to  the  catching-up 
appreciations  of  the  pre-pandemic  years.  Nevertheless,  when  looking  at  the  euro  area  and  EU 
aggregate values, such appreciations are much more moderate, at just 1.3% and 2.6% respectively, 
highlighting the strong divergence within the two blocs. 

(23)  The  Competitiveness  section  of  the  2024  Alert  Mechanism  Report  dedicates  a  special  box  to  the  dynamics  and  risks  in 

these economies.  

19 

 
Graph 3.6: Unit labour costs 

3. Imbalances, risks and adjustment: main developments 

Source: Eurostat and European Commission forecasts. 

The  GDP  deflator  decomposition  shows  decelerating  profits,  but  still  strong  wage 
pressures. Despite the high growth in 2022, the GDP deflator expanded further in 2023. From an 
income perspective, it was marked by a sizeable upsurge in unit profits and ULCs, which together 
contributed to the highest GDP deflator in decades for the EU as a whole.  The latest data for the 
first  half  of  2024  point,  however,  to  a  more  muted  GDP  deflator  growth  (Graph  3.8.a),  as  unit 
profits  have  decelerated  significantly,  absorbing  some  of  the  ULC  appreciations.  The  latest 
Commission  forecasts  project  a  continuation  of  rather  muted  unit  profits  growth  contributions  to 
GDP  deflator,  which  should  support  the  disinflation  process.  However,  strong  ULC  appreciation 
contributions are forecast over 2024, which could result in cost competitiveness losses for the EU 
economies,  particularly  if  accompanied  by  increases  in  unit  taxes,  as  fiscal  stances  tighten. 
Furthermore,  heterogeneity  is  rather  high  across  the  EU,  with  some  concerning  dynamics.  In 
countries like Romania, Latvia, Luxembourg, Cyprus, and Malta, the forecast shows that unit profit 
contributions are still expected to continue their increase, on top of the already high projected surge 
in ULC contributions.   

Export market shares evolved positively for most Member States in 2023 on the back of 
favourable  terms  of  trade  and  denominator  effects.  In  recent  years,  geopolitical  tensions 
have led to trade sanctions, tariff and non-tariff barriers, which as of 2022, increased drastically 
(24), contributing to an overall loss for EU countries in world exports. This was further compounded 
by  strong  denominator  effects,  as  increased  energy  and  other  commodity  prices  increased  the 
nominal  value  of  world  exports,  while  EU  exports  rose  less  in  value.  In  2023,  most  of  the  EU 
economies posted strong gains in export market shares (EMS) (Graph 3.8.c). These were driven by 
positive  terms  of  trade,  as  import  prices,  especially  for  energy  commodities,  increased  less  than 
export  prices,  a  reversal  of  the  2022  shock.  Positive  price  effects  can  be  identified  for  trade  in 
services,  particularly  stemming  from  tourism,  as  showcased  by  some  southern  Member  States, 
where the magnitude of the terms of trade for goods and services are markedly higher than for 
goods  (Graph  3.8.d).  Comparing  EU  economies  against  the  advanced  economies  (OECD  and  non-
OECD EU Member States) shows rather large drops over a 3-year period for some large MS from 
the former category, possibly indicating some structural issues. This is a more relevant metric as it 

(24)  International Monetary Fund, “2023 External Sector Report: External Rebalancing in Turbulent Times”, 2023 

20 

-3271217MTELCYITFRFIESDEPTBENLSIATSKLULTLVHREEIEDKSECZBGPLROHUEAEUEAnonEAAgg.Annual growth ratea) ULC evolution202220232024f2025f-505101520MTELCYITFRFIESDEPTBENLSIATSKLULTLVHREEIEDKSECZBGPLROHUEAEUEAnonEAAgg.Y-o-Y % change b) ULC decomposition, 2023Productivity/hr.Comp. real growthHICP defl.NULC   
 
3. Imbalances, risks and adjustment: main developments 

strips out the effect of emerging global economies catching up and integrating into world trade (25), 
as well as denominator effects stemming from volatile movements in commodity price exports. 

In  2023,  effective  exchange  rates  appreciated  across  the  board  when  measured  with 
respect to a wide group of trading partners. Throughout 2023, all euro area Member States’ 
nominal effective exchange rates (NEER) appreciated against a broad group of trade partners, due 
to strong euro appreciations against the Turkish Lira, Japanese yen, and Chinese renminbi, as the 
ECB continued its tightening cycle. Outside of the euro area, NEERs also appreciated between 3-6% 
in all countries except Sweden, as some currencies reverted after periods of depreciation. Against 
the  narrower  group  of  EU  trade  partners,  NEERs  remained  stable  with  a  few  exceptions:  Poland, 
Hungary, and Czechia, which appreciated, and Sweden, which depreciated markedly. 

Price-based  real  exchange  rate  dynamics  show  record-high  appreciations  in  2023, 
particularly  for  some  countries,  driven  by  large  movements  in  nominal  exchange  rates 
and inflation differentials. Over 2023, the HICP-based REER appreciated strongly, for almost all 
EU economies, in some cases, by more than 10%, pushed by both nominal appreciations and large 
and  unfavourable  inflation  differentials  (Graph  3.8.e).  Latest  high-frequency  data  show  that  the 
appreciation trend continued for some Member States, albeit at more moderate magnitudes. In the 
one year running up to mid-2024, HICP-based REERs appreciated by between 1% and 3% for five 
euro area countries, and for the euro area as a whole, by less than 1%, against the broader group 
of 42 trading partners, mostly due to strong nominal appreciations, while for  nearly all the single 
currency  Member  States,  the  inflation  differential  acted  as  a  drag.  For  the  rest  of  the  euro  area 
Member States, and despite some nominal appreciations, REERs were stable or depreciated, helped 
by receding inflation. Outside of the euro area, the volatility in REERs was more marked, mostly due 
to large movements in NEERs.  

The core inflation based REERs vis-à-vis the broad group of trading partners display the 
same  large  appreciation  dynamics.  Pushed  by  the  strong  nominal  appreciations  across  the 
board in 2023, core inflation based REERs have appreciated in in all but two MS: Luxembourg and 
Sweden  (Chart  3.7.a).  In  some  countries,  like  the  Baltics,  Hungary,  Poland,  and  Czechia,  the  core 
inflation  differential  topped  the  NEER  appreciation,  pushing  the  REERs  annual  growth  rates  to 
between 7-12%. In countries with more moderate core inflation rates, the differential  acted as a 
drag on REER but couldn’t offset the strong exchange rate appreciation.  

(25)  K. Benkovskis et al., "What Drives Export Market Shares? It Depends! An Empirical Analysis Using Bayesian Model Averaging" 

Empirical Economics 59, no. 2 (2020): 817–69. 

21 

 
Graph 3.7: Core inflation and ULC based REERs, 2023 

3. Imbalances, risks and adjustment: main developments 

Source: Eurostat and European Commission calculations. 

Labour  costs  acted  as  a  strong  push  for  real  exchange  rates  in  eastern  and  central 
Europe, while detracting in southern Europe. Throughout 2023, ULC-based REERs appreciated 
very strongly in the Baltics and even more so in other central and eastern Member States due to 
both  nominal  appreciations  and  robust  growth  in  labour  costs  (Chart  3.7.b).  In  southern  Europe, 
however,  muted  wage  dynamics  more  than  offset  nominal  appreciations  and  led  to  considerable 
depreciations  in  ULC-based  REERs.  Overall,  the  higher  growth  of  ULCs  in  net-debtor  countries  as 
compared  with  net-creditor  countries,  that  had  started  n  2021-2022  (26),  was  interrupted  in 
2023 (27).  However,  it  is  forecast  to  resume  in  2024  and  2025,  fuelling  prospects  for  the 
rebalancing of external stock positions in the monetary union. 

Over recent years, a number of countries have seen strong increases in their price and 
cost levels, which pose risks to their competitiveness. The accumulated increases have led to 
much  higher  price  levels  in  these  countries,  which  could  erode  any  price  advantage  and  make  it 
more difficult for them to compete on global markets. Some of the EU countries with the strongest 
price  and  cost  growth  in  recent  years  have  displayed  very  limited,  or  even  negative,  productivity 
dynamics,  adding  to  concerns  related  to  already  weakened  competitiveness positions.  Strong  and 
lasting  REER  appreciations  are  a  visible manifestation  of  the  dynamics  of  recent  years  and  have 
occurred  alongside  trade  fragmentation.  In  some  non-euro  area  countries,  exchange  rate 
depreciation offers a possibility out of the reduced competitiveness in the short term but can lead 
to  further  inflation  down  the  line  and  could  create  other  challenges,  especially  where  there  is 
sizeable indebtedness in foreign currencies. In all cases, continued strong wage growth unmatched 
by  productivity  gains  resulting  in  services  and  core  inflation,  pose  a  risk  to  the  ability  of  these 
countries to regain some of the lost ground in cost competitiveness.  

In  the  near  future,  it  may  be  difficult  for  some  countries  to  continue  to  reduce  their 
inflation rates, and there are risks associated with external dynamics. Going forward, the 
stickiness  of  services inflation  will  pose  a  challenge  as  inflation  reduction  efforts  enter  their last 
stretch and as labour markets remain tight. In some countries, wage pressures  remain strong, as 

(26)  European Commission, Alert Mechanism Report 2024, Institutional Paper, no. 261 (2023). 
(27)  The group of euro area net-creditor countries (i.e. those with NIIP as share of GDP higher than 35%) is made of Belgium, 
Germany, Luxembourg, Malta, and the Netherlands while the group of net-debtor countries (i.e. those with NIIP as share of 
GDP lower than -35%) is composed of Cyprus, Greece, Spain, Ireland, Portugal, and Slovakia. Mainly due to very high ULC 
appreciations  in  Ireland  and  Slovakia,  the  growth  in  net  debtor  countries  reached  the  same  level  as  for  net  creditor 
countries.  

22 

-9-6-303691215LTEELVHRSKATMTCYNLBEDEELSIFIIEPTITFRESLUHUPLCZBGRODKSEEUEAEuro areaNon-euro areaAgg.Annual % changea) Core based REER, 42 part., 2023ΔNEERΔrel. core infl.ΔREER-9-6-303691215EEIELVLULTSIATHRNLBEDESKFIPTESFRCYITELMTROHUPLCZBGDKSEEUEAEuro areaNon-EAAgg.Annual % changeb) ULC-based REER, 37 part., 2023ΔNEERΔrel. ULCΔREER     
 
3. Imbalances, risks and adjustment: main developments 

the real wages are not yet at their 2019 levels and are expected to be reached only this year or the 
next.  Many  of  these  countries  displayed  relatively  muted  wage  growth  in  the  past,  which  can 
attenuate the longer-term impact of future wage growth. Going forward, favourable terms of trade 
are set  to vanish as the reversal  of the price commodity shock has run its course. World exports 
and trade dynamics face uncertainties pending U.S. policies and the relationship with China, while 
geopolitical  tensions  and  armed  conflicts  persist  in  the  geographical  proximity  of  the  EU,  thus 
creating  the premises  for weaker  demand  or more supply  side  shocks  with  damaging impact  for 
price levels and cost competitiveness. Structural low productivity growth is still very much prevalent 
for EU’s advanced economies, clouding the outlook of the export performance of those countries.  

23 

3. Imbalances, risks and adjustment: main developments 

(Continued on the next page) 

24 

Box 3.1: Euro area labour market tightness and inflationTight labour markets raise concerns about the ability of inflation to return to target in advanced economies. Labour market tightness episodes are associated with low unemployment, high job vacancy ratios and better bargaining positions of the employees, and could result in high nominal wage increases. This could feed inflation further. Labour markets in the euro area are still very tight, despite more muted economic activity throughout 2023. As of mid-2024, 17 MS displayed unemployment rates lower than their 5-year averages, while labour market slack (1) rates remained at lower values than their 2014-2019 averages for 19 euro area economies.  Recent studies exploring the interplay between prices, wages, and inflation expectations indicate that labour market conditions have not been significant drivers of US inflation. Bernanke and Blanchard (2023) show that for the US, the current inflationary episode is mainly sourced from price shocks and supply shortages, which so far have been largely transient due to strong anchoring of inflation expectations (due to central bank credibility) and lack of automatic wage indexation. Labour market tightness, defined as the ratio between job vacancy and unemployment rate, had some impact on wages, but little effect on inflation early on, although is becoming more important as of late, as the central banks seek to enter a loosening cycle without endangering the inflation reduction to target levels, a very difficult balancing act (Ari et al. 2023).  Comparable results are obtained for the euro area. Applying the Bernanke and Blanchard model to the euro area shows that tight labour market conditions explained a relatively small part of the nominal wage surge between 2022-2023 (with the largest part being explained by commodity price shocks which raised the short-term inflation expectations, and by real wage catch-up with unexpected inflation), but they are becoming more prominent as of late. Labour market conditions had an effect on the general price level that was close to zero, although recently increasing but with no evidence of a price-wage spiral (Arce et al. 2024) (2). However, risks for a higher for longer inflation, stemming from a very resilient labour market remain. Conditional forecasts show that in a central case scenario (with no further commodity price shocks and with labour market lack returning to historical averages by mid-2025), inflation would return to the 2% target towards the end of 2024, although is set to remain marginally above it for the medium-term. A similar result is obtained even when assuming a more restrictive macroeconomic scenario (i.e. tight fiscal and monetary stances negatively impacting domestic demand), highlighting that tight labour market conditions are an upside risk for inflation (Arce et al. 2024).  Applications of Bernanke and Blanchard model for several euro area economies show fairly similar results, although some country-specific nuances are worth highlighting. For Germany, the model shows that labour market tightness contribution to inflation growth was strong in 2022 but faded already at the end of 2023. In the absence of further commodity price shocks and assuming a cool down of labour market to pre-pandemic levels, it would take more than two years for inflation to reach the target of below 2% (Menz 2024). France’s labour market tightness started to feed into higher inflation at the beginning of 2022, with ever increasing contributions, adding to close to 1 pp by end-2023 and is the euro area country with the most concerning trend (Blanchard and Bernanke 2024).  The wage model fit for Italy is rather poor and labour market tightness appears to have little influence on inflation as local specificities (3) allow for more slack or lower wage to price increases passthrough (Pisani and Tagliabracci 2024). For Spain, over 2020-2022 vacancy to unemployment ratio had virtually no effect on price increases, but its contributions are becoming non-negligent as of mid-2023. Scenario forecasts show that even in the presence of a gradual return to natural pre-pandemic slack by mid-2025, inflation would still not come close to the target any time soon  (Ghomi, Hurtado, and Montero 2024). In the Netherlands, while the passthrough from price to wage is quick and strong, in the opposite direction is rather limited (mitigating the risk of a spiral), though statistically significant and increasingly visible as of 2023, calling for continuous policy surveillance in a context of still tight labour market (Bonam, Hebbink, and Pruijt 2024). Despite the automatic wage indexation system, inflation in Belgium displays virtually no contributions from labour market tightness. The reason  (1) Labour market slack is a good indicator of unmet supply of labour, that goes beyond unemployment rate. It is defined as the cumulated number of i) unemployed, ii) underemployed part-timers, iii) job seekers not immediately available and iv) available but not seeking as share of extended labour force. For more details, see link: Labour market slack - employment supply and demand mismatch - Statistics Explained (europa.eu).   (2) Despite a certain passthrough from prices to wages, there is little passthrough in the opposite direction (i.e. from wages to general price levels).  (3) Authors conclude that Italy still has a relatively elevated labour market slack, as the number of hours worked per capita has only partially recovered. Furthermore, in some sectors the wage increases during negotiations were more subdued; this was particularly the case of sectors more affected by the energy shock and where unions’ bargaining power is lower. Lastly, contract renewals are predominantly related to forward looking inflation measures, rarely relying on ex-post indexation, and are done on a staggered approach for long-term periods (3 years) with significant delays (Pisani and Tagliabracci 2024).  
 
     
 
 
Box (continued) 

3. Imbalances, risks and adjustment: main developments 

(Continued on the next page) 

25 

is the very low passthrough from wage to prices growth, with the wage increase shock being absorbed by mark-ups (de Walque and Lejeune 2024).  Graph 1: Beveridge curve and unemployment rate in the euro area    Source: European Commission, Eurostat  Inflation reduction, especially for wage-intensive components, will most likely have to come at the expense of higher unemployment, which so far remains a rather distant possibility. In other advanced economies, like the US and Canada, the Beveridge curve displays an upward shift suggesting some allocation inefficiencies occurring (such as skill mismatches), but also implies that adjustments to labour market slack can be done by shifts of the curve (Blanchard and Bernanke 2024). In contrast, the euro area Beveridge curve does not show any visible sign of shifts in the post-pandemic period (see Graph 1.a), meaning that the labour market slack can only be increased by movements along the curve, i.e. through increases in unemployment. Latest European Commission forecast (European Commission 2024) indicates however that such a scenario is uncertain, as unemployment rates are not projected to stray too much away from their 2023 levels (see Graph 1.b), spelling upwards risk for inflation.   There are however some mitigating factors. If measured as the ratio between vacancy and unemployment rates, labour market tightness in the euro area, despite remaining considerably above its pre-pandemic levels, seems to have detracted visibly from its peak in late 2022 (Graph 2.a). Furthermore, the Phillips curve (Graph 2.b), seems to be flat, even after 2020 (Arce et al. 2024), pointing at limited risk of a wage-price spiral, although pockets of higher sensitivity could be identified when accounting for a non-linear relationship between consumer price inflation and labour market tightness, particularly when zooming in at the national level (Smith, Timmermann, and Wright 2024). Lastly, while it is true that the unemployment rate is not set to increase over the forecast horizon for the euro area as a whole, it is however in cases identified as being more prone to wage-price spirals or where the wage-to-prices passthrough was estimated to be higher, i.e. France and the Netherlands (Graph 1.b).     So far, the wage-price passthrough has been rather limited and central bank’s credibility is on strong footing, but in the context of tight labour markets for several years already, the outlook is uncertain and calls for close surveillance. ECB’s credibility is a strong assets in keeping long-term inflation expectations anchored and has proved useful during the inflation reduction period (Blanchard and Bernanke 2024; Primiceri and Giannone 2024). Except for France and to a lesser extent, Netherlands, the tight labour market conditions did not necessarily translate into higher overall inflation, showing there is little evidence of wage-price spirals. Nevertheless, it should be noted that the passthrough from tight labour market to wage increases and then to inflation is gradual, so changes in labour market conditions (which are already lagging economic activity by some quarters) are still influencing inflation dynamics long after they occur, depending on the inherent lag structure. Despite visible reduction in inflation rates, labour market conditions will have to be closely monitored, as they can play important roles in the quarters to come, and the fiscal monetary mix needs to be carefully calibrated to achieve price stability. 23456789101112PLDESINLHUHRCYSKRODKEUITPTEALVLTFREEFIELESb) Unemployment rate across the EA20232024f2025f20Q1​​​21Q1​​​​​​​23Q1​​​​24Q2​​​​​​17Q1​​​​​​​19Q1​​​20Q1​1.01.52.02.53.03.54.0681012Job vacancy rateUnemployment ratea) Beveridge curve for EA2020-present2015-2019 
     
 
 
Box (continued) 

3. Imbalances, risks and adjustment: main developments 

26 

Graph 2: Labour market tightness and Phillips curve in the euro area    (1) LCI - labour cost index as computed by Eurostat. Labour market slack (BB) - labour market slack as computed by Bernanke and Blanchard (2023), i.e. as ratio between vacancy rate and unemployment rate. Source: European Commission, Eurostat  References Arce, Oscar, Matteo Ciccarelli, Antoine Kornprobst, and Carlos Montes-Galdón. 2024. “What Caused the Euro Area Post-Pandemic Inflation?” ECB Occasional Paper Series, no. 343. https://doi.org/10.2139/ssrn.4742268. Ari, Anil, Carlos Mulas-Granados, Victor Mylonas, Lev Ratnovski, and Wei Zhao. 2023. One Hundred Inflation Shocks: Seven Stylized Facts. International Monetary Fund. Bernanke, Ben S., and Olivier J. Blanchard. 2023. “What Caused the U.S. Pandemic-Era Inflation?” American Economic Journal: Macroeconomics. https://doi.org/10.1257/mac.20230195. Blanchard, Olivier J., and Ben S. Bernanke. 2024. “An Analysis of Pandemic-Era Inflation in 11 Economies.” Working Paper. Working Paper Series. National Bureau of Economic Research. https://doi.org/10.3386/w32532. Bonam, Dennis, Gerbert Hebbink, and Beer Pruijt. 2024. “Drivers of Dutch Inflation during the Pandemic Era.” DNB Analysis, no. March. https://www.dnb.nl/media/urepsze5/dnb-analysis-drivers-of-dutch-inflation-during-the-pandemic-era.pdf. European Commission. 2024. “European Economic Forecast Autumn 2024.” Institutional Paper, no. 296 (November). https://doi.org/10.2765/741650. Ghomi, Morteza, Samuel Hurtado, and José Manuel Montero. 2024. “Analysis of Recent Inflation Dynamics in Spain. An Approach Based on the Blanchard and Bernanke (2023) Model.” Banco de España Ocasional Papers, no. 2404 (February). https://www.bde.es/wbe/en/publicaciones/analisis-economico-investigacion/documentos-ocasionales/analisis-de-la-dinamica-reciente-de-la-inflacion-en-espana--un-enfoque-basado-en-el-modelo-de-blanchard-y-bernanke--2023--.html. Menz, Jan-Oliver. 2024. “Sources of Post-Pandemic Inflation in Germany and the Euro Area: An Application of Bernanke and Blanchard (2023).” Deutsche Bundesbank Technical Paper, no. 02/2024. https://www.bundesbank.de/resource/blob/914850/7e51bbe9f6f649f9f3fef4c321007b1e/mL/2024-02-technical-paper-data.pdf. Pisani, Massimiliano, and Alex Tagliabracci. 2024. “What Caused the Post-Pandemic Inflation in Italy? An Application of Bernanke and Blanchard (2023).” SSRN Scholarly Paper. Rochester, NY. https://doi.org/10.2139/ssrn.4810662. Primiceri, Giorgio, and Domenico Giannone. 2024. “Monetary Policy in an Era of Transformation. The Drivers of Post-Pandemic Inflation.” ECB Forum on Central Banking, July. Smith, Simon C., Allan Timmermann, and Jonathan H. Wright. 2024. “Nonlinear Phillips Curves,” September. https://www.federalreserve.gov/econres/notes/feds-notes/nonlinear-phillips-curves-20240904.html. Walque, Gregory de, and Thomas Lejeune. 2024. “What Caused the Post-Pandemic Era Inflation in Belgium? Replication of the Bernanke-Blanchard Model for Belgium” NBB Working Paper Document (447).   020406080100120140160180101112131415161718192021222324a) Labour market tightness (vacancy/unemployment rate EA 2019=100)R² = 0.0252R² = 0.0204-2-10123456-50050100Y-o-Y LCI growthY-o-Y labour market slack (BB)b) Modified EA Phillips curve 2009Q3-2024Q22009-Q3-2024-Q22020-Q2-2024-Q2 
     
 
 
3. Imbalances, risks and adjustment: main developments 

At country level, the following developments are worth highlighting: 

•  Unit labour cost, based on hours worked,  cumulated over the three years to 2023, was above 
the  scoreboard  threshold  in  twenty-one  Member  States:  Belgium,  Bulgaria,  Czechia, 
Germany,  Estonia,  Ireland,  Spain,  France,  Croatia,  Latvia,  Lithuania,  Luxembourg, 
Hungary,  the  Netherlands,  Austria,  Poland,  Portugal,  Romania,  Slovenia,  Slovakia,  and 
Finland, as well as the EA aggregate. This very high number of flashes reflects the unusually 
high inflationary environment of 2022 and, to a lesser extent, 2023. For the HICP-based REER, 
the  three-year  changes  were  beyond  the  scoreboard  thresholds  in  seven  Member  States: 
Czechia, Estonia, Croatia, Latvia, Lithuania, Hungary, and Slovakia. Seven Member States 
exceeded  the  scoreboard  threshold  for  the  changes  in  export  performance  against  advanced 
economies  in the  three years up to 2023:  Belgium, Germany, Ireland, Luxembourg, Malta, 
Slovakia, and Finland, as well as the EU and EA aggregates.  

•  Concerns related to cost pressures have been persisting for many years in  Bulgaria, Czechia, 
Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia. Unit labour costs have 
accelerated in recent years – starting in 2020, and in some cases earlier – and remain high. This 
followed  strong  growth  dynamics  in  the  pre-pandemic  years  in  all  countries  except  Hungary, 
where the very strong increases are a recent phenomenon. Core inflation rates have been high 
and remain so in Poland, more so in Slovakia, Estonia and Hungary, and stand out in the case of 
Romania. HICP-based REERs rose strongly in Czechia, Estonia, Latvia, Lithuania, Hungary, Poland, 
and Slovakia, mainly due to inflation differentials, while in the non-euro area countries, nominal 
exchange rate volatility also played a role.     

•  Cost  pressures  are  moderate  in  Belgium,  Luxembourg,  Slovenia,  and  Austria,  and  are 
building  up  in  Croatia,  mainly  due  to  persistent  labour  cost  increases  and,  in  the  cases  of 
Belgium, Croatia, and Austria, high core inflation. Despite these developments, REERs do not yet 
appear  to  be  appreciating  visibly,  except  in  the  case  of  Croatia  which  is  nevertheless  gaining 
export market shares, measured as a three-year growth rate against advanced economies.  

•  Relative cost competitiveness continued to improve in large net-debtor euro area countries like 
Spain, Portugal, Cyprus, and Greece. Overall, ULC and REER growth rates continue to remain 
below  those  for  the  euro  area,  adding  to  prospects  for  the  rebalancing  of  external  stock 
positions. For the other single-currency area large net-debtor countries, Ireland and Slovakia, 
ULC  appreciations  were  above  the  euro  area  aggregate,  as  well  as  for  some  net-creditor 
countries  like  Belgium,  Germany,  Luxembourg,  and  the  Netherlands,  which  are  already 
displaying signs of losses in export market shares.  

•  Belgium,  Germany,  Finland,  Ireland,  Malta,  and  Luxembourg  recorded  the  highest  export 
market  share  losses  against  advanced  economies.  While  cost  and  price  factors  could  have 
played  a  role,  base  effects,  activity  of  MNEs,  or  non-cost  factors  like  investment,  liquidity  for 

27 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with nominal unit labour cost index per hour worked (3 year % change) above 9% (EA) and 12% (non-EA) in 2023 in blueCountries with export performance against advanced economies (3 year % change) below -3% in 2023 in blueCountries with HICP based real effective exchange rate against 42 trading partners (3 year % change) above/below +/- 3% (EA) and +/- 10% (non-EA) in 2023 in blue 
 
3. Imbalances, risks and adjustment: main developments 

firms, or shifts in taste and quality, could have been more relevant in this case and explained 
more of the loss.  

•  Bulgaria, Greece, Croatia, Cyprus, Portugal, and Spain recorded the highest gains in 3-year 
growth  of  export  market  shares  against  advanced  economies.  For  Bulgaria,  a  recent  rise  in 
industrial and energy exports seems to explain the dynamics, while for the rest a combination of 
base effects (comparison with 2020), increased post-pandemic travel and favourable terms of 
trade.  

28 

Graph 3.8: Selected graphs on competitiveness 

3. Imbalances, risks and adjustment: main developments 

(1) CoE refers to compensation of employees, EMS to export market shares, 4Qs MA to 4-quarter moving average. 
Source: Eurostat and European Commission calculations 

29 

-6-30369121518LVEELTSKHRMTATDECYIEFRITFISIPTELNLESBELUHUPLCZROBGDKSEEUEAEuro areaNon-EAAgg.Annual % changee) Change in HICP/CPI-based REER, 42 part. 2023ΔNEERΔrel. HICPΔREER-2-1012345671718192021222324pps.a) EU GDP deflator decompositionULCUnit profitsUnit taxesGDP deflator-1010305070HUBGROLTLVHRPLEESKSICZPTLUBECYATNLESDESEMTDKFRFIITELb) Cummulative wage % growth 2019-23, compared to benchmarksWage growthNominal GDP growthConsumer price inflationCore consumer price inflationCoE growth implied by ULC-27ELESHRCYMTPT-505101520-3271217Travel service balanceExport market share % changef) EMS and travel services balance, 2023-10-505101520BELVEEDKFILTIEBGELNLSILUFRDESECYATITROSKHRESPTCZPLHUMTAnnual % changec) EMS gains contributions, 2023Own exportsWorld Exports (neg. sign)EMS change-10-5051015ITESELHULTPTEEHRDESILVROPLCZNLBEATFRSKMTBGSECYLUIEFIDK4Q MA % changed) Terms of trade, 4Qs MA 2023-Q4GoodsGoods and services   
3. Imbalances, risks and adjustment: main developments 

3.3.  NON-FINANCIAL CORPORATIONS 

Non-financial  corporate  (NFC)  debt-to-GDP ratios  continued to decline  in  almost  all  EU 
countries  in  2023,  driven  by  strong  denominator  effects  and  a  contraction  in  credit 
flows. From 2022 to 2023, the EU and euro area average debt-to-GDP ratios decreased by around 
5 percentage points each, to 74% and 75% of GDP respectively. With this, both aggregates  were 
not only below their pre-pandemic levels but reached their lowest values in over a decade (Graph 
3.13.a).  In  2023,  deleveraging  continued  in  nearly  all  EU  countries  primarily  reflecting  elevated 
inflation rates and, in many countries, decreases in corporate net credit flows despite a slowdown 
in real GDP growth (Graph 3.13.c). In most of the Member States, credit flows as a share of GDP 
remained  positive  in  2023  but  were  lower  than  in  2022.  Credit  growth,  defined  as  credit  flows 
excluding FDI as a share of the lagged debt stock (excl. FDI), declined to 1.5% in the EU, the lowest 
level since 2015. In the euro area, credit growth decreased to 1.2% after having been buoyant at 
close  to  or  above  3%  in  the  years  before  (Graph  3.13.b).  Bank  loan  flows  to  NFCs  contracted 
considerably over the course of 2023, turning negative towards the end of the year.  Despite their 
overall decline, debt ratios stayed above the levels related to prudential concerns in around half of 
the  EU  countries  (Graph  3.9).  Similarly,  only  in  half  of  the  Member  States,  can  debt  ratios  be 
explained  by  economic  fundamentals.  In  about  one-third  of  the  countries,  debt-to-GDP  ratios 
exceeded the 85% percent threshold set in the MIP scoreboard for NFC debt.  

Graph 3.9: Non-financial corporate debt-to-GDP ratios 

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 non-financial corporate sector are excluded.   
Source: Eurostat and European Commission calculations 

In  2023,  corporate  deleveraging  was  primarily  driven  by  a  reduction  in  the  loan  stock, 
with  a  decline  in  foreign  direct  investment  (FDI)  contributing  strongly,  while  debt 
securities  remained  broadly  stable.  2023  saw  a  strong  reduction  in  loan  flows,  while  debt 
security flows remained stable (Graph 3.13.e), which marks a change compared to 2021 and 2022, 
when loan flows in the EU were rising and debt security flows falling. The reversal coincides with 
the start of the interest rate hiking cycle in the euro area in July 2022. As borrowing conditions in 
bond  markets  became  more  favourable  compared  to  conditions  in  loan  markets,  relatively  more 
debt was issued in the form of debt securities. Despite their recent decrease, loans still account for 
the lion’s share of corporate debt stocks, comprising more than 80% of the total debt of EU NFCs. 
Corporate  debt  is  predominantly  held  by  banks,  but  non-bank  financial  institutions  are  gaining 

30 

050100150200250300LUCYSENLIEDKBEFRFIATPTMTESDEITHUEEELBGHRCZSKLVSIPLLTRO% of GDP201920222023MIP thresholdPrudential benchmarkFundamentals-based benchmark     
3. Imbalances, risks and adjustment: main developments 

prominence,  particularly  in  the  bond  market.  In  the  EU,  slightly  less  than  one-third  of  NFC  debt 
stocks can be attributed to FDI, but this share varies considerably across countries. While FDI debt 
had  been  contributing  positively  to  credit  flows  until  2022,  this  reversed  in  2023,  such  that 
reductions  in  FDI  debt  contributed  as  much  to  deleveraging  as  did  subdued  non-FDI  credit  flows 
despite their lower share in total debt (Graph 3.13.e).   

Deleveraging  has  continued  so  far  in  2024,  but  at  a  slower  pace  than  in  the  previous 
years,  as  moderating  inflation rates provide less  support for  passive deleveraging and 
GDP  growth  remains  subdued.  In  the  first  half  of  2024,  corporate  debt-to-GDP  ratios  have 
declined further (Graph 3.13.d). The contribution of real GDP growth to deleveraging has picked up 
somewhat compared to 2023, reflecting a slight recovery in economic activity in the first half of 
2024, and inflation remains elevated. Despite a small uptick in net credit flows in recent quarters, 
and their overall positive contribution to changes in debt-to-GDP ratios in most EU countries, credit 
flows  have  remained  subdued  as  high  borrowing  costs  and  low  investment  dampen  corporate 
credit demand (28). If trends observed over the first half of 2024 persist, with weak yet recovering 
real GDP growth, moderate inflation, and restrained net credit flows, corporate debt deleveraging is 
set to slow yet continue.   

Over  2023  and  the  first  half  of  2024,  profit  indicators  deteriorated  as  elevated  costs 
dampened  profitability,  and  output  growth  remained  muted  amid  low  confidence  and 
weak demand. In recent quarters, profit shares have decreased from their peak in the second half 
of 2022, when they reached around 42% in the EU aggregate. They largely fell back to their pre-
pandemic levels in the beginning of 2024 at slightly below 40% in both the euro area and the EU 
aggregate. In certain EU countries, profit shares showed first signs of recovery in the beginning of 
2024,  as did  unit profit  growth  which  had  slowed  across  the  EU  in  2023  (Graph  3.10  and Graph 
3.8.a). Profit margins helped cushion rising labour costs, and as unit labour cost growth moderates, 
unit  profit  growth  is  likely  to  recover  aided  by  a  rebound  in  economic  activity  and  strengthening 
productivity growth. However, in some Member States, a loss of competitiveness resulting from low 
productivity growth and high labour costs may impact overall economic performance and impede 
the  recovery  of  unit  profit  growth  (29).  Business  confidence  has  remained  low  as  weak  demand 
continues  to  stifle  production  (30).  At  the  same  time,  euro  area  corporations  indicated  that  the 
forces  dampening  profitability  have  moderated,  and  that  labour  shortages  as  well  as  supply 
bottlenecks have mitigated further (31). 

(28)  According to SAFE (Survey on the Access to Finance of Enterprises in the euro area - Second quarter of 2024 (europa.eu)), 
euro area firms reported a slight decrease in the demand for bank loans while loan supply improved somewhat. Only few 
firms apply for bank loans, largely because of high internal funds and tight financing conditions. 

(29)  See also Section 3.2. 
(30)  In  the  first  half of  2024,  confidence  indicators  showed a  further  decline in  the  manufacturing  industry  as  well as  in  the 

construction sector, while the services sector improved slightly but remained muted. 

(31)  Survey  on  the  Access  to  Finance  of  Enterprises  in  the  euro  area  -  Second  quarter  of  2024  (europa.eu)  and  European 

Commission Business and Consumer Survey. 

31 

 
Graph 3.10: Unit profit growth of non-financial corporations 

3. Imbalances, risks and adjustment: main developments 

Unit profit growth is calculated as year-on-year change of gross operating surplus and mixed income over real GDP in 
percent.  
Source: Eurostat. 

High  interest  rates  have  increased  firms’ interest  expenses and  made  it  more  difficult 
for them to finance investment activities. The interest burden of EU corporates has risen since 
2022. In the EU, total interest paid by NFCs (32) increased by more than 40% from 2022 to 2023. In 
2024,  borrowing  costs  for  both  new  debt  and  on  the  outstanding  debt  stock  have  started  to 
descend  slightly  but  remain  high  across  the  EU.  With  interest  rates  resetting  on  many  corporate 
loans  in  the  coming  quarters  and  refinancing  at  higher  rates,  many  corporates  still  face  growing 
interest  burdens.  Despite  initial  policy  rate  cuts,  the  delayed  transmission  from  policy  rates  to 
interest expense ratios implies that the burden is expected to remain high in the near future (Box 
3.2). Weak activity and high interest expenses  caused interest coverage ratios (ICRs) in euro area 
countries  to  drop  (Graph  3.11.a),  with  the  deterioration  being  especially  pronounced  in  the  real 
estate  sector (33).  Cash  buffers  and  high  profitability  during  the  post-pandemic  recovery  suggest 
that  most  firms  will  be  able  to  service  their  debt  despite  the  increase  in  interest  expenses. 
Nevertheless,  credit quality  may  deteriorate, and elevated debt burdens may dampen profits and 
impact the likelihood of firms taking out new debt and investing.   

The  combination  of  high  debt  servicing  costs  and  sluggish  economic  activity  has 
elevated corporate financial vulnerabilities, though overall financial risks continue to be 
contained.  Despite  a  deterioration  in  debt  service  capacity  and  economic  activity  across  the  EU 
over  the  last  quarters,  measures  of  corporate  profitability,  leveraging  and  financing  show  that 
financial  vulnerabilities  in  the  corporate  sector  remain  contained.  A  composite  index  of  NFC 
financial  risks  based  on  the  ECB  vulnerability  index (34)  indicates  low  vulnerabilities  in  almost  all 
Member States, confirming the overall resilience of the corporate sector. Despite an increase during 
2023,  the  index  remained  negative  in  most  EU  countries,  indicating  a  low-risk  scenario  (Graph 
3.10.b). For most countries with a positive index value by the end of 2023, overall vulnerabilities 

(32)  Total interest paid by NFCs refers to total interest paid before the calculation of financial intermediation services indirectly 

measured (FISIM). 

(33)  ECB (2024) Financial Stability Review, May 2024 (europa.eu). 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). 

(34)  ECB  (2023)  “Corporate  vulnerabilities  and  the  risks of  lower  growth  and  higher  rates” (published  as  part of  the  Financial 

Stability Review, May 2023).   

32 

-20-100102030PLLVATHRLTIESIITDKMTPTEU27EA20BGEESKCZELESHUSENLROFIyear-on-year change in %2019-Q42022-Q32023-Q42024-Q2      
 
3. Imbalances, risks and adjustment: main developments 

continue to be  contained when evaluated  against periods that severely tested corporate financial 
stability,  such  as  the  financial  crisis,  the  sovereign  debt  crisis,  or  the  onset  of  the  COVID-19 
pandemic (Graph 3.10.b).  

In  several  Member  States,  the  share  of  non-performing  loans  (NPLs)  and  bankruptcies 
have  picked  up,  yet  in  most  countries,  these  increases  have  been  small  and  were 
accompanied by  a  rise in  new  business  registrations.  The  share  of  corporate  NPLs in  %  of 
total  gross loans and advances has increased slightly in the EU from 2022-Q4 to  2024-Q2. This 
increase, however, conceals considerable heterogeneity across the EU Member States. Increases in 
NPL ratios occurred predominantly in countries with low shares of NPLs. In nearly all countries with 
comparatively high NPL ratios, their share decreased further in 2023 and was considerably lower 
than  by  the  end  of  2019  (Graph  3.10.c).  Similarly,  bankruptcies  have  picked  up  in  many  EU 
countries, but so have business registrations. Developments at the country level  point to sectoral 
shifts in some countries, while in other countries, bankruptcies and new registrations have moved in 
parallel within sectors (35).  

(35)  EC Business and Consumer Survey.  

33 

 
Graph 3.11: NFC vulnerabilities 

3. Imbalances, risks and adjustment: main developments 

Panel (a) shows the NFC interest coverage ratio in selected EU countries. Panel (b) depicts the evolution of the corporate 
vulnerability  index,  a  composite  index  of  corporate  financial  risk  combining  factors  measuring  debt  service  capacity, 
leverage,  financing,  profitability  and  activity  (ECB,  2023,  Corporate  vulnerabilities  and  the  risks  of  lower  growth  and 
higher rates). The index is measured in standard deviations from historical averages and therefore must be interpreted 
relative to the whole time series. An increase in the index indicates a rise in corporate financial vulnerabilities. Panel (c) 
shows all non-performing loans of non-financial corporations as a percentage of total NFC gross loans and advances. 
Source: ECB, Eurostat, and European Commission calculations. 

Corporate investment rates have been low across the EU and declined further in  2023, 
as did real investment growth. At the EU and euro area level, investment rates (measured as 
gross fixed capital formation as a percentage of gross value added) fell sharply with the onset of 
the  COVID-19  pandemic  and  stagnated  until  the  end  of  2023  (Graph  3.12.a).  Similarly,  real 
investment  growth  has  been  muted  and  declined  from  2.2%  in  2022  to  1.9%  in  2023.  In 
approximately  one-third  of  Member  States,  corporate  real  investment  growth  turned  negative  in 
2023 (Graph 3.12.b). In the first quarter of 2024, this became true for the EU aggregate as well 
(Graph 3.13.f). Higher financing costs and subdued confidence continue to weigh on credit demand, 
and  the  uncertain  outlook  contributes  to  firms  holding  back  on  investment.  While  tight  monetary 
policy  is  likely  to  have  contributed  to  the  investment  slowdown,  productive  investment  in  the  EU 
was  already  low  before  the  recent  hiking  cycle,  particularly  compared  to  the  US (36).  The  overall 
decline in investment activities was largely driven by reductions in construction investment, but also 

(36)  See  EIB  Investment  Report  2023/24:  Transforming  for  competitiveness.  Productive  investment  is  defined  as  gross  fixed 

capital formation excluding residential investment.   

34 

-1.0-0.50.00.51.01.505060708091011121314151617181920212223Index valueb) Corporate vulnerability indexEA200510152025303540SEEELTFIDKLVSKCZSIBELUNLDEHUMTESATFRROIEHRITPTPLBGCYEL% of gross loans and advancesc) Non-performing loans2022-Q42023-Q42024-Q22019-Q40102030FRDKFILUSEBENLPTHUEUESCZIEATITELDELVSIMTLTSKInterest expenses/ gross operating surplusa) Interest coverage ratio20222023  
 
manufacturing investment has been weak and fallen further. These sectoral developments are also 
reflected in the loan flows to euro area NFCs (37).  

Graph 3.12: NFC investment share and real investment growth in selected EU countries 

3. Imbalances, risks and adjustment: main developments 

Real investment growth is defined as the year-on-year change in % of gross fixed capital formation. 
Source: Eurostat. 

Corporate  investment  is  expected  to  recover  as  demand  strengthens  and  financing 
conditions  are  set  to  improve.  In  the  first  half  of  2024,  bank  loans  to  euro  area  NFCs  have 
recovered slightly, particularly driven by long-term debt with maturities of over 5 years, which may 
signal  a  recovery  of  corporate  investment  activities.  Moreover,  according  to  recent  survey  data, 
firms  reported  a  pick-up  in  investment  and  expect  a  similar  increase  in  the  near  term  (38).  Even 
though  fiscal  consolidation,  as  envisaged  in  several  Member  States,  may  hamper  corporate 
investment,  NGEU  programme  funds  and  private  sector  efforts  to  enhance  green  and  digital 
investment, are expected to contribute to the recovery.  

(37)  In  the  euro  area,  the  share  of  bank  loans  to  NFCs  in  the  manufacturing  sector  relative  to  all  bank  loans  has  decreased 

considerably. 

(38)  Survey on the Access to Finance of Enterprises in the euro area - Second quarter of 2024 (europa.eu) 

35 

0102030NLPLELDEITEAESEUFREEDKIEFIPTATSECZBEHU% of GVAa) Investment share 202220232019-100102030MTFIHUDKATLUDEFRNLEAESCZIEPTBESIITBGLTEEHRLVPLCYRO%b) Real investment growth202220232019      
 
3. Imbalances, risks and adjustment: main developments 

(Continued on the next page) 

36 

Box 3.2: Interest expenses and debt service capacity across the EUHigh interest rates have increased the interest burden of corporates across the EU, making it more difficult for firms to repay their debt and potentially dampening investment and economic activity. Higher corporate interest rates translate into increases in corporate interest burdens as firms must pay higher interest on floating-rate debt while the costs of borrowing for refinancing existing debt or issuing new debt rise. This may affect the firms’ debt repayment capacity causing in the worst-case scenario firm distress with increases in NPLs, higher rates of corporate defaults, and increased risks for financial market stability. However, even if firms do not struggle to service their debt, higher interest burdens dampen profits and may affect the ability of firms to take out new debt, invest and hire.   Over the last quarters, firms’ interest burdens have risen markedly driven by high costs of borrowing, weak activity and elevated labour costs. Corporate interest expense ratios have risen across the EU and roughly doubled in the EA from 22Q4 to 23Q4 (see Graph 1.a). (1) Despite this increase, their levels are in most countries still clearly below the values reached during the great financial crisis (08Q4 in Graph 1.a). At the same time, corporate interest coverage ratios (ICRs) have declined across countries as gross operating surplus fell and interest payments surged. Both higher corporate interest expense ratios and lower ICRs signal a deterioration in firms’ debt repayment capacities.    Graph 1: Corporate interest expense ratios and costs of borrowing in selected EU countries   The corporate interest expense ratio (CIER) is calculated as total interest before FISIM allocation over lagged debt stock. Source: European Commission based on ECB and Eurostat data.  While the costs of borrowing have plateaued or peaked in most EU countries and central banks have started to cut policy rates, it is unclear how quickly this will translate into decreasing interest burdens and improvements in the debt service capacity of EU firms. The costs of borrowing for new debt as well as on the outstanding debt stock have reached their plateau in most EU countries (see Graph 1.b). In some countries, mostly in those where central banks started policy rate cuts already in 2023, borrowing costs have slowly started to decline, but remain high. This affects firms that want to issue new debt and firms that want to refinance existing debt. Around one-third of total loans in the EA will have interest rates reset during 2024. While the passthrough from changes in the policy rate to borrowing costs is relatively quick in most countries, the impact on the interest rate burden is more delayed.       (1) The corporate interest expense ratio (CIER) is calculated as total interest paid before FISIM allocation over lagged debt stock (i.e. over the sum of debt securities and total loans in the previous period). The interest coverage ratio (ICR) is defined as gross operating surplus and mixed income divided by total interest before FISIM allocation.  0.00.20.40.60.81.01.21.4DEELATITPTSEFRNLIEEA20ESPLSIBEDKCZFIHUInterest expenses/ lagged debt stocka) Corporate interest expense ratio2019-Q42022-Q42023-Q42008-Q4012345678LUNLMTFRESATHREABEDEFIITSICYPTELSKIELTLVEEpercent per annumb) Costs of borrowing (new business)2023-Q42024-Q12024-Q22019-Q4 
 
      
 
 
Box (continued) 

3. Imbalances, risks and adjustment: main developments 

37 

Estimating the passthrough from policy rate hikes to the corporate interest expense ratios indicates that the peak is reached around 6 quarters after the hike in many EU countries. One possibility to gauge the future development of the interest burden of EU NFCs, is to estimate the effect of a policy rate increase on the CIER and compare the results across countries in terms of timing and magnitude. In most countries, the peak is reached around 6 quarters post hike. However, in some countries the passthrough takes more time and the magnitude varies across countries (see Graph 2).   Graph 2: Passthrough of a 1 ppt increase in the policy rate on the CIER in pps.   The graph shows the impulse response functions (without confidence bands) of the CIER for selected EU Member States to a 1 percentage point increase in the policy rate in the 10 quarters after the hike. The passthrough estimates are derived from linear local projections controlling for HICP inflation and GDP growth as in Bräuning et al. (2023) (2). Source: European Commission estimates   While corporates are not expected to experience severe difficulties in servicing their debt, interest expenses are likely to remain elevated in the short-term, locking funds for debt repayment rather than financing investment. High borrowing costs and the delayed passthrough from policy rate hikes to corporate interest expenses suggest that debt burdens are likely to remain high over the upcoming months. The first policy rate cuts are not expected to lead to a sizeable reduction in interest expenses soon. Despite high interest burdens, most firms will be able to service their debt. According to survey data, many EU firms have sufficient internal funds to repay their debt. (3) The overall strong performance of EU corporates and their resilience over the past years suggest that even though vulnerabilities have increased, overall risks to financial stability remain contained. However, even if financial stability is less of a concern at the current juncture, high debt repayment locks funds that firms could otherwise use to finance investment activities. Strong corporate investment will be necessary to support the green and digital transition, and secure sustainable future growth, innovation and competitiveness.    (2) Bräuning, Joaquim, Stein (2023) Interest expenses, coverage ratio and firm distress. Federal Reserve Bank of Boston. Current Policy Perspectives.  (3) Survey on the Access to Finance of Enterprises in the euro area - Second quarter of 2024 (europa.eu). 0.00.10.20.30.40.5t+1t+2t+3t+4t+5t+6t+7t+8t+9t+10pps.ATBECZELESFIFRITSE0.00.10.20.30.40.5t+1t+2t+3t+4t+5t+6t+7t+8t+9t+10pps.DEDKHUIENLPLPT 
      
 
 
 
3. Imbalances, risks and adjustment: main developments 

At country level, the following developments are worth highlighting: 

•  Non-financial corporate debt is high, exceeding 85% of GDP, in Luxembourg, Cyprus, Sweden, 
Ireland, the Netherlands, Denmark, Belgium, and France (Graph 3.9). In all these countries 
except Denmark, deleveraging has continued, and the corporate debt-to-GDP ratio has fallen or 
remained  broadly  stable  in  2023.  Nevertheless,  weak  growth  and  high  borrowing  costs  have 
raised  the  interest  burden.  Consequently,  the  interest  coverage  ratio  declined  in  all  countries, 
with the fall being particularly pronounced in Belgium, Denmark, France, and Sweden. In most of 
these  countries,  also  the  share  of  corporate  non-performing  loans  increased,  albeit  from 
comparatively  moderate  levels.  Financial  risks  remain  contained  compared  to  historical 
standards,  except  for  Luxembourg  and  Denmark,  where  high  leveraging  and a  deterioration in 
debt  service  capacity,  coupled  with  tight  financing  conditions  and  low  profitability,  led  to  an 
increase in corporate financial vulnerabilities as measured by the corporate vulnerability index.  

•  High credit growth (total debt excl. FDI) exceeding 13% of the lagged debt stock was observed 
in  Ireland  and  Malta.  In  Lithuania  and  Romania  credit growth  was  close  to  or  above  10%. 
Lithuania was besides Denmark and Luxembourg the only EU country with a slight increase in 
its  debt-to-GDP  ratio,  but  remains  at  one  of  the  lowest  levels  across  the  EU.  Despite  strong 
credit  growth,  Lithuania  and  Romania  reported  that  financial  constraints  are  impacting  their 
production  and  that  access  to  finance  is  an  impediment  to  investment  (39).  Rising  borrowing 
costs and a high share of loans with rate resets will further raise the interest burden especially 
in Lithuania, where also unit profit growth was comparatively weak.   

•  Austria  and  Finland  were  among  the  countries  with  the  highest  rise  in  vulnerabilities  as 
measured by the corporate vulnerability index. In both countries, the corporate debt-to-GDP ratio 
declined in line with the general deleveraging trend in the EU. However, NPL ratios increased, the 
corporate  interest  coverage  ratio  fell  markedly,  and  a  delayed  passthrough  from  policy  rate 
hikes indicates that interest expenses will remain high in the near term. By the end of 2023, the 
interest  coverage  ratio  was  low  also  in  Portugal,  Spain,  and  Hungary.  Due  to  a  high 
prevalence  of  variable  or  short-term  fixed  rate  loans,  borrowing  costs  have  notably  surged  in 
Estonia,  Greece,  and  Latvia.  As  a  large  share  of  loans  have  interest  rates  scheduled  for 
resetting, further increases in interest expenses are anticipated in 2024. Coupled with worsening 
profit indicators, this may affect the debt repayment capacity of NFCs in these countries.  

•  Profit  indicators,  such  as  unit  profit  growth,  profit  shares,  and  profit  margins,  deteriorated  in 
many EU countries, with profit shares falling sharply in Poland and Austria, and remaining low 
in  Germany,  France,  Portugal,  Spain,  and  Sweden.  In  Poland  and  Germany,  confidence 
indicators have worsened markedly, particularly in industry and retail. In 2023, gross operating 
surplus and mixed income in % of GDP fell  in most EU Member States and unit profit growth 
decelerated further. These developments concerned countries with high  corporate  debt-to-GDP 
ratios, such as Denmark or Sweden, countries with elevated corporate financial vulnerabilities, 

(39)  EC Business and Consumer Survey and EIB Investment report 2023/24: Transforming for competitiveness. 

38 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with consolidated non-financial corporate debt (in % of GDP) above 85% in 2023 in blueCountries with consolidated non-financial corporate credit flow excl. FDI (in % of debt stock excl. FDI in t-1) above 13% in 2023 in blue 
 
 
3. Imbalances, risks and adjustment: main developments 

such  as  Austria,  Greece,  Estonia  or  Latvia,  and  also  countries  with  low  debt  levels  and  low 
financial risks, such as Croatia, Slovenia, and Bulgaria.  

•  Corporate  investment  activity  has  been  subdued  throughout  the  EU.  In  Finland,  Hungary, 
Denmark,  Estonia,  Austria,  and  Sweden,  real  investment  growth  was  particularly  weak  in 
2023, while  investment rates have been low already in the years before in the  Netherlands, 
Germany,  Poland,  Greece,  and  Italy.  In  several  of  these  countries  such  as  the  Netherlands 
and Italy, but also Slovenia, not only investment was weak, but also credit growth. Hungary saw 
a  large  drop  in  both  real  investment  growth  and the  investment  share  in  percentage  of  gross 
value added. Firms in Bulgaria, Cyprus, and France are among the least innovative in the EU 
and  are  comparatively  weak  adopters  of  advanced  digital  technologies,  according  to  the  EIB 
investment survey 2023(40). 

(40)  EIB Investment Survey 2023: European Union overview. 

39 

 
Graph 3.13: Selected graphs on non-financial corporations 

3. Imbalances, risks and adjustment: main developments 

Net credit flows (debt transactions) correspond to transactions of loans (F4) and debt securities (F3) from the Eurostat 
financial  transactions  accounts.  Data  is  consolidated,  meaning  that  intrasectoral  lending  and  borrowing  is  excluded.  In 
panels c and d, “other changes” arise from valuation changes, debt writedowns and reclassifications. 
Source: ECB, Eurostat and European Commission forecasts and calculations. 

40 

-7-5-3-1202120222023%e) EU Debt-to-GDP ratioTotal loans (in ppts)Debt securities (in ppts)Total debt-7-5-3-1202120222023%(y-o-y change in %)FDI debt (in ppts)Total debt excl. FDI (in ppts)Total debt60708090100000204060810121416182022a) NFC debt-to-GDP ratiosEA20EU27% of GDP-21-18-15-12-9-6-30369121518210506070809101112131415161718192021222324f) EU GDP growth, investment growth and credit flowsReal investment growthReal GDP growthCredit flows in % of GDP% -1258111617181920212223b) EA credit flowsTotal debt - Flows in % of lagged debt stockTotal debt excl. FDI - Flows in % of lagged debt stockTotal loans - Flows in % of lagged debt stock% -25-20-15-10-5051015202530NLPTHUESBESKIESICYSEFRITHRFICZPLDEATBGEEROELLVMTLTDKLUc) Decomposition of the change in NFC debt-to-GDP: 2023Net credit flowsReal GDP growthInflationOther changesD/GDP, changepps.-20-15-10-50510CYLUNLMTPTSEBEFRESDKSKBGIEITATELROHUPLHRFISILVCZDEEELTd) Decomposition of the change in NFC debt-to-GDP: 2024Net credit flowsReal GDP growthInflationOther changesD/GDP, changepps.   
3. Imbalances, risks and adjustment: main developments 

3.4.  HOUSING MARKETS 

House  prices  moderated  in  2023  after  strong  growth  over  2020-22,  but  with 
considerable  variation, falling in  some  countries  and  growing  in others.  In  most  Member 
States,  the  pandemic  and  immediate  post-pandemic  period  saw  strong  increases  in  house  prices 
(Graph 3.14.a), building on years of house price growth exceeding household incomes. In 2023, the 
moderation  of  house  prices  that  started  in  mid-2022  continued,  with  house  price  growth 
decelerating  in  ten  countries,  and  turning  negative  in  a  further  ten  countries.  The  moderation  in 
house prices was particularly  linked to the rise in mortgage interest rates, which started in 2022 
and continued into 2023. In the euro area as a whole, house prices decreased by 1.2% on average 
over  the  year,  which  represents  a  significant  deceleration  relative  to  2021  and  2022.  In  four 
countries house prices decreased by more than 5%, while increased by more than 9% in another 
four. By the end of 2023, house prices were estimated to remain overvalued in three quarters of 
EU  countries,  with  around  half  of  the  countries  displaying  overvaluations  above  10%  (Graph 
3.14.b). 

Graph 3.14: House price evolution, over/undervaluation, and household debt 

(1) The bubbles size in Panel b refer to household debt as % of household income. The yellow-coloured bubbles refer to 
those countries where house prices are still falling or at the minimum of the last eight quarters.  
Source: Eurostat and European Commission calculations. 

Recent  2024  data  show  signs  of  recovering,  with  almost  all  EU  countries  recording 
positive growth rates. The most recent in-year data show an overall pick up in growth rates. The 
period of price corrections appears to be ending, and in countries with recent muted growth, there 
is an increase in growth rates. In several countries, house prices continue to grow strongly. Interest 
rates  have  started  to  decrease  but  remain  high  when  compared  with  their  levels  prior  to  2022, 
resulting in relatively high interest payments for new loans. The period of house prices correction 
after  the  pandemic  has  resulted  in  substantial  falls  in  house  prices,  primarily  among  countries 
where estimates suggest the strongest signs of overvaluation and households were more indebted 
(Graph  3.14.b).  The  decrease  in  house  prices  continues  only  in  a  few  cases  and  hence  risks  of 
overvaluation in many countries are not expected to recede completely.  

The increase in interest rates has led to reduced loan demand for house purchases and 
lower  housing  transactions.  Interest  rates  have  started  to  decrease  but  remain  high  when 
compared with the years prior to mid-2022, when monetary tightening (both within and outside the 
euro area) started to increase mortgage rates for new mortgages and existing ones with variable 
interest rates. This is particularly marked for some non-euro area countries, although not for all of 

41 

-15-10-50510152025PLBGLTHRHUELIEESPTNLMTROEESICZSKDKBEITCYLVATSEDEFRFILUEUEA% changes, YoYa) House price2021202220232024Q2BEBGHRCYCZDKEEELHUITLVLTMTNLPLPTIEROSIESATFIFRDELUSKSE-15-10-50510152025-200204060House price % change 2024Q2, YoYOver/undervaluation (%), 2022b) House price change vs over/undervaluation        
3. Imbalances, risks and adjustment: main developments 

them (Graph 3.17.b), and has pushed down demand for mortgage credit (Graph 3.17.c) and had an 
impact on house prices from mid-2022 in most Member States. It has also resulted in a big fall in 
housing transactions (Graph 3.17.d). The reduction in house prices – and the fall in transactions – 
appears to be ending as the market finds a new equilibrium that reflects the increased mortgage 
cost  associated  with  loans.  In  countries  where  a  greater  share  of  house  purchases  is  typically 
funded through mortgages, the impact of higher interest rates has a more direct impact on house 
prices.  With  the  adjustment  of  the  market  to  the  higher  interest-rate  environment,  demand  is 
recovering and house prices are likely to return to growth  paths that reflect households’ incomes 
and supply factors.  

The borrowing capacity of households (41) fell in most countries in 2023 but has started 
rising  in  2024.  The  higher  interest  rates  –  relative  to  pre-2022  –  have  reduced  the  borrowing 
capacity  of  households,  as  they  are  able  to meet  the  monthly payments  associated  with  smaller 
loans.  While  higher  interest  rates  have been  associated  with  a  reduction in  house  prices  in  some 
countries,  the  first-year  debt  servicing  costs  associated  with  purchasing  housing  with  credit 
remains  high.  Graph  3.15  presents  the  relationship  between  the  change  in  house  prices  and  the 
change  in  the  borrowing  capacity  of  households  for  2022  compared  with  2013  and  for  2024 
compared  with  2022.  It  shows  that  in  most  countries  the  borrowing  capacity  in  2024  decreased 
vis-à-vis 2022 and partially explains the slowdown in house prices. In some cases, the impact of 
the  interest  rate  contribution  was  so  substantial  that  it  reduced  the  borrowing  capacity  of 
households by 30-60% and explains the most significant reductions both in house prices and house 
transactions. The expectation that interest rates may decrease further is also delaying transactions 
by  potential  buyers.  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.  In 2024  the  borrowing  capacity  is  set  to  recover in  all but three  countries 
amid higher disposable incomes. 

(41)  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. For definition and methodology see notes 
under Graph 3.15. 

42 

 
Graph 3.15: House price change vs borrowing capacity change, from 2013 to 2022 and from 2022 
to 2024 

3. Imbalances, risks and adjustment: main developments 

(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). The 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, JRC and European Commission forecasts and calculations 

For the rest of 2024 and 2025, house prices are expected to resume growth supported 
by  higher  income,  low  supply,  and  the  further  moderation  of  interest  rates.  The  current 
moderation or correction of house prices is expected to stop. Despite the constraints faced by (new) 
borrowers and the comparatively high interest rates, house prices are expected to resume growth, 
supported  by  higher  income  but  mostly  by  the  low  and  rigid  supply.  Existing  and  new  policies 
supporting housing demand risk contributing to a renewed increase in house prices above the path 
of household incomes, exacerbating the deterioration of affordability in the near future. Input cost 
increases,  scarce  labour  force,  also  due  to  the  wave  of  renovations  motivated  by  the  need  to 
improve energy efficiency of houses, are other factors behind the tight supply. Besides, real interest 
rates remain low, providing an incentive for increased demand for housing with an investment. 

Over the past decade, housing supply has struggled to keep pace with rising demand due 
to  regulatory  constraints,  economic  disparities,  and  increased  construction  costs, 
particularly  in  urban  centres.  Population  growth,  sometimes  driven  by  historically  high  net 
migration,  and  urbanization,  have  led  to  an  increased  housing  demand  that  has  outpaced  the 
delivery of new units, particularly in major cities. Regulatory and planning constraints, such as strict 
zoning laws, lengthy approval processes, and limited available land in city centres, have hindered 
the  necessary  scale  of  housing  construction.  In  southern  Europe,  the  2008  financial  crisis  and 
subsequent adjustment measures further suppressed construction activity for a number of years, 
with investment in housing infrastructure lagging behind economic recovery. Conversely,  northern 
European countries have experienced relatively stable construction levels, yet still struggle to meet 
urban  demand.  While  climate  and  environmentally  friendly  policies  are  crucial  for  long-term 
sustainability,  they  can  increase  the  cost  and  time  required  to  build  new  homes,  further 
constraining supply. The construction sector is also adjusting to the increase in interest rates since 
mid-2022,  by  acquiring  less  permits  for  residential  construction  in  those  countries  where  house 
prices have corrected more significantly (Graph 3.16), potentially leading to upward price pressure 
in the future. 

43 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEy = 0.4159x + 50.829R² = 0.0733-2502550751001251501752000255075100125150House price % change from 2013 to 2022Borrowing capacity % change from 2013 to 2022a) House prices vs borrowing capacity,from 2013 to 2022BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEy = 0.4001x + 7.5004R² = 0.4031-30-150153045-30-150153045House price % change from 2022 to 2024Q1Borrowing capacity % change from 2022 to 2024'b) House prices vs borrowing capacity,from 2022 to 2024        
 
3. Imbalances, risks and adjustment: main developments 

Graph 3.16: Building permits for residential construction 

Source: Eurostat and European Commission calculations. 

At country level, the following developments are worth highlighting: 

•  House  prices  are  still  significantly  overvalued  (above  20%  according  to  estimates)  and  have 
been  falling  recently  in  Austria,  Czechia,  France,  Luxembourg,  Slovakia,  and  Sweden.  In 
Germany,  prices  are  also  falling,  but  overvaluation  is  less  significant,  while  over  a  decade 
house  price  growth  exceeds  incomes  by  10 pps.  Over  the  last  decade,  Austria,  Czechia  and 
Luxembourg  have  seen  steep  increases  in  prices  relative  to  income  by  more  than  20 pps.  In 
Luxembourg  and  Sweden  household  debt  is  particularly  high.  When  accounting  also  for  the 
mortgage  interest  rates,  housing  affordability  as  measured  by  the  gap  between  house  prices 
and borrowing capacity of households decreased even further, notably in the last two years. In 
the last decade, this gap increased the most in Austria, Slovakia, Sweden, Germany, and by more 
than  70 pps.  in  Luxembourg,  and  in  Czechia.  Since  2022  and  until  2024-Q1,  the  decrease  of 
house prices in Czechia exceeded the decrease of borrowing capacity. In Germany, house prices 
decreased  slightly  in  line  with  the  decrease  of  borrowing  capacity,  while  in  Austria,  France, 
Luxembourg,  Slovakia,  and  Sweden,  the  decrease  in  house  prices  was  less  than  that  of 
households’ borrowing capacity.  

•  House  prices  are  overvalued  and  still  increasing  in  Belgium,  Bulgaria,  Croatia,  Denmark, 
Estonia,  Greece,  Hungary,  Latvia,  the  Netherlands,  Portugal,  and  Spain.  In  Bulgaria, 
Greece, Croatia,  and  Hungary,  the  recent increase  in  house  prices is  particularly  high.  In  these 
countries,  and  in  Portugal  where  house prices  are  strongly  overvalued,  the  recent  evolution  of 
house prices can be seen as a risk factor for a future sharper correction if economic conditions 
were to deteriorate. In Denmark and the Netherlands, household debt is particularly high. Over 
the last decade, increases in prices exceeded income growth by 10 to 20 pps. in Denmark and 
Spain,  around  25 pps.  in  Estonia  and  Hungary,  while  in  the  Netherlands  and  Portugal,  the 
difference  between  growth  of  house  prices  and  household  income  was  around  30 pps.  and 
50 pps., respectively. In the last decade, the gap between house prices and borrowing capacity 
became  significant  in  Denmark,  Estonia,  the  Netherlands,  Portugal,  and  very  significant  in 

44 

050010001500200025003000350040004500MTCYLUSqm per thousand persons020040060080010001200IEBGBEPTPLHRATSINLROLTFRDKEESKFILVCZSEESDEELHUITRange from 2012 to 20232023BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with nominal house price index growth (1 year % change) above 9% in 2023 in blue 
               
 
3. Imbalances, risks and adjustment: main developments 

Hungary, where this gap is around 150 pps. In Hungary, nominal  house prices grew by around 
220% in the last decade, while the monthly mortgage payment that the median households can 
support when dedicating a fixed share of their income grew by around 70% in the same period. 

• 

In  Poland,  Ireland,  and  Romania,  house  prices  are  not  estimated  to  be  overvalued  but 
increased at a strong pace. In Poland and Ireland, between 2013 and 2022, house prices have 
grown more than borrowing capacity by around 30 pps. and 60 pps.,  respectively, and are still 
rising above borrowing capacity since 2022, and by around 20 pps. in Ireland. 

•  In Lithuania and Slovenia, prices have been rising fast and risk becoming overvalued. When 
compared  with  incomes  over  the  last  decade,  house  price  growth  exceeds  income  growth  by 
14 pps.  and  7 pps.,  respectively.  House  price  growth  has  exceeded  the  growth  of  borrowing 
capacity in both Lithuania and Slovenia since 2013, by around 70 pps. and 30 pps., respectively 

•  In Finland, house prices were not estimated to be overvalued but have fallen by over 10% since 
their peak in mid-2022 and household debt is high. The reduction in house prices since 2022 is, 
however, still less than the decrease in borrowing capacity over the same period, which fell by 
around 20%. 

45 

Graph 3.17: Selected graphs on the housing market 

3. Imbalances, risks and adjustment: main developments 

(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 2022-Q4 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, ECB and European Commission calculations. 

46 

6080100120140160180PTIENLLUHUEEATCZDKESSELTDESISKELPLHRMTBELVFRBGITFICYRO2013 = 100a) House-price-to-income ratio202220232024Q20%25%50%75%100%NLSEDKBELUFIIEPTFRESEESKDEATMTCZCYSILTLVITHUPLELHRBGROEA20EU27% of populationf) Distribution of population by tenure status, 2023 Owner occupied, with loanOwner occupied, no loansTenant - market priceTenant - reduced price or free-50510020406081012141618202224%e) Euro are house price YoY % change and country contributionsOthersNLITFRESDEEA20035810PLHUROLVEELTCZDKSECYELSKFIIELUATDENLPTHRSIITFRESBEBGMT%b) Interest rate for house purchase (annual average)2022202324Q25 years min.050100150200250PTHUEELVLTESCYHRSINLIECZMTITBEDEFIATFRSK2019 = 100c) New credit for house purchase by households, excluding renegotiations (12m average)2022-122023-122024-085 years max.406080100120140160180ESITPTBGCYBEIEMTFRPLLTLVFIATHUSISEDKLUNLlast 10y average = 100d) House transactions (4q average)2022Q42023Q42024Q2          
3. Imbalances, risks and adjustment: main developments 

3.5.  HOUSEHOLD DEBT AND SAVING 

Household  debt  ratios  continued  to  decrease  to  historical  lows  in  2023  in  most  EU 
countries  (Graph  3.18).  Over  the  last  three  years,  the  household  debt-to-GDP  ratio  has  been 
declining markedly, to reach 53% in the euro area (52% in the EU) by 2023, around 4 pps. (5 pps.) 
below its pre-pandemic level. The debt-to-gross household disposable income ratios fell even more 
swiftly,  from  77%  to  71%  in  the  euro  area,  and  from  78%  to  70%  in  the  EU  (42).  Under  both 
measures,  household  debt  ratios  are  at  their  lowest  point  in  about  two  decades’  time.  Most  EU 
countries, including those with the highest levels of debt, now have household debt-to-GDP ratios 
well  below  their  2019  levels.  At  the  same  time,  in almost  half  of  the  Member  States,  household 
debt  remains  above  the  levels  suggested  by  economic  fundamentals  and  by  prudential 
concerns (43).  The  decline  in  the  household  debt-to-GDP  ratios  in  2023  was  strongly  driven  by 
denominator effects, in particular high inflation rates (Graph 3.19.a). Nominal household disposable 
income  also  grew strongly  in  2023,  supporting  households’  debt  service  capacity  and  pushing  up 
real gross disposable incomes. 

Graph 3.18: Household debt-to-GDP ratios 

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

Credit  flows  contracted  substantially  by  2023  but  remained  positive  in  most  countries 
(Graph  3.19.a,  Graph  3.20).  The  main  driver  of  the  contraction  in  credit  flows  was  the  cost  of 
borrowing (44), which rapidly increased as of mid-2022 and peaked by the end of 2023 in the euro 
area  and  most  of  its  Member  States  at  around  4%,  the  highest  level  observed  over  the  last  15 
years. While interest rates on new loans for house  purchase increased by 2.8 ppt between trough 

(42)  EA  and  EU  aggregates  reflect  Commission  calculations.  The  debt-to-gross  disposable  income  ratio  is  calculated  as 
consolidated  household  debt  (loans  and  debt  securities)  over  gross  disposable  household  income  adjusted  for  social 
transfers in kind (B7G).  

(43)  Fundamental benchmarks are derived from regressions capturing the main determinants of credit growth and taking into 
account a given initial stock of debt. Prudential thresholds identify a threshold above which banking crises become more 
likely. The fundamentals-based and the prudential benchmarks are calculated following Bricongne, J. C., Coutinho, L., Turrini, 
A., Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42. 

(44)  The discussion on borrowing costs refers to nominal interest rates, as they, contrary to what conventional economic theory 
would  suggest,  seem  to  matter  more  for  household  behaviour  than  real  interest  rates  (see  Felici,  Kenny,  Friz  (2022) 
“Consumer savings behaviour at low and negative interest rates”, ECB Working Paper 2736).  

47 

020406080100120NLDKSELUCYFIFRBEPTDEMTESATSKELITEECZHRIESIPLBGLTLVHUROEUEA20% of GDP2019202220232024fFundamentals benchmark 2023Prudential threshold 2023     
 
3. Imbalances, risks and adjustment: main developments 

and peak over the period from 2019 to mid-2024, interest rates on outstanding loans increased by 
less (only 0.9 ppt) on average over the same period, reflecting the fact that many loans have fixed 
interest  rates,  for  a  part  or  the  totality  of  the  loan  term.  Only  in  a  few  countries  credit  flows 
remained resilient in 2023. In broad terms, countries that saw the strongest increase in borrowing 
costs also saw the strongest contraction in credit flows, although there are a few exceptions. In the 
euro  area  countries,  borrowing  costs  remained  close  to  their  peak  levels  in  mid-2024.  The 
contraction  in  credit  flows  was  visible  irrespective  of  whether  credit  flows  are  expressed  as  a 
proportion of GDP or of the previous year’s debt stock. Looking at credit flows in relation to existing 
debt stocks provides a better idea of upward pressures on debt stocks than when credit flows are 
expressed as a % GDP, especially in countries starting out from a low debt stock level. As shown in 
Graph  3.20,  credit  flows  as  a  share  of  debt  stocks  continued  to  be  sizeable  in  some  low  debt 
countries, despite the overall fall.  

Graph 3.19: Contributions to changes in household debt-to-GDP ratios 

Source: Eurostat and European Commission forecasts and calculations. Data for HR missing for 2024f. 

The  rise  in  borrowing  costs  was  particularly  pronounced  in  countries  with  a  high 
prevalence  of  variable  rate  loans.  The  proportion  of  new  loans  with  highly  flexible  interest 
rates  (with  a  fixation  period  of  one  year  or  less)  in  Member  States  ranges  from  almost  none  to 
broadly all loans to households. The rise in the interest rates initially triggered a strong increase in 
the use of variable rates for new loans in several EU countries. By April 2024, this trend had been 
largely  reversed  in  the  euro  area  aggregate.  In  several  countries,  the  proportion  of  variable  rate 
loans remains substantially higher than in 2022; in other countries, it is by now significantly lower.  

In  some  countries,  particularly  those  with  a  high  prevalence  of  variable  rate  loans, 
households were confronted with a strong rise in aggregate interest payments in 2023 
(Graph 3.21.c). The rise in borrowing costs was also notable in some other Member States with a 
history of variable interest rates, which remain relevant for the stock of outstanding loans. Interest 
payments increased in virtually all Member States between 2021 and 2023, but in most countries 
(and  in  the  euro  area  and  the  EU  on  aggregate)  the  increase  remained  below  1 ppt  of  gross 
disposable household income (GDHI) (see Box 3.4). A few countries combining relatively high debt 
stocks with a high proportion of variable rate loans (among new or outstanding loans) saw interest 
payments  going  up  more  strongly.  In  most  countries,  the  increase  in  interest  payments  was 
however counteracted by an increase in interests received on aggregate, although they are likely to 
accrue to different households. The increase in interests received exceeded the increase in interests 
paid on average in the euro area and the EU.  

48 

-8-4048NLESPTCYSEELATFRMTSKITDEPLFISIBEHUROHRCZLTLVEEBGLUIEDK% of GDPa) 2023Net credit flowsReal GDP growthInflationOther changesDebt/GDP, change-8-4048CYDKPTLUELNLESATFRSKSEDEITBEFIPLCZROMTHUSILTLVEEIEBG% of GDPb) 2024fNet credit flowsReal GDP growthInflationOther changesDebt/GDP, change      
Graph 3.20: Net credit flows to households 

3. Imbalances, risks and adjustment: main developments 

(1) Credit flows reflect loans and debt securities to households (net flows, consolidated) as reported by ECB. 2024 figures 
present projections based on available in-year data and forecasts. 
Source: Eurostat and European Commission forecasts and calculations. 

Overall, the  household sector remained  resilient  in  view  of the  interest  rate  increases, 
although  the impact is likely to  have  varied across  households.  In  some  countries,  survey 
data suggest a relatively high proportion of mortgage holders in the bottom quintile of the income 
distribution,  in  combination  with  a  high  debt  service  to  income  ratio  (see  also  Box  3.4).  These 
households are more likely to be liquidity constrained, and a rise in interest rates could affect their 
consumption and savings possibilities (45).  On the upside, interest  rates are expected to gradually 
fall over the forecast horizon, relieving some of the additional pressure on these households. 

(45)  See  e.g.  for  a  recent  study  on  Denmark:  Andersen  et  al.  (2024)  “Effects  of  increases  in  monetary  policy  rates”  or  for  a 
broader  perspective  Coutinho  L., V.  Martins &  M.  Salto,  2023.  “Euro  Area Household  Debt”,  Quarterly  Report  on  the  Euro 
Area (QREA), 22(3): 35-49. 

49 

-50510152025BGHRMTLTEELVCZSKSIIEHUROBEFRNLLUCYDESEDKPTPLFIITELATESEU27EA20b) As a % of debt stock in year t-12019202220232024fMIP threshold-2-10123456BGMTHREESKCZLTBEIENLLVSIFRLUCYHUSEDERODKPTPLITFIELATESEU27EA20a) As a % of GDP2019202220232024f     
 
3. Imbalances, risks and adjustment: main developments 

(Continued on the next page) 

50 

Box 3.3: In good and bad days: household income and savings in the EA20 since 2019This box looks at how household balance sheets were affected by the turmoil of recent years, namely the pandemic and a period of high inflation. It considers aggregate developments of the household sector, while disregarding distributional impacts within the sector. Household disposable income in the EA was growing at around 3% per year in nominal terms between 2015 and the start of the pandemic in 2020 (Graph 1.a). The pandemic triggered a reduction in labour and property income, and a smaller one in business income, but these were fully compensated by a reduction in net taxes (in part because of an increase in subsidies). Nominal disposable income growth largely stalled in 2020, resumed in 2021 and accelerated to around 7% in 2022 and 2023 when inflation soared. In real terms, disposable income contracted by 13% in 2020 (largely due to a drop in activity) and by 23% in 2022 (as a result of high inflation), but started growing, albeit more sluggishly, as of 2023. Net taxes became less supportive of disposable income in the years after 2020, although they remained smaller in volume than before the pandemic set in. Graph 1: Household income, consumption, and savings, selected graphs   (1) GHDI refers to gross household disposable income (B6G) Source: Commission calculations based on sectoral national accounts  Up until 2020, consumption had been growing broadly in line with, but just below disposable income, resulting in a gradually increasing savings rate (Graph 1.a). However, in 2020, real household consumption contracted by 7.5%, translating, at a roughly stable disposable income level, into an increase in the savings rate. Real consumption recovered over 2021-22, growing faster than disposable income. However, it stagnated in 2023 in spite of a gradual recovery in real disposable income, leading to a small rebound in savings (Graph 1.b). Real disposable 010203040506070809010008091011121314151617181920212223% GHDI or real termsa) Disposable income, consumption and savings, and comparison to pre-2020 trend, EA20GHDI (real terms)Pre-2019 trendGross savings (% GHDI)Pre-2019 trendConsumption (% GHDI)Pre-2019 trend-8-6-4-2024681020212223% GHDIb) Contributions to changes in gross savings, EA20Consumption (neg. contr.)GHDI (pos. contr.)Gross savings-15-10-50510SKEEPLLVCZHUFIDKSEDEIESIESEUNLEACYPTBEATFRITLTLUHRELc) Difference from pre-2020 trend, disposable income and consumption rate, 2023GHDI (% diff from trend in real terms)Consumption rate (ppt diff from trend in % GHDI) 
 
   
 
 
Box (continued) 

3. Imbalances, risks and adjustment: main developments 

Further  deleveraging  of  household  debt  can  be  expected  for  2024,  albeit  at  a  slower 
pace than in 2023. Subdued borrowing, inflation, and moderate real growth are set to continue 
exerting downward pressure on household debt-to-GDP ratios in 2024. In 2024-Q2, the euro area 
(EU) household debt-to-GDP ratio dropped to 52% (51%), its lowest level since 2005 (46). Measured 
as  a  share  of  gross  disposable  income,  it  fell  to  69%  (69%)  in  the  same  quarter,  also  markedly 
below its pre-pandemic level. If trends observed over the first half of 2024 persist, four out of five 
Member  States  will  see  a  reduction  in  household  debt-to-GDP  ratios  in  2024.  In  all  EU  countries 
with very high household debt (more than 70% of GDP), deleveraging is expected to be extensive, 
reaching several percentage points (Graph 3.19.b). In most countries, net credit flows are expected 
to remain stable or start growing again in 2024. Employment and wage dynamics (47) are expected 
to support growth in disposable incomes in 2024 and 2025. This should have a positive impact on 
household savings and support households’ ability to meet their debt obligations overall. 

After  a  few  years  of  decline,  household  savings  rebounded  somewhat  in  2023.  Gross 
savings  (as  a  %  of  disposable  income)  peaked  in  2020  and  came  down  over  2021  and  2022 
towards their medium-term average. Gross savings rebounded in the euro area in 2023 as energy 
prices  subsided  and  real  income  growth  returned  to  positive  territory  (Graph  3.21.b).  Overall, 
savings  remain  above  pre-pandemic  levels  in  several  countries  that  already  had  higher  savings 
rates  to  begin  with.  In  most  countries  which  started  out  with  low  savings  rates  before  the 
pandemic,  gross  savings  however  eroded  further  after  the  pandemic,  possibly  as  a  result  of  the 
higher  impact  of  increases  in  the  cost  of  living  in  these  countries  on  the  back  of  high  inflation. 
These  differential  dynamics  risk  contributing  to  divergence  in  households’  capacity  to  cope  with 
future  shocks  in  the  euro  area.  Yet,  most  of  the  latter  countries  also  saw  some  improvement  in 
gross savings in 2023, and most of the countries with high household debt and all of those with 
very high household debt have robust saving rates.  

(46)  Source: Commission calculations based on ECB-QSA and ESTAT data.  
(47)  Considering real compensation per employee, calculated using the private consumption deflator. 

51 

income, consumption and gross savings are above their 2019 level, but below their pre-2020 trend in real terms (Graph 1.a). At the same time, the consumption and savings rate (expressed as a % of disposable income) have returned to their pre-2020 trend for the EA20 on aggregate by 2023. This is unexpected, as it seems to dispel the expectation that the excess savings accumulated during the pandemic would trigger an episode of above-trend spending on consumption. A reasonable implication would be that growth in real consumption would need to be underpinned by a revival of real disposable income, for instance because of wage growth.  Underlying the aggregate euro area picture, there are marked cross-country differences. While in some countries, such as Greece, Croatia, and Luxembourg, disposable income was already very close to trend in 2022, in Estonia, Poland, Spain and Slovakia it remained almost 10% below it. in 2023, disposable income fell behind even more in Slovakia. Especially in countries with disposable income lagging behind, the consumption rate (as % GHDI) was above its medium run trend, mechanically equivalent to a weakening of the savings rate. In several other countries, however, consumption remains below what would have been expected based on its medium-run relationship with disposable income in 2023 (Graph 1.c), possibly reflecting pessimism in consumer sentiment and elevated economic uncertainty. The disappointing consumption behaviour is also visible to some extent in the euro area and the EU aggregate.  
   
 
 
 
 
3. Imbalances, risks and adjustment: main developments 

(Continued on the next page) 

52 

Box 3.4: The impact of rising interest rates on households' net interest income in the euro areaIn 2022 and 2023 monetary policy rates were raised from around 0% to 4% within twelve months. The increase has affected households through different channels, including interest payments on mortgage and consumer loans and returns on savings – besides broader impacts on jobs, wages, prices, and asset values. This box considers the impact through households’ net interest income (1), which could have a bearing on households’ financial vulnerability and their aggregate consumption (2).  Graph 1: Assets, liabilities, and returns on assets, households, EA       (1) GHDI refers to gross household disposable income (B6G) a): Net income from other property is smoothed and covers distributed income of corporations, reinvested earnings on direct foreign investment, and other investment income, and rents from land and subsoil assets. Income that households receive from renting out buildings and imputed rents for owner-occupied dwellings are not included in this category. b): Data reflect smoothed quarterly data. Source: ESTAT sectoral national accounts data  Since 2010, net interest income by the household sector in the euro area has been negative, and made up around -1.5% of disposable income (Graph 1.a), meaning that households are paying more interests on outstanding loans than they are receiving from interest-bearing assets such as deposits, bonds and loans, despite their positive nominal net asset positions. This is broadly true across all EU countries (Graph 2). Over time, since the early 2000s, net interest income declined until around 2016, when it stabilized (Graph 1.a), in spite of a consistent increase in financial and net financial assets over the 2010s (Graph 1.b). The expansionary monetary policy that was in place up to 2022 has undoubtedly been an important contributing factor (3). In 2021, net interest income in the euro area started growing (becoming less negative), firstly under impulse of the strong pandemic-related increase in savings, and as of 2022 on account of a stronger increase in interest receipts than in interest payments. In about half of EU countries, net interest income increased with the rise in interest rates for the household sector on aggregate (Graph 2).  The increase in net interest income reflects the fact that the volume of interest-bearing household assets is larger than the volume of household debt for the euro area as a whole. The four countries with a clear negative position in interest-bearing instruments are Denmark, Sweden, Finland, and the Netherlands (Graph 3) (4). Of these countries, only the former three saw a strong decrease in net interest income due to their very high prevalence of variable mortgage loans, triggering quick changes in interest rates, including on outstanding loan stocks. In the Netherlands, interest receipts rose faster than interest payments. For a number of other countries such as Spain, Portugal, Estonia, Latvia and Lithuania, with near-zero or positive positions of interest-bearing instruments, net  (1) This box considers interest income before the allocation of FISIM. FISIM refers to “financial intermediation services indirectly managed” and is used in the national accounts to reflect the services provided by banks without explicit service charges. Net interest income of households in the euro area is negative before FISIM, but positive after FISIM, reflecting the utility received from financial services.  (2) For earlier work on this topic, see the box “Low interest rates and households’ net interest income” in ECB Economic Bulletin, 4/2016; and de Bondt et al. “Net interest income of households and firms” in ECB Economic Bulletin, 8/2023. (3) The composition of household assets does not seem to have driven this change in returns to a major extent. (4) Deposits (F2) and bonds (F3) are included on the asset side, loans (F4) on the liability side. In some countries households also have loans on the asset side. These are included in ‘other assets.’ Even if they also present interest-bearing assets, their significance is generally low.  -202468101214020406081012141618202224% of GHDIa) Net income from propertyNet interest incomeNet income other propertyInterest paymentsInterest receipts0100200300400020406081012141618202224% of GHDIb) Financial assets and liabilitiesAssetsLiabilitiesNet assetsDeposits 
 
     
 
 
Box (continued) 

3. Imbalances, risks and adjustment: main developments 

(Continued on the next page) 

53 

interest income has still declined as interest rates on loans rose much more strongly than on deposits – and a relatively wide gap emerged between interest rates on loans and those on deposits (5). This added to a high share of variable rate loans among outstanding mortgage loans. Cyprus, a country with relatively high deposits (as a % of GHDI), presents an interesting case as interest rates on savings accounts and interests received dropped in 2023, and net interest income declined, without interest payments increasing on aggregate (6). Graph 2: Net interest income of households, 2021-23     (1) 1 refers to 2021, 2 refers to 2023 (or 2022 in case no data available for 2023). Data refer to interests before FISIM allocation. GHDI refers to gross household disposable income (B6G) Source: Sectoral national accounts, Eurostat  The ECB distributional wealth accounts (DWA) suggest that most households in the euro area, including those in the bottom 50% of the wealth distribution, have net positive wealth positions when including non-financial assets. When considering only interest-bearing deposits, bonds and loans, the aggregate household position in the euro area is still positive. However, this is mostly driven by the top 30%, as the bottom 70% of the euro area population has a negative position. A majority of EU countries show a negative position for bottom 50% households (Graph 3). For these households, increases in interest rates are likely to have a negative impact on their incomes, even if that does not show up at the aggregate level. Unfortunately, no data are available on household interest payments by wealth decile in the DWA. At the euro area level, more than 50% of the households in the bottom 50% indicate that they are not able to save regularly. The highest proportion of households reporting this is found in Croatia, Cyprus, and Greece; and the lowest in Austria, Germany, and the Netherlands (7). In conclusion, in the euro area and the European Union as a whole and in about half of EU countries net household interest income increased as interest rates rose. Net interest income decreased in countries with low deposit-to-debt ratios and with a high prevalence of variable rate mortgages. At the same time, the change in net interest income (in pps. of GHDI) remains relatively small at the aggregate level, with the largest decline observed in Finland, Latvia (around 2 pps. of GHDI) and Estonia (5 pps. of GHDI). At the same time, in these countries as well as in countries where the aggregate change in net interest income was smaller or positive, there could still have been a significant impact on households in the bottom 50% of the wealth distribution, who, besides having a lower deposit to debt ratio, are also less likely to have solid buffers to cope with income shocks. So far, only in a few countries (Luxembourg, Finland, Lithuania, Estonia and Sweden) notable upticks in non-performing loans (% total loans to households) (of at least 0.2 pps.) have been observed in 2023, and so far these changes remain below 1 pp. everywhere.   (5) By late 2023, the gap between deposit rates (new business) and mortgage rates (outstanding loans) had risen to almost 4 pps. in ES, 5 pps. in PT, and 6 pps. in EE, LT, and LV. (6) In Belgium, interest payments on loans also decreased in 2022, contrary to expectations (provisional figures). (7) Source: 2021 ECB Household Finance and Consumption Survey (HFCS) data. The HFCS typically covers EA countries, and a few non-EA EU countries. The countries included in the HFCS are presented in Figure 4. -8-6-4-202412121212121212121212121212121212121212121212121212121212ATBECYCZDEDKEAEEELESEUFIFRHRHUIEITLTLULVMTNLPLPTROSESISK% of GHDIInterest receivedInterest paidNet interest income 
     
 
 
Box (continued) 

3. Imbalances, risks and adjustment: main developments 

Non-performing loans to households ticked up in 2023, although the countries with the 
largest  incidence  of  non-performing  loans  continued  to  register  a  significant  decline. 
Increases of more than 0.2 pps. in the proportion of non-performing loans out of total loans given 
out  to  households  were  observed  in  five  Member  States  in  2023,  all  with  a  relatively  high 
proportion of variable rate loans (or a legacy of a high incidence of such loans). In most of these 
countries, a further increase is observed towards 2024-Q2. 

At country level, the following developments are worth highlighting: 

•  Denmark, the Netherlands, and Sweden have very high household debt (above 70% of GDP 
in  2023),  although  debt  ratios  stand  significantly below  their  pre-pandemic  values.  Household 
debt  is  particularly  high  when  expressed  as  a  proportion  of  gross  disposable  income  (130-
160%),  in  spite  of  significant  reductions  recently.  Net  interest  payments  have  risen  tangibly 
between 2021 and 2023 in Denmark and Sweden as a result of the high incidence of variable 
rate loans (interest fixation period of one year or less), which further increased in response to 
the rise in interest rates. In the Netherlands, risks for the household sector are compounded by 
the high debt service-to-income ratio for debt holders at the bottom of the income distribution 
(48). At the same time, gross savings rates remain high and stable in all three countries.  

•  Luxembourg, Cyprus, Finland, France, Belgium, and Portugal have high household debt (at 
or above 55% (49) but below 70% of GDP) in 2023. Debt ratios are expected to decline further in 
2024. This means Luxembourg and France are projected to finally dip below their pre-pandemic 

(48)  Based on 2021 HFCS data. 
(49)  55% GDP is the new threshold for the household debt headline indicator in the MIP scoreboard. 

54 

Graph 3: Household interest-bearing assets and liabilities, by country and wealth group    (1) A refers to All households, B to households in the Bottom 50% of the wealth distribution (as % of aggregate GHDI). GHDI refers to gross household disposable income (B6G) Source: ECB Distributional Wealth Accounts  -250-200-150-100-50050100150200250300ABABABABABABABABABABABABABABABABABABABABABATBECYDEEAEEELESFIFRHUIEITLTLULVMTNLPTSISKAssets and liabilities (% GHDI)DepositsBondsHouse loansOther loansBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with consolidated household (+NPISH) debt (in % of GDP) above 55% in 2023 in blueCountries with consolidated household (+NPISH) credit flow (in % of debt stock in t-1) above 14% in 2023 in blue 
     
 
 
 
 
 
3. Imbalances, risks and adjustment: main developments 

levels by 2024, something which already had happened in previous years in all other countries 
with (very) high debt levels at the outset. Luxembourg’s debt ratio is very high when expressed 
as  a  proportion  of  gross  disposable  household  income  (almost  140%  of  GDHI).  Risks  to  the 
household sector are exacerbated by the high share of variable interest rates in Cyprus, Finland, 
Luxembourg, and Portugal; the high median debt service-to-income ratio for Cyprus, France, and 
Luxembourg overall as well as for debt holders in the bottom quintile of the income distribution 
in Cyprus and Luxembourg, and by the low savings rate in Cyprus, which has deteriorated since 
2019. In France, this risk is mitigated by the fact that the vast majority of mortgages have fixed 
rates.  At  10%,  Cyprus  still  has  the  highest  proportion  of  non-performing  loans  among  loans 
given out to households of all Member States. 

•  Malta,  Germany,  Spain,  Austria,  Slovakia,  Greece,  Italy,  and  Estonia  have  moderate 
household  debt  stocks  (between  35  and  55%  of  GDP  in  2023).  Slovakia’s  debt  ratio  remains 
above its 2019 level in 2023, but it is expected to dip below it in 2024. Risks to the household 
sector are compounded by the high share of variable rate loans in Estonia, Malta, Portugal, and 
Austria,  the  low  savings  rate  in  Greece,  Estonia,  Portugal,  and  Slovakia, (50)  and  the  still  high 
proportion  of  non-performing  loans  in  Greece  and,  to  a  lower  extent,  Spain,  despite  recent 
improvements. 

•  The  relatively  high  proportion  of  non-performing  loans  to  households  may  also  still  be  of 
concern for Hungary, Croatia, Poland, Bulgaria, and Romania, in spite of their relatively low 
household debt-to-GDP ratios (below 35%). In Bulgaria, credit flows remain buoyant (51) as the 
cost of borrowing has hardly increased over recent years, in contrast with other Member States, 
and the household debt-to-GDP ratio is set to increase by more than 1 ppt in 2024. 

(50)  No data available for Malta. 
(51)  Net credit flows to households stood at 16% of the 2022 debt stock in 2023, above the threshold of 14% in the revised 

MIP scoreboard. 

55 

 
Graph 3.21: Selected graphs on household savings and debt 

3. Imbalances, risks and adjustment: main developments 

(1)  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, adjusted for changes in net equity in pension funds reserves. Source: Eurostat. (c): Net interest paid = 
interest paid – received. Source: ECB-QSA (D41G). (d): Variable rate loans are defined as loans with < 1 year 
fixation period and reflect new loans for house purchase. If 2024-09 data are missing, 2024-01 or 2024-04 
data  are  shown.  If  2014-09  data  are  missing,  data  for  2014-12  are  shown.  Source:  ECB-RAI.  (e)  GDI  is 
measured as adjusted gross household disposable income (B7G, GDHI adjusted for social transfers in kind). 
(f) NPLs are defined as HH gross non-performing loans and advances, % of total gross loans and advances to 
households. Source: ECB-CBD2. 
Source: ECB, Eurostat and European Commission calculations.  

56 

-5051015202530DELUFRATNLSIBEIEESITFICYPTSKLTLVEEELEA20CZHUSEDKHRPLEuro areaNon-euro area% gross disposable incomeb) Gross savings rate, households202320202019020406080100120LTEEFILVMTLUCYIEELATPTNLDEESITBEHRFRSKSIEA20BGSEDKROHUPLCZEuro areaNon-euro area% new loansd) Share of variable rate loans among new loans to households2024-092014-090246810121416ELCYHRESITPTATLUFRIESKMTSIFIDEBELTEENLLVPLROHUBGSEDKCZEuro areaNon-euro areaf) % NPLs to households2024-Q22022-Q2024681012MTFRBEESITSIHRNLELDEPTIELUFIATSKCYLTLVEEEA20BGSEDKCZROHUPLEuro areaNon-euro areaAnnualized, weighted average, %a) Cost of borrowing by households2024-072021-05peak since 2021-2-101234567EELVNLFIIEPTLTESCYLUSKHRATBESIDEITELFRMTEA20SEDKPLCZROHUEU27Euro areaNon-euro area% gross disposable incomec) Interest burden (% gross disposable income), householdsInterest paid 2023Interest paid 2021Net interest paid 2023Net interest paid 2021020406080100120140160180NLLUFICYMTFRBEIEPTDEESSKATEEELITSILTLVEA20DKSECZHRPLHUROEU27#N/AEuro areaNon-euro area% gross disposable incomee) Household debt-to-GDI ratio20232019     
3. Imbalances, risks and adjustment: main developments 

3.6.  GOVERNMENT SECTOR 

In  2023,  government  balances  remained  broadly  stable  overall  –  with  some  small 
improvements  or  deteriorations 
in  some  countries  –  contrasting  with  marked 
improvements in the two previous years. Government deficits were marginally larger in 2023 
than in 2022 in several countries, including in some high-debt cases. This represents a change from 
the marked  reductions in deficits that took place in 2021 and 2022, following the sizeable fiscal 
loosening of 2020 amid the COVID-19 crisis. In 2023, inflation, along with the further withdrawal 
of  pandemic  support  measures  and  the  receding  costs  of  measures  to  tackle  the  energy  crisis, 
helped strengthen public finances, but these were counterweighed by the impact of weak economic 
activity and  revenue shortfalls (52). The withdrawal  of support measures  has not been completed, 
and current expenditure was higher in terms of GDP in 2023 than in 2019 (53). At the same time, 
interest  expenditure  rose,  sometimes  significantly.  Public  investment  also  increased  in  terms  of 
GDP in nearly all EU countries in 2023 but after two years of some reductions. 

Government  balances  are  estimated  to  have  improved  in  2024,  but  with  some  deficits 
remaining elevated this year and next. In 2024, the estimated deficit reductions are principally 
the result of revenue windfalls and discretionary fiscal measures, while expenditure is projected to 
rise  further,  mostly  on  account  of  further  rising  interest  expenditure.  In  2025,  the  balances  are 
expected to change less thanks to some restraint in fiscal stances but interest expenditure is set to 
keep rising, while investment increases too. At the same time, expenditure financed by RRF grants 
is set to accelerate further in several countries (54). In most EU countries, the budgetary positions 
are expected to be clearly worse in 2024 and 2025 than they were in 2019 (Graph 3.22).  

Graph 3.22: Government balances 

Countries are ranked in decreasing order of the government balance (in % of GDP) in 2023. 
Source: Eurostat and European Commission forecasts. 

(52)  European Commission, European Economic Forecast, Autumn 2024, Institutional Paper 296, November 2024.  
(53)  Cepparulo, A., C. McDonnell and V.E. Reitano (2024). “An Assessment of the Euro Area Fiscal Stance.” European Commission 

(DG ECFIN), European Economy Economic Brief 080.  

(54)  European Commission, European Economic Forecast, Autumn 2024, Institutional Paper 296, November 2024. 

57 

-10-8-6-4-2024DKCYIEPTNLSELTLUHRELBGLVSIDEATEEFIESCZBEMTSKPLFRROHUITEAEU% of GDP20192020202220232024f2025f     
 
 
3. Imbalances, risks and adjustment: main developments 

Government  debt  ratios  decreased  further  across  most  of  the  EU  in  2023,  sometimes  strongly, 
supported by  nominal GDP growth, but  in many cases they  remain above pre-pandemic levels.  In 
2023, the government debt-to-GDP ratio decreased in most EU countries, with the euro area and 
EU aggregates declining by around two percentage points each (Graph 3.23). These decreases were 
mostly driven by inflation, while real GDP growth was weak. By contrast, primary deficits increased 
nominal  debt  levels  in  most  countries  (Graph  3.24.a).  While  falling  for  three  consecutive  years, 
government debt ratios remain above pre-pandemic levels in most Member States and in the euro 
area  and  the  EU  as  a  whole.  At  the  same  time,  debt  ratios  edged  up  in  some  other  countries  in 
2023,  typically  countries  combining  high  deficits,  muted  or  falling  real  GDP,  and  low  debt  ratios 
such that the passive deleveraging effect brought about by nominal GDP growth was small.   

Government  debt  ratios  are  expected  to  broadly  stabilise  or  even  increase  over  2024 
and  2025,  as  sizeable  deficits  remain  while  inflation  should  recede  further.  A  marked 
change in patterns is taking place as  government debt is now forecast to either stabilise or even 
increase further in several Member States in 2024 and 2025 and sizeable falls in the debt ratios 
become  less  frequent.  Passive  deleveraging  is  becoming  more  limited  reflecting  the  further 
slowdown  in  nominal  GDP  growth  driven  by  falling  inflation  while  real  GDP  growth  remains  low 
(Graph 3.24.b). As a consequence, budgetary positions are expected to be more determinant for the 
evolution of government debt ratios than they have been in recent years. In several cases, primary 
fiscal deficits are expected mostly to decrease but to remain sizeable. Whereas some of the most 
indebted  countries  with  budgetary  surpluses  or  close-to-balance  positions  should  continue  to 
deleverage, countries with higher deficits are forecast to display rising debt-to-GDP ratios, as the 
growth-interest rate differential becomes less favourable. Debt-increasing stock-flow adjustments 
are expected to be relevant in various cases too. Overall, in 2025, debt ratios are forecast to stay 
above their  2019  pre-pandemic levels  in most  of the  euro  area  and  the  EU, sometimes by  more 
than  10 percentage points; in some cases, debt ratios are expected to be even above their 2020 
readings.  

Graph 3.23: Government debt 

Countries are ranked in decreasing order of the government debt (in % of GDP) in 2023. EU and euro area aggregates for 
government  debt  are  presented  on  a  non-consolidated  basis  (i.e.  not  corrected  for  intergovernmental  loans,  including 
those made through the European Financial Stability Facility). 
Source: Eurostat and European Commission forecasts.  

58 

050100150200ELITFRESBEPTATFICYHUSIDEHRSKPLROMTNLLVIECZLTDKSELUBGEEEAEU% of GDP2019202020232024f2025f     
 
Graph 3.24: Drivers of the evolution of the government debt-to-GDP ratio 

3. Imbalances, risks and adjustment: main developments 

Source: Eurostat and European Commission forecasts and calculations. 

Financing  conditions  for  euro  area  governments  remained  broadly  stable  in  2023,  but 
eased  for some  higher debt  countries.  Following  tighter  monetary  conditions,  sovereign  bond 
yields  on  long-term  debt  had  increased  across  the  euro  area  in  2022  from  very  low  or  even 
negative levels. In 2023, spreads declined for several of the highest debt cases, while declining less 
or  remaining  broadly  stable  in  most  other  cases.  In  the  course  of  2024,  there  has  been  some 
volatility,  in  particular  around  June.  However,  that  volatility  appears  to  have  been  mostly  short 
lived,  such  that  yields  and  spreads  vis-à-vis  the  best  rated  euro  area  sovereign  debt,  have  not 
changed much for most euro area members since late 2023, even if declining somewhat in recent 
months,  though  not  for  all  countries.  Nonetheless,  yields  are  clearly  higher  than  before  2022 
(Graph 3.25.c). 

For a number of EU countries outside the euro area, interest rates on government bonds 
receded  in  2023  before  stabilising  in  2024,  but  remain  high,  and  borrowing  in  foreign 
currencies adds to the challenges. Outside the euro area, for those countries with lower ratings 
on their sovereign debt, yields on long-term government bonds and spreads vis-à-vis the best rated 
sovereign debt of the euro area, are now below the peaks of late 2022. Nonetheless, interest rates 
have  generally  not  declined  further  in  the  course  of  2024,  and  the  costs  of  borrowing  for  these 
governments  remain  elevated  (Graph  3.25.d).  Some  of  these  countries  face  additional  risks  as 
relatively large shares of their government debt are denominated in foreign currencies. This means 
that borrowing costs may be impacted by variations in exchange rates. For the EU countries outside 
the  euro  area  with  better  sovereign  debt  ratings  or  a  currency  board  vis-à-vis  the  euro,  interest 
rates have been closely aligned with the best rated sovereign debt of the euro area. 

Interest expenditure has been rising visibly and is expected to continue to do so as debt 
is rolled over at higher rates and deficits keep rising in some cases, but easing financing 
conditions should dampen those increases. The rise in interest rates has increased the cost of 
rolling over and issuing new debt. Increased rates will be passed through to average interest rates 
and  to  interest  expenditure  only  gradually,  as  debts  are  rolled  over.  The  more  recent  easing  of 
financing conditions should limit those increases in the future though. The rise in interest spending 
is,  and  will  continue  to  be,  of  course  more  marked  in  countries  where  debt  is  rising  faster  and 
where average debt maturities are shorter. On the positive side, for some EU countries, including a 
few with high debt, interest expenditure is still below the levels of the mid-2010s (Graph 3.25.e). 

59 

-18-15-12-9-6-30369FIEEROLUPLLVBEBGATIECZHUDKLTFRSKMTDESENLITSIESHRCYELPTEAEUppsa) 2023Primary balanceInterest expenditureReal GDP growth effectInflation/GDP deflator effectStock flow adjustmentTotal change in debt ratio-18-15-12-9-6-30369FIPLROLVEEFRSKMTLUITBGSEHUATCZLTBEDESIIENLPTDKESHRCYELEAEUppsb) 2024fPrimary balanceInterest expenditureReal GDP growth effectInflation/GDP deflator effectStock flow adjustmentTotal change in debt ratio          
3. Imbalances, risks and adjustment: main developments 

Favourable  differentials  between  interest  rate  and  nominal  GDP  growth  have  helped 
debt deleveraging in recent years but those tailwinds are vanishing. The marked recovery 
in  GDP  in  2021  and  2022  from  the  worst  of  the  COVID-19  pandemic,  together  with  the  high 
inflation  since  2022,  has  favoured  the  reduction  of  debt-to-GDP  ratios.  Despite  their  increase, 
interest  rates  remained  well  below  nominal  GDP  growth,  easing  debt  burdens.  These  effects  are 
clearly diminishing as the interest rate-growth differentials are narrowing and may even reverse in 
coming years as inflation dynamics normalise further leading to lower nominal GDP growth, while 
average interest rates are increasing as debt is being rollover at higher rates. The ‘snowball’ effect, 
i.e. the fact that the average interest rate exceeds nominal GDP growth, might re-emerge, making 
debt deleveraging more challenging. This is particularly a concern for countries where debt is high 
and  potential  GDP  growth  low.  Those  risks  might  be  mitigated  thanks  to  longer  debt  maturities, 
stable  financing  sources,  and  by  borrowing  costs  that  are  still  below  longer-term  averages. 
Nonetheless, improving government debt sustainability should rely on sound budgetary policies and 
on effective reforms and investment that support potential economic growth.  

Borrowing needs remain significant and are increasing in several cases, risking making 
fiscal policy more dependent on financial conditions. In 2023, governments’ gross financing 
increased  in  several  EU  countries  (Graph  3.25.b).  Gross  financing  needs  are  above  the  pre-
pandemic  levels  in  most  EU  countries  and  are  not  expected  to  decline  much  this  year  and  next, 
particularly in countries where they are higher; these are typically countries marked by both high 
debt and deficit levels, and those with debt structures with low average maturity. Financing needs 
are  increasing  for  countries  with  more  limited  debt  but  continued  high  deficits.  High  financing 
needs are a risk factor, and can act as a constraint on fiscal policy, as the government’s room for 
manoeuvre is more dependent on financial conditions.  

Government  contingent  liabilities  continue  being  significant  and  reflect  risks  of 
interlinkages between corporate, banking, and government sectors. Government contingent 
liabilities  increased  significantly  after  the  outbreak  of  the  COVID-19  pandemic  due  to  the  credit 
guarantees  granted  by many  governments  to the  private  sector.  These  were principally  aimed  at 
non-financial corporations to mitigate the impact of the pandemic and of the lockdowns to contain 
it.  The  banking  sector  typically  intermediated  in  the  granting  of  those  credit  guarantees.  This 
resulted in potential feedback loops between the corporate, banking, and government sectors, and 
fiscal  costs  can  materialise  if  the  guarantees  are  called.  The  size  of  those  guarantees  has  not 
declined  in  all  countries;  in  a  few  cases  where  the  guarantees  were  already  significant,  they 
increased further in 2023. In some countries, guarantees amount to over 10% of GDP, including in 
countries with already high government debt (Graph 3.25.f). 

At country level, the following developments are worth highlighting:  

•  At the end of 2023, the government debt-to-GDP ratios were above 60% in Austria, Croatia, 
Cyprus, Finland, Germany, Hungary, Portugal, and Slovenia, and above 100% in Greece, 
Italy,  France,  Spain,  and  Belgium.  The  debt-to-GDP  ratios  decreased  in  all  these  thirteen 
Member States in 2023, except in Austria, Belgium and Finland.  

•  Government debt has been above 100% of GDP and is not forecast to decline in Italy, France, 
and Belgium. In 2023, debt declined in the case of Italy and to a lesser extent in France too, 
whereas  it  increased  in  Belgium.  In  France  and  Belgium,  debt  ratios  have  not  reduced 
substantially from their 2020 peaks. Debt is forecast to edge upwards in all three countries in 
2024 and 2025; in France, it is forecast to exceed its 2020 peak. High government deficits have 
been  recorded  and  they  are  expected  to  reach  6.2%  of  GDP  in  France,  4.6%  in  Belgium,  and 

60 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISECountries with general government gross debt (in % of GDP) above 60% in 2023 in blue 
3. Imbalances, risks and adjustment: main developments 

3.8% in Italy in 2024 and to  remain above 3% of GDP  in all  cases in 2025. The slowdown in 
GDP growth, which in these countries has been below the euro area average, is giving less relief 
to the debt ratios. Gross financing needs are sizeable for all these countries. Spreads vis-à-vis 
the  best  rated  euro  area  sovereign  debt  were  somewhat  volatile  recently,  and  increased  for 
France; for Italy, spreads have fallen from the late 2022 highs yet remain among the highest in 
the euro area. All these Member States are subject to an excessive deficit procedure (EDP) under 
the Stability and Growth Pact (SGP). 

•  Government debt has been high but falling in Greece, Spain, and Portugal against a backdrop 
of  high  GDP  growth,  and  tightened  fiscal  policy  in  the  cases  of  Greece  and  Portugal.  Greece 
continues to record the highest government debt ratio in the EU at well above 100% of GDP but 
it has been declining fast and is forecast to fall further with limited government deficits, which 
reached 1.3% of GDP in 2023. In Spain, deficits have been higher, at 3.5% of GDP last year, and 
have  prevented  a  faster  debt  reduction,  which  is  above  100%  of  GDP.  Portugal’s  government 
debt  fell  to  just  below  100%  of  GDP  in  2023,  helped  by  a  surplus  and  debt  is  forecast  to 
continue falling visibly. Gross financing needs have been sizeable for Spain but clearly lower and 
declining  for  Greece  and  Portugal.  Spreads  vis-à-vis  the  best  rated  euro  area  sovereign  debt 
have narrowed for Greece, and to a lesser extent Portugal too, but from already lower levels. 

•  Hungary, Poland, Romania, and Slovakia are marked by high government deficits, debt ratios 
that  are  edging  up,  and  high  borrowing  costs.  In  Hungary,  government  debt  is  above  60%  of 
GDP and is forecast not to recede this year or next; in the three other countries, debt is below 
60%  of  GDP  but  is  expected  to  increase  in  2024  and  2025  despite  the  high  nominal  GDP 
growth.  In these  countries,  large  government  deficits  have  been  recorded  and are  expected to 
worsen  in  2024  in  all  these  cases  bar  Hungary  as  well  as  forecast  to  continue  being  visibly 
above 3% of GDP in the future in all these countries. Debt denominated in foreign currencies is 
relevant  for  Romania,  accounting  for  just  over  50%  of  government  debt,  and  to  Hungary  and 
Poland  too  (some  30%  and  24%,  respectively).  Government  gross  financing  needs  have 
increased  recently  in  Poland,  Romania,  and  Slovakia.  Yields  on  Slovakia’s  government  bonds 
have since 2023 become among the highest in the euro area. Borrowing costs in the other cases 
have  been  stable  in  2024  after  declining  from  their  peaks  of  late  2022  yet  remaining  the 
highest in the EU. All these Member States are subject to an EDP under the SGP. 

• 

In  Austria,  Croatia,  Cyprus,  Finland,  Germany,  and  Slovenia,  government  debt  exceeds 
60%  of  GDP,  and  it  declined  in  all  these  Member  States  bar  Finland  and  to  a  lesser  extent 
Austria in 2023. Reductions of government debt-to-GDP ratios have been particularly marked in 
Cyprus  and  Croatia  against  a  backdrop  of  high  GDP  growth  since  2021.  Apart  from  Cyprus, 
where the budget balance continues to be in surplus, all these countries have had government 
deficits below 3% of GDP, in some cases hovering around that mark. In Austria and Finland, the 
deficit is expected to worsen and surpass 3% of GDP in 2024, which together with recessions in 
2023 and 2024, have been leading to those rising debt ratios, which are forecast to persist. In 
the case of Austria, the deficit is expected to remain above 3% of GDP in 2025. This November, 
the  Commission  communicated  that  it  will  consider  proposing  to  the  Council  to  open  an  EDP 
under the SGP for Austria. 

61 

3. Imbalances, risks and adjustment: main developments 

Graph 3.25: Selected graphs on the government sector 

Panels  b)  and  e):  countries  are ranked  in  decreasing order  of gross  financing needs  (panel  b)  and  government  interest 
expenditure (panel e) in 2023. Panel f): Countries are ranked in decreasing order of government guarantees / contingent 
liabilities in 2022. Panel b): the reading of EL for 2019 was 34.3% of GDP. 
Source: Eurostat and European Commission forecasts and calculations. 

62 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEEAEU020406080100120140160180-8-6-4-2024% of GDP% of GDPa) Govt balance and debt, 20230.250.751.251.752.252.75-101232021222324pps.%c) Yields in DE (lhs) and spreads vis-à-vis DE in selected EA MS (rhs)DEPTBEELESFRITSK-113579112021222324%d) Yields in selected non-EA Member States and in DEDEBGCZHUPLRO012345HUITELESPLPTBEROFRHRCYCZSIATFISKMTDELVSENLIEDKLTBGEELUEAEU% of GDPe) Govt interest expenditure2015202120232024f2025f02468101214161820FIITDEATFRHUSEDKESLUMTBEPLSIPTRONLCYHRLVEELTSKCZBGIE% of GDPf) Gov't guarantees / contingent liabilities20192020202220230510152025ITFRBEESHUATFIDEELROHRPLMTSKNLLVSICZSEDKLTLUPTBGEECYIEEAEU% of GDPb) Gross financing needs2019202220232024f2025f 
            
3. Imbalances, risks and adjustment: main developments 

3.7.  FINANCIAL SECTOR 

The EU banking sector performed well in 2023, benefitting from net interest income and 
still  low  NPLs  amid  very  muted  credit  growth.  Over  2023,  the  financial  system  was  mainly 
marked  by  the  effect  of  high  interest  rates  and  persistent  inflation.  This  led,  on  one  hand,  to  a 
significant  increase  in  interest  rate  margins.  On  the  other  hand,  this  has  further  contributed  to 
downward pressure on asset valuations, particularly for fixed-income assets and real  estate  held 
by banks and other financial institutions,  as higher interest rates reduced their present value and 
increased the cost of holding these assets The return on equity (RoE), at around 10% in 2023, was 
close to historic heights, especially for large banks or banks relying on deposit funding (55). After a 
mild decline in 2022, the Common Equity Tier 1 (CET1) ratio of EU banks increased again in 2023 
and is at record heights above 17% for large banks and slightly below 16% overall (Graph 3.26.a 
and  Graph  3.28.a).  Non-performing  loans  (NPLs)  remained  stable  around  2.3%  until  the  end  of 
2023  when  they  started  to  mildly  increase  (Graph 3.26.b),  especially  for  NFCs  in  some  Member 
States.  This  seems  to  be  to  a  large  extent  driven  by  commercial  real  estate  correction  but  also 
worsening cyclical conditions. The valuations of EU banks increased since mid-2023 as part of the 
overall equity increase in view of expected interest rate cuts. Credit growth remained subdued in 
2023 in the euro area in face of persistently high lending rates for households and NFCs  (Graph 
3.28.c,  d)  and tight  credit conditions.  Household  and  corporate  credit  remained  rather  dynamic  in 
some  non-EA  countries  (56).  According  to  the  Bank  Lending  Survey  of  the  euro  area,  lending 
standards  for  both  households  and  enterprises  tightened  in  2023  amid  a  notable  decline  in  the 
demand for loans from both households and firms amid high interest rates (57).  

The  significant  increase  in  banking  profitability  in  2023  was  driven  mainly  by  the 
increase  in  the  interest  rate  margin.  EU  banks’  profitability  significantly  increased  in  2023 
amid the high-interest rate environment. As a result of the monetary policy tightening that started 
in 2021 in some non-euro area countries and in July 2022 in the euro area, the increase in lending 
rates  outpaced  the  increase  in  deposit  rates  in  2023  (Graph  3.28.b).  This  is  consistent  with  the 
existing  evidence  (see  Graph  2  in  Box  Section  3.2)  suggesting  that  interest  rate  pass-through  to 
deposit rates is slower than to lending rates, and in the short-term is rather incomplete. In addition, 
recent  empirical  evidence  (58)  suggests  that  the  interest  rate  pass-through  in  the  post-pandemic 
hiking cycle was in general weaker and slower than in the past. The degree of pass-through also 
varied  considerably  across  the  EU,  even  within  the  euro  area  countries,  amid differences  in  bank 
funding  structures,  competition,  or  the  prevalence  of  fixed  versus  variable-rate  loans.  The  net 
interest  margins  were  in  general  higher  in  non-euro  area  countries,  where  monetary  tightening 
started earlier and where the banking sectors largely rely on deposit funding. Besides the interest 
rate margins, the profitability of the EU banks in 2023 was also driven by a growth in fee income, 
higher returns from hedging strategies, and lower contributions to resolution and deposit guarantee 
funds.  In  some  countries,  the  profitability  was  negatively  affected  by  government  interventions 
aimed at supporting credit provision by targeted interest rate caps borne by the banking sector and 
by windfall taxes on the banking sector.   

The  resilience  of  the  EU  banking  sector  has  continued  into  2024;  profitability  remains 
high but there are signs of asset quality deterioration. In the second quarter of 2024, the EU 

(55)  EBA Risk Dashboard, 2023-Q4. 
(56)  ECB Financial Stability Review, May 2023, EBA Risk Dashboard, 2022-Q4, April 2023. 
(57)  ECB Euro area Bank Lending Survey, First quarter of 2023, Second quarter of 2023, Third quarter of 2023.  
(58)  Robert Beyer, Ruo Chen, Claire Li, Florian Misch, Ezgi O. Ozturk, and Lev Ratnovski, 2024, “Monetary Policy Pass-Through to 

Interest Rates: Stylized Facts from 30 European Countries”, IMF WP 24/9. 

63 

 
3. Imbalances, risks and adjustment: main developments 

banking sector profitability remained high, with return on equity of large banks  at 10.9%, as loan 
loss provisions stayed low and interest rate margins  remained  wide despite  declining volumes of 
new  loans.  After  a  long  period  of  flatness,  in  mid-2023  the  euro  yield  curve  got  inverted,  (59); 
although this is commonly interpreted as sign of an expected recession, in this case it may rather 
reflect the persistent dampening impact of the previous ECB asset purchases on long-term rates. 
The banking sector also remained well capitalised with the Tier-1 Capital ratio of large EU banks at 
17.5% (60). The credit dynamics in the euro area started  to recover  marginally in the first half of 
2024  with  a  mild  decrease  in  bank  lending  rates.  Lending  standards  remained  tight  and  are 
expected to keep the credit dynamics during the whole  year very muted. Overall, the demand for 
credit from households seems to be recovering amid easing of credit standards, while recovery of 
credit  for  enterprises  is  still  to  come  as  credit  standards  have  not  started  to  ease  yet  and 
investment  activity  contracted  in  2024  (61).  The  gradual  decline  in  the  loan-to-deposit  margin  is 
expected  to  reduce  banks’  profitability  in  the  future.  NPLs  started  to  mildly  increase  in  Member 
States where they have attained low levels, whereas the outflow exceeded the inflow in countries 
with higher legacy NPLs. The share of Stage 2 loans and the number of corporate insolvencies have 
slightly increased. This is particularly the case for small firms and firms in some sectors, like real 
estate, and points to further increases in NPLs going forward.  

Graph 3.26: Banking sector: 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. The average value for the EU is unweighted by the economy size.  
Source: ECB Consolidated Banking Data and European Commission. 

High debt service costs coupled with subdued economic growth represent a challenge for 
many debtors and increase financial stability risks. A prolonged period of low growth coupled 
with higher  interest  rates can induce stress in the balance sheets of  households and  firms. Low-
income households, households with floating rates mortgages, and firms in interest-rate sensitive 
sectors  are  particularly  vulnerable.  Real  estate  firms  are  also  affected  by  the  correction  in  real 
estate markets. While this correction has so far been rather orderly in the case of residential real 
estate,  which  some  banking  systems  in  the  EU  are  significantly  exposed  to  (Graph  3.28.e),  some 
segments of commercial real estate have experienced significant corrections. This increases credit 
risks  for  some  banks  and  non-banks.  The  exposure  of  the  financial  sector  to  domestic  sovereign 

(59)  The  yield  curve  slope  is  the  difference  between  the  yield  of  long-term  and  short-terms  yield  bonds  and  is  commonly 
positive amid presence of time premium for holding assets with longer maturities. Since mid-2023, the euro area 10-year 
government bonds offer lower yields than two-year ones. 

(60)  EBA Risk Dashboard, 2024-Q2. 
(61)  European Economic Forecast (Autumn 2024), Institutional Paper, No 296, European Commission, pp. 3-4, 24-26. 

64 

ATBEBGCYCZDEDKEEESFIFRELHRHUIEITLTLULVMTNLPLPTROSESISK051015202510152025Return on equity in % (2023)CET1 ratio in % (2023)a) Profitability and capital ratiosEU(2022)EU(2023)EU(2021)012345678ELPLCYBGITESPTROHRHUATFRSKMTBESINLDEDKEELVIEFICZSELULT% of total gross debt instruments / loansCountry b) Non-performing loans2022Q22023Q22024Q2   
 
3. Imbalances, risks and adjustment: main developments 

debt  has  decreased  mildly  for  some  Member  States,  while  it  has  increased  for  others.  Several 
Member States remain subject to significant home bias (Graph 3.27) (62), which increases risks of 
feedback loops in those that are highly indebted (see Section 3.6. on government sector). Banking 
sectors  that  have  a  strong  domestic  bias  tend  to  be  more  exposed  to  changes  in  their  home 
country's fiscal and economic conditions. In mid-2024, sovereign bond pressures increased overall 
financial  market  volatility,  though  this  volatility  has  gradually  faded  away  in  the  second  half  of 
2024. 

Graph 3.27: Domestic sovereign debt (loans and bonds) holdings of banks 

(1)  Loans  vis-a-vis  domestic  general  government  reported  by  MFIs  and  holdings  of  debt  securities  issued  by  domestic 
general government reported by MFIs, divided by total assets/liabilities reported by MFIs.  
Source: ECB Balance Sheet Items. 

The non-bank financial sector is challenged by tightened financing conditions, increasing 
credit risks, and risks of disorderly asset price corrections, and is a source of risk due to 
its  interlinkages  with  the  financial  sector.  The  increasing  relevance  of  non-bank  financial 
institutions (NBFIs), which are less regulated than banks, represents a source of potential systemic 
risk (63). The investment fund sector has significantly increased in the EU over the last decade, but 
in  the  last  two  years  it  has  experienced  stagnation,  and  real  estate  investment  funds  have  even 
experienced  capital  outflows.  Unlike  the  US  funds,  the  funds  in  the  EU  have  been  closely 
interconnected with other financial institutions, including banks. In some cases, their portfolios have 
significant overlaps with other institutional investors (64). In the last year, investment funds shifted 
towards  safer  assets,  though  with  increasing  concentration  and  exposure  to  the  US (65). 
Unmitigated liquidity mismatch remains the main structural risk for open-ended investment funds 
(66)  but  assessing  this  risk  remains  challenging  due  to  the  lack  of  reliable  and  comprehensive 

(62)  The data for the euro area countries suggest that MFIs’ exposures to non-domestic sovereigns are very limited compared to 
those to domestic sovereigns. The exposure of all sovereign debt holding for the euro area aggregate is 6.5% as of 9/2024. 
(63)  In the third quarter of 2023, NBFIs accounted for roughly EUR 42.9 trillion (41% of EU’s total financial assets), while banks’ 
assets accounted for roughly EUR 38 trillion (36% of EU’s total financial assets). In May 2024, the Commission launched a 
consultation on macroprudential policies for Non-Bank Financial Intermediation. 

(64)  ESRB EU Non-bank Financial Intermediation Risk Monitor, No. 9, June 2024. 
(65)  ECB Financial Stability Review, May 2024. 
(66)  The use of open-ended investment funds has been growing in recent years, driven by investor demand for flexibility and 
liquidity. They represent over 50% of investment funds in some EU countries including France and Germany.  Open-ended 
funds  do  not  have  a  fixed  amount  of  capital,  and  the  fund's  size  can  change  as  investors  buy  and  sell  shares.  Funds 
investing to illiquid assets such as real estate or high-yield bonds are more prone to liquidity mismatch. 

65 

0510152025ROHRPLHUITCZGRESSKBGPTSIMTCYBEATLVFRDELTSEFIEEDKNLIELU% of total assets2015-122019-122023-122024-09     
 
3. Imbalances, risks and adjustment: main developments 

metrics  (67).  The  EU  insurers  remain  resilient,  with  solvency  ratios  well  above  200%;  they 
experienced  increasing  returns  in  2023  in  part  due  to  higher  interest  rates (68).  The  correction  of 
real  estate  markets  represents  a  challenge  for  some  NBFIs,  which  may  in  turn  contribute  to  a 
disorderly  market  correction.  Implied  volatility  in  equity  markets  has  been  low  in  2024,  which, 
alongside the compression of risk premia, contributed to additional  risk-taking. Crypto assets and 
their  trading  platforms  are  of  increasing  relevance for  overall  financial  stability.  Since  mid-2023, 
the crypto market has expanded, with a further boost from the spot Bitcoin exchange-traded funds 
(ETF)  approval  in  the  US  in  January  2024.  Whereas  the  size  of  the  crypto  market  and  its  link  to 
banks  remain  limited  and  as  such  does  not  pose  a  systemic  risk  yet,  there  is  an  increasing 
interconnectedness with traditional markets that requires regulatory scrutiny (69).  

The downturn of some segments of commercial real estate (CRE) market continues, with 
NPLs linked to CRE companies starting to increase.  The CRE market sentiment remains low 
globally and confidence in the EU construction sector has been declining. CRE transactions in the EU 
did  not  significantly  recover  in  2024,  after  the decline  recorded  in  the previous  two  years,  which 
was most pronounced in the non-prime office sector. A significant contributor has been the outflow 
from  investment  funds  investing  in  CRE.  The  profitability  of  CRE  firms  has  been  significantly 
hampered by a decline in rental income and increases in capital expenditure and funding costs. The 
low volume of transactions has contributed to driving down CRE prices, but also masks the extent 
of the price correction. While the overall exposure of the EU banking sector to the CRE has been far 
smaller compared to RRE (70), it has been non-negligible in some Member States, and a handful of 
EBA-supervised banks have exposure to CRE amounting to a multiple of their capital  (71). Most of 
these exposures are domestic and within the EU, with only limited exposure to the US CRE market, 
which is subject to a significant downturn amid larger size and higher vacancy rates than in the EU. 
The decline in CRE prices has been linked to net NPL inflows in 2023, though this inflow has been 
limited.  While  most  CRE  loans  have  loan-to-value  ratios  below  60%,  the  limited  liquidity  of  CRE 
investments  may  induce  significant  price  reductions  and  valuation  losses.  There  are  significant 
linkages between banks and NBFIs exposed to CRE, such as real estate investment funds, but the 
assessment  of  risks  is  still  subject  to  significant  data  gaps,  and  reliable  prices  indices  are  not 
available for some Member States. 

In  the  recent  years,  the  financial  sector  has  been  subject  to  new  risks,  whose 
quantitative  impact  is  not  easy  to  assess.  Cyber  threats  represent  an  increasing  risk  for 
financial  stability  as  financial  institutions  are  subject  to  more  frequent  cyberattacks,  with 
increasing incurred losses over the last decade (72). The rise of artificial intelligence (AI) represents 
an opportunity for the financial sector, but it has also amplified the risk of more sophisticated AI-
driven cyberattacks (73). The ESRB encourages financial institutions and authorities to improve their 
information  management  and  information-sharing  efforts  with  national  and  EU-level  crisis 

(67)  The  European  Commission  outlined  some  indicators  to  be  considered.  The  Financial  Stability  Board  (FSB)  is  working  on 
enhancing  the  toolkit  and  the  reviews  of  the  AIFMD  and  UCITS  frameworks  have  introduced  mandatory  liquidity 
management tools aimed at mitigating the risks posed by these mismatches. 
(68)  EIOPA EU Non-bank Financial Intermediation Risk Monitor, No. 9, June 2024. 
(69)  Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, 
and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 
(OJ L 150, 9.6.2023, p. 40) entered into force at the end of June 2023 and will be applicable in its entirety by the end of 
2024. 

(70)  CRE loans remain a relatively small part of banks’ loan books, accounting for only around 8% of the total loans granted by 

EU significant institutions in 2023-Q4. 

(71)  EBA supervisory data. 
(72)  IMF, GFSR, April 2024 
(73)  The  European  Central  Bank  (ECB)  conducts  a  cyber  resilience  stress  test  on  109  directly  supervised  banks  in  2024.  The 

exercise assesses how banks respond to and recover from a cyberattack, rather than their ability to prevent it. 

66 

 
3. Imbalances, risks and adjustment: main developments 

management  and  coordination  practices  in  line  with  European  and  international  standards  (74). 
Losses from natural disasters represented an increasing burden for insurance companies in 2023, 
but the share of uninsured losses related to natural disasters has increased as well. The increasing 
climate risks induce risks for other financial institutions with direct exposure to affected households 
and NFCs. Climate risks seem to be already contributing to the tightening of financing conditions in 
the  euro  area (75).  The  European  corporate  bond  market  increasingly  reflects  climate  transition 
risks,  with  a  consistently  rising  carbon  premium  since  2020.  Higher  carbon  emissions  are 
associated with higher bond yield spreads. In Europe, sustainable bonds play an important role for 
NFCs,  with  around  one-quarter  of  bonds  issued  during  2019-2023  qualifying  as  sustainable 
bonds (76).  Last  but  not  least,  an  escalation  of  geopolitical  tensions  can  lead  to  trade  and  value-
chain  disruptions,  higher  commodity  prices,  and  increased  uncertainty,  and  risk  aversion  may 
contribute to a flight-to-safety, causing volatility on financial markets.  

At country level, the following developments are worth highlighting:  

•  Financial  systems  in  Cyprus  and  Greece  have  significantly  decreased  their  vulnerabilities  in 
recent years, but concerns remain. While the NPL ratio of the banking sector decreased further 
in both countries even in 2023, risks have largely migrated to the non-bank financial sector and, 
to a lesser extent, to the government, and so still have the capacity to weigh on the economy. 
The NPL ratio of the banking sector remains above the EU average (77). The Stage 2 loans ratio 
and  forbearance  of  the  Greek  banking  sector  are  also  high.  While  the  capitalisation  of  the 
banking  sector  remained  below  the  EU  average  and  profitability  close  to  the  EU  average  in 
Greece,  both  profitability and  capitalisation increased  in  2023 in Cyprus  to  one  of  the  highest 
levels in the EU, putting the Cypriot financial sector on much stronger footing. However, its high 
exposure to commercial real estate represents a source of risk. 

•  Banks  in  Italy  and  Portugal  have  significantly  decreased  their  NPLs  in  previous  years,  but 
despite  some  progress  in  2023,  their  NPL  ratios  remains  above  the  EU  average.  While 
capitalisation is close to the EU average in the case of Portugal, it remained below it for Italy. 
Profitability  has significantly increased, approaching the EU average for both countries. Strong 
exposure  to  the  domestic  sovereign,  coupled  with  a  high  level  of  sovereign  indebtedness, 
remains a risk for banks in Italy. 

•  The banking sectors in  Germany and  France feature relatively low profitability. Both banking 
systems, particularly in Germany, have large exposures to both residential and commercial real 
estate, which are subject to correction and have been behind the marginal increase in NPLs in 
2023.  Relatively  low  capitalisation  is  also  a  feature  of  the  banking  sector  in  Spain;  while  its 
profitability is close to the EU average, the NPL ratio remains above it.  

•  Relatively  high  exposures  of  banks  to  real  estate  can  be  found  in  Luxembourg  and  the 
Netherlands,  where  banks  are  well  capitalised  and  profitable.  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, which has a very large investment funds sector that also 
features large cross-border exposures.  

(74)  ESRB Advancing macroprudential tools for cyber resilience – Operational policy tools, April 2024. 
(75)  ECB Economic Bulletin, Issue 5, July 2024. 
(76)  OECD (2024), Global Debt Report 2024: “Bond Markets in a High-Debt Environment”, OECD Publishing, Paris, EIB (2024), EIB 

Investment Report 2023/2024: Transforming for competitiveness. 

(77)  The average values for the EU mentioned in this section are unweighted by the economy size. 

67 

 
3. Imbalances, risks and adjustment: main developments 

•  The  banks  in  Denmark,  Finland  and  Sweden  have  strong  exposure  to  both  residential  and 
commercial  real  estate.  While  the  price  correction  has  slowed  down,  some  credit  quality 
deterioration is expected. However, the banks are very well capitalised. They increased their net 
interest rate income amid a large share of floating rate mortgages. At the same time, floating 
rate mortgages pose risks for the borrowing and repayment capacity of households.  Relatively 
high exposure to commercial real estate can be found also in Estonia, Latvia and Slovakia. 

•  Bulgaria,  Croatia,  Hungary,  Poland  and  Romania  still  feature  relatively  high  NPL  ratios, 
especially in Poland, and Stage 2 loans, but the banks in these countries are well capitalised and 
profitable,  notably  in  Bulgaria  and  Romania.  Bulgaria  has  also  featured  very  dynamic  credit 
growth  amid  favourable  credit  conditions,  which  have  also  contributed  to  increasing  exposure 
towards  commercial  real  estate.  Relatively  high  exposure  of  banks  to  domestic  sovereign  in 
most of these countries represents a potential source of risk. The banking sector of Austria is 
exposed to some of the former countries, but its exposure to Russia represents the most severe 
potential risk.   

68 

Graph 3.28: Selected graphs on financial sector 

3. Imbalances, risks and adjustment: main developments 

Source: Eurostat, ECB and European Commission calculations. 

69 

0510152025303540455055SEDKEESKFINLLVBEPTLTATMTCZBGPLDECYESSIITROHRHUGRIEFRLUEAEU% of total assetse) Mortgages and bank loans for house purchase, 2023Mortgage to householdsMortgage to NFCsTotal mortgageLoans for house purchase012345621222324%c) Bank interest rates -loans to corporations (new business) in selected euro area countriesDEFRITESEA02468101214161821222324%d) Bank interest rates -loans to corporations (new business) in selected non-euro area countriesBGSEPLHUCZRO-1012345192021222324%b) Interest rates and spread for HH, EAIR spread HH (outst)IR spread HH (new)IR depos HH (outst)IR depos HH (new)3M EuriborIR house cred HH2.02.12.22.32.42.52.6024681012141618222324a) Capital, profitability and asset quality ratios (%), EU significant institutions supervised by SSMStage 2 ratioCET1 ratioRoENPL ratio (rhs)   
4. COUNTRY SECTIONS 

BELGIUM 

Belgium  continues  to  be  affected  by  unfavourable  developments  related  to  cost  competitiveness 
and government debt. The growth in unit labour costs has been above the euro area average and 
Belgium has lost export market shares against other advanced economies. The government deficit 
widened,  and  government  debt  increased  further  last  year.  Household  debt  and  corporate  debt 
ratios remain high but have continued to decline and the associated macroeconomic risks appear 
limited. 

Real  GDP  growth  reached  1.3%  in  2023  and  is  forecast  at  1.1%  in  2024  and  1.2%  in  2025. 
Headline  inflation  was  well  below the euro  area  average  in  2023 (2.3% vs  5.4%)  but  rebounded 
strongly  in  2024,  driven  by  energy  base  effects  linked  to  the  phase  out  of  the  government 
measures to mitigate the impact of high energy prices (78). It is forecast to stand at 4.4% in 2024. 
Core inflation (79) was above the euro area average in 2023 and is expected to remain above it in 
2024. The unemployment rate stood at 5.5% in 2023, close to historical lows, and it is expected to 
remain broadly unchanged in 2024 and 2025. 

The  scoreboard  reading  for  Belgium  shows  that  five  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the export performance against advanced economies, unit labour costs, 
household debt, NFC debt, and government debt. Relevant developments worth highlighting: 

•  External  sustainability  indicators  remained  stable  in  2023,  with  a  slight  current  account 
deficit at 0.7% and a high but broadly stable net international investment position (NIIP). The 
current account is expected to move to a modest surplus in 2024.  

•  Cost  competitiveness  developments  reflect  the  slow  moderation  of  high  inflation  and  high 
wage  growth.  ULC  grew  more  than  in  the  euro  area  in  2023  driven  by  increases  in  nominal 
wages,  which  are  automatically  adjusted  to  the  evolution  of  past  inflation.  The  HICP-based 
REER remained stable in 2023, as nominal exchange rate appreciations were offset by positive 
outcomes  in  inflation  differentials.  Nevertheless,  it  has  appreciated  in  2024  due  to 
unfavourable  inflation  differentials.  In  parallel,  Belgium’s  export  performance  compared  with 
advanced  economies  recently  deteriorated,  dropping  by  6.0%  in  2023  on  a  3-year  average 
basis. 

•  Corporate debt remains high, but the corporate debt-to-GDP ratio has decreased considerably 
since 2016. It declined from 103.7% in 2022 to 96.4% in 2023, reaching its lowest level since 
2007.  Deleveraging  in  2023  was  exclusively  driven  by  a  reduction  in  FDI  debt,  while  debt 
excluding FDI relative to GDP increased slightly (80). Belgian NFCs’ interest coverage ratios are 

(78)  The last effect of the so-called “basic package” for electricity and natural gas disappeared from the price index in March. 

The phase out of the package will have an upward inflation up to February 2025 (see here). 

(79)  HICP inflation excluding energy, food, alcohol and tobacco. 
(80)  Distinguishing  between  FDI  and  non-FDI  debt  instruments  is  important  as  FDI  debt  differs  from  non-FDI  debt,  among 
others,  in  the  impact  it  has  on  the  debtor’s  economy.  In  2023,  in  the  EU  around  28%  of  total  NFC  debt-to-GDP  can  be 

70 

 
 
 
 
4. Country sections 

among the lowest in the euro area and fell further throughout 2023 on account of high interest 
payments  (81).  Corporate  financial  vulnerabilities  increased  during  2023,  mainly  due  to  weak 
activity and a deterioration in debt service capacity, whereas profitability indicators remained 
resilient. Despite an increase in risk, overall financial risks remain contained when compared to 
periods that severely tested corporate financial stability such as the great financial crisis, the 
sovereign debt crisis, or the COVID-19 pandemic.  

•  Household debt has declined at a moderate pace. The household debt-to-GDP ratio remains 
high but declined further in 2023, reaching 57%. This is its lowest level since 2013. The debt 
ratio is expected to decline further in 2024, while remaining above the MIP threshold of 55%. 
The  cost  of  borrowing  peaked  in  2023  at  a  relatively  moderate  level  compared  to  other  EU 
countries  and  has  been  decreasing  slowly  since  then.  Due  to  the  high  share  of  fixed  rate 
mortgages, households’ interest payments are less sensitive to changes in the interest rate. 

•  Housing  market  dynamics  remain  contained.  House  prices  are  estimated  to  be  slightly 
overvalued  by  10-15%.  However,  house  price  growth  was  moderate  in  2023,  at  2.3%,  after 
growing 6.7% and 5.5% in 2021 and 2022, respectively. The growth rate of house prices over 
the last two years was, however, below inflation (82). In 2024, the moderation continues with 
house  prices  growing  by  3.4%  in  2024-Q2,  year-on-year.  House  prices  have  been  increasing 
broadly in line with household income for several years. The market adjusted to the higher level 
of  interest  rates  since  mid-2022  through  a  significantly  lower  number  of  transactions. 
Accordingly, supply of housing is expected to be lower, as building permits decreased by 12.1% 
and 7.2% in 2022 and 2023, respectively. In terms of financial stability, in February 2024 the 
ESRB concluded that the residential real estate market in Belgium was subject to medium risks 
and the macroprudential policy mix was partially appropriate and partially sufficient to mitigate 
the situation (83). 

•  Government  debt  is  high  and  is  increasing  as  a  result  of  large  deficits.  Government  debt 
edged up to 103.1% of GDP in 2023. Despite strong nominal GDP growth since 2020, it is still 
some 6 pps. above its 2019 pre-COVID-19 level. It is forecast to increase in 2024 and 2025. 
The  government  deficit  remains  high  and  worsened  in  2023  to  4.2%  of  GDP  and  it  is  not 
forecast to improve this year or next. Gross financing needs are above  the euro area average 
on account of the high debt and deficits. The average maturity is among the highest in the euro 
area,  which  slows  down  the  pass-through  of  higher  interest  rates  into  the  rapidly  increasing 
interest payments. Yields on Belgian sovereign bonds have been  overall  stable in comparison 
with the best rated euro area sovereign debt. An excessive deficit procedure has been opened 
for Belgium this July. Fiscal sustainability risks are high both in the medium and long term (84). 

•  The  financial  sector  remains  sound.  In  2023,  the  Common  Equity  Tier  1  capital  ratio  was 
close to the EU average, profitability increased, and the NPL ratio remained low. Stage 2 loans 
significantly  declined  in  2023  but  remain  high.  Credit  dynamics  slowed  down  significantly  in 
2023 following a tightening of financial conditions and credit growth remains muted in 2024.  

attributed to FDI, but the importance of FDI debt across the EU varies considerably ranging from below 10% in Greece to 
close to or above 50% in Ireland or Romania. 

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

(82)  Measured as the private consumption deflator. 
(83)  ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(84)  Estimated based on the Commission’s 2024 spring forecast. 

71 

 
Graph 4.1: Selected graphs: Belgium 

4. Country sections 

(1) (b): Consolidated debt, including loans and debt securities.  
Source: Eurostat and European Commission forecasts and calculations. 

Table 4.1:  Key economic and financial indicators, Belgium 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

72 

-6-3036912131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU270501001502002503003501011121314151617181920212223% of GDPb) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sectoraverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)1.91.31.11.2GDP deflator (1 year % change)1.94.52.72.4Harmonised index of consumer prices (1 year % change)1.92.34.42.9External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%0.3-0.1 -0.6 -0.1 Current account balance, balance of payments (% of GDP)0.5 (1)1.5 (2)0.0-0.7 0.3 0.2 Net international investment position (% of GDP)-35%-86.1 (3)14.5 (4)45.951.5 61.7 60.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP)38.931.3 Net lending-borrowing (% of GDP)0.1-0.5 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)3.215.8 p15.8 12.4 Nominal unit labour cost index per hour worked (1 year % change)1.57.6 p2.3 2.1 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)3.60.0 -0.3 -1.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.9-0.4 1.7 0.7 Export performance against advanced economies (3y % change)-3%1.2-6.0 -10.8 -6.1 Export performance against advanced economies (1 year % change)0.1-4.9 -2.2 0.4 Core inflation(5) differential vis-à-vis the euro area (pps.)0.41.0 0.5 0.0 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%64.3 (6)47.8 (7)122.896.4 p92.7 89.6 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%-0.43.2 -1.4 0.3 Cost of borrowing for corporations1.64.75.1Households and housing marketHousehold debt, consolidated (% of GDP)+55%46.6 (6)57.3 (7)59.657.1 p56.3 55.9 Household debt, consolidated (% of Households' GDI)81.276.3 77.3 78.7 Household credit flow, consolidated (% debt stock t-1)+14%5.32.3 2.4 3.0 House price index, nominal (1 year % change)+9%3.42.3 2.7 2.0 House prices over/undervaluation gap (8)11.013.5Building permits (m2 per 1000 inh)788.5670.3 pCost of borrowing for households for house purchase1.93.63.5GovernmentGeneral government gross debt (% of GDP)60%100.0103.1 103.4 105.1 General government balance (% of GDP)-1.3-4.2-4.6-4.9Banking sectorReturn on equity of banks (%)8.511.4 pTier-1 capital ratio banking sector (% risk-weighted assets)16.717.9 pGross non-performing loans, domestic and foreign entities (% gross loans)2.41.6 p1.6 Labour marketUnemployment rate (% labour force Y15-74)+10%5.6 (9)6.25.5 5.6 5.7 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.82.1 0.9 0.5            
 
 
     
 
4. Country sections 

BULGARIA 

In Bulgaria, wage pressures continue to weigh on the country’s cost competitiveness, house prices 
grow strongly after some moderation in 2023, and the associated macroeconomic risks appear to 
have increased. In 2023, the core inflation differential vis-à-vis the euro area stood at 4 pps., and 
nominal  unit  labour  costs  increased  strongly.  While  both  core  and  headline  inflation  have  come 
down to the euro area averages in recent months, unit labour cost growth is expected to remain 
rather elevated in both 2024 and 2025. House prices and credit flows to households continue to 
increase strongly and house prices show signs of overvaluation.  

Real  GDP  growth  reached  1.9%  in  2023  and  is  forecast  at  2.4%  in  2024  and  2.9%  in  2025.  At 
respectively, 8.6% and 8.9%, both headline inflation and core inflation were well above the EU (and 
euro  area)  averages in  2023,  but  they  have continued  to  ease  since the  beginning  of  2024,  and 
core inflation is expected to average close to 3% in 2024. The unemployment rate stood close to 
historical  lows  in  2023,  at  4.3%.  It  is  expected  to  remain  unchanged  in  2024  and  to  decrease 
slightly in 2025. 

The  scoreboard  reading  for  Bulgaria  shows  that  three  indicators  were  beyond  their  indicative 
thresholds  in  2023,  namely  unit  labour  costs,  house  prices,  and  household  credit  flows.  Relevant 
developments worth highlighting: 

•  External sector indicators remain close to balance, as the current account deficit moved to a 
surplus  of  0.9%  of  GDP  in  2023  and  is  forecast  to  remain  in  surplus  in  2024;  the  slightly 
negative net international investment position continued to narrow. 

•  Cost competitiveness concerns persist and years of strong wage increases sustain domestic 
cost pressures. In 2022 and 2023, both headline and core inflation were among the highest in 
the  EU.  Services  inflation  has  been  particularly  high,  with  important  contributions  from 
restaurants  and  passenger  transport.  Last  year,  REER  appreciated  strongly,  mainly  due  to 
nominal exchange rate appreciations on the back of the euro peg. By mid-2024, it stabilised on 
account of positive developments in inflation differentials, which offset the still high nominal 
exchange rate appreciation. In 2023, ULC continued to grow strongly (+11%), pushed by strong 
wage increases, thereby building on years of strong  appreciations. Wage increases have been 
strong across the board, with recent above-average increases in public sector wages and with a 
marked minimum wage rise in 2024. Employment has grown only in the services sector, while 
headcounts in manufacturing have declined.  

•  Despite  strong  credit  growth  of  8.5%,  corporate  debt  fell  slightly  to  48  percent  of  GDP  in 
2023,  due  to  the  impact  of  GDP  growth  on  the  denominator  of  the  debt  ratio.  Although 
corporate debt  has been declining continuously since 2013 and is below the MIP threshold, it 
remains elevated relative to that of Bulgaria’s peers.  In line with the general trend in the EU, 
reductions in  FDI  debt  contributed  considerably  to deleveraging.  The  share  of  corporate  NPLs 
decreased  further  but  was  above  5%  of  total  loans  and  advances  in  2023  and  among  the 
highest in the EU. Unit profit growth turned  negative in the second half of 2023 but showed 
first  signs  of  recovery  at  the  beginning  of  2024.  Real  investment  growth  has  held  up 
comparatively well in 2023 but started to decline by the end of the year and turned negative in 
the  second  quarter  of  2024.  Bulgarian  firms  are  among  the  least  innovative  in  the  EU 
according to the EIB investment survey (85). 

(85)  EIB Investment Survey 2023: European Union overview. 

73 

 
4. Country sections 

•  Household debt levels remain contained so far but credit growth is dynamic. The household 
debt-to-GDP ratio remains low, at 24%. The cost of borrowing has hardly increased in Bulgaria 
in  recent  years  but  virtually  all  loans,  including  for  house  purchases,  have  variable  interest 
rates.  Credit  flows  remain  high  (16%  of the previous  year’s  debt  stock)  and  stand  above  the 
MIP  threshold  of  14%  since  2021.  As  a  result,  Bulgaria’s  household  debt  ratio  is  expected to 
increase in 2024. Non-performing loans kept decreasing in 2023 and make up around 3% of 
all household loans. 

•  Housing  market  dynamics  have  not  abated  and  continue  to  be  a  concern.  House  prices  are 
estimated  to  be  slightly  overvalued  by  around  10-15%  but  grew  by  9.9%  in  2023,  after 
growing 8.7% and 13.8% in 2021 and 2022 respectively. In 2024, house prices show signs of 
acceleration, growing  by  15.1%  year-on-year  in  2024-Q2.  However,  since  2008,  house  prices 
have  grown  significantly  less  than  household  income.  In  2023,  mortgages  grew  by  20.5%, 
while  still at a low level, at 10.8% of GDP in 2023. Also the share of population (1.8%)  with 
mortgage is very low. Average mortgage interest rates dropped in the last years from around 
10%  in  2008  to  2.5%  in  2022  and  stabilised  in  2023  at  around  2.6%.  Both  the  number  of 
housing  transactions  and  building  permits  decreased  marginally  in  2023  but  have  edged  up 
since late 2023. In terms of financial stability, in February 2024, the ESRB concluded that the 
residential real estate market in Bulgaria was subject to medium risks and the macroprudential 
policy mix was partially appropriate and partially sufficient to mitigate the situation (86). 

•  Government debt remains low. It was at below 23% of GDP in 2023 and is forecast to edge 
up  only  somewhat  in  2024.  Fiscal  deficits  are  relatively  contained,  although  forecast  to 
approach 3% of GDP in 2024 and 2025, and gross financing needs are low. Yields on Bulgarian 
sovereign bonds, and spreads vis-à-vis the best rated sovereign debt, have been stable. Most of 
the government debt is in foreign currency, but the solid currency board and low indebtedness 
limit risks of exchange rate volatility on the government debt service.  

•  Financial  sector  developments  remain  moderate  although  credit  growth  remains  strong.  In 
2023, the Common Equity Tier 1 capital ratio and return on equity have been well above the EU 
average,  with  profitability  significantly  improving  in  2023.  The  non-performing  loans  ratio 
stagnated around 3% in 2023, and remains above the EU average. Stage 2 loans and forborne 
loans  are  high.  Credit  growth  has  been  strong  amid  favourable  credit  conditions,  which 
gradually  contributed  to  higher  exposure  towards  commercial  real  estate.  Borrower-based 
macroprudential  measures  have  been  introduced  in  2024  but  do  not  appear  particularly 
tight (87). 

(86)  ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(87)  Measures include requirements on loan-to-value ratio of 85%, debt service to income of 50% and a maximum maturity of 

30 years. 

74 

 
Graph 4.2: Selected graphs: Bulgaria 

4. Country sections 

Source: Eurostat, ECB and European Commission forecasts and calculations. 

Table 4.2:  Key economic and financial indicators, Bulgaria 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024) 

75 

-10-5051015131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27050100150200250-20-1001020304009111315171921232015=100Rate of change y-o-y (%)b) House price (2015 = 100) 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 axisaverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)3.01.92.42.9GDP deflator (1 year % change)4.88.04.82.3Harmonised index of consumer prices (1 year % change)2.18.62.52.3External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%2.1-0.9 -0.5 0.3 Current account balance, balance of payments (% of GDP)-0.7 (1)-2.3 (2)1.90.9 0.3 -0.2 Net international investment position (% of GDP)-35%-44.4 (3)-22.4 (4)-37.3-6.8 -3.2 -0.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP)36.046.0 Net lending-borrowing (% of GDP)3.02.4 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)18.526.9 36.6 33.3 Nominal unit labour cost index per hour worked (1 year % change)6.011.0 11.3 7.9 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)1.98.5 5.3 1.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.65.4 -0.3 -0.1 Export performance against advanced economies (3y % change)-3%10.315.4 5.2 -3.6 Export performance against advanced economies (1 year % change)2.9-1.0 -1.1 1.2 Core inflation(5) differential vis-à-vis the euro area (pps.)0.14.0 0.1 0.0 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%102.9 (6)51.1 (7)72.248.3 46.1 46.1 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%3.38.5 6.8 5.4 Cost of borrowing for corporations3.74.04.3Households and housing marketHousehold debt, consolidated (% of GDP)+55%85.3 (6)24.4 (7)22.923.5 26.2 30.1 Household debt, consolidated (% of Households' GDI)Household credit flow, consolidated (% debt stock t-1)+14%10.016.3 19.3 21.1 House price index, nominal (1 year % change)+9%7.19.9 16.0 8.0 House prices over/undervaluation gap (8)-7.98.9Building permits (m2 per 1000 inh)587.4833.0 Cost of borrowing for households for house purchase3.42.62.5GovernmentGeneral government gross debt (% of GDP)60%22.422.9 24.5 23.1 General government balance (% of GDP)1.8-2.0-2.6-2.8Banking sectorReturn on equity of banks (%)11.116.3 pTier-1 capital ratio banking sector (% risk-weighted assets)19.720.9 pGross non-performing loans, domestic and foreign entities (% gross loans)8.12.9 p3.1 Labour marketUnemployment rate (% labour force Y15-74)+10%4.3 (9)6.24.3 4.3 4.0 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp3.21.3 2.7 1.6        
 
 
           
 
4. Country sections 

CZECHIA 

In Czechia, inflationary pressures weighed on economic activity and cost competitiveness in 2023, 
but  developments  in  2024  have  been  more  favourable.  In  2023,  unit  labour  costs  increased 
strongly,  driven  by  nominal  wages  amid  a  tight  labour  market  and  low  productivity  growth,  but 
Czechia  gained  export  market  shares  against  advanced  economies.  The  core  inflation  differential 
vis-à-vis the euro area was still above 4 pps. in 2023 but it closed in 2024, while Czechia’s REER 
depreciated. House price growth has exceeded income growth in recent years. 

Real GDP stagnated in 2023 (-0.1%) and is forecast to grow by 1.0% in 2024 and 2.4% in 2025. In 
2023, both average headline and core inflation were among the highest in the EU, at 12.0% and 
9.3% respectively. Headline inflation stabilised in 2024 and is expected to average 2.7% but core 
inflation  remains  close  to  4%.  The  unemployment  rate  increased  slightly  to  2.6%  in  2023,  the 
lowest level in the EU. It is expected to remain under 3% in 2024 and 2025. 

The  scoreboard  reading  for  Czechia  shows  that  two  indicators  were  beyond  their  indicative 
thresholds  in  2023,  namely  the  real  effective  exchange  rate,  and  unit  labour  costs.  Relevant 
developments worth highlighting: 

•  The  external  sector  is  strengthening.  In  2023,  the  current  account  balance  turned  to  a 
modest surplus from a deficit of almost 5% in 2022, owing to an increase in the trade in goods 
balance as domestic demand slowed. A somewhat larger surplus is also expected in 2024. The 
net international investment position (NIIP) moderated from -20.2% in 2022 to -13.4% of GDP 
in 2023 and is expected to further increase in 2024. 

•  Cost competitiveness concerns persist  following two years of strong inflationary pressures. 
In 2023, core inflation was 4.4 pps. above the euro area value, but the differential decreased to 
1.1 pps.  by  September  2024.  Last  year,  the  REER  appreciated  strongly,  due  to  both  nominal 
exchange  rate  appreciation  and  high  inflation  rate  differentials.  This  had  partly  corrected  by 
mid-2024 due to  a strong  koruna  depreciation. On  the  back  of  high inflation, nominal  wages 
grew strongly in 2023 but declined in real terms. ULCs increased by close to 7%, as productivity 
growth turned negative on account of subdued economic activity. The previously high unit profit 
growth  fell  sharply  in  2023,  flattening  at  the  beginning  of  2024.  Declining  inflation  and  the 
estimated  recovery  in  economic  activity  are  expected  to  alleviate  some  of  the  cost 
competitiveness pressure going forward. 

•  Corporate  debt  deleveraging  continued  in  2023  as  credit  growth  slowed.  Corporate  debt 
declined to 42% of GDP in 2023, reaching its lowest level since 2005. Reductions in FDI debt 
contributed  considerably  to  deleveraging.  Credit  growth  fell  markedly  from  over  13%  of  the 
loan  stock  in  2022  to  slightly  below  1%  in  2023.  The  interest  burden  has  already  started  to 
decline somewhat from its peak in the first half of 2023 in line with declining borrowing costs.  

•  Despite steady credit growth, household debt remains low and continued to decline, reaching 
31%  of  GDP  in  2023.  The  cost  of  borrowing  peaked  at  5.5%  in  August  2023  and  has  been 
gradually decreasing since then. A large proportion of mortgage loans have interest rates that 
are  fixed  for  five  years  or  more,  so  the  impact  of  the  rise  in  borrowing  costs  on  household 
budgets  remains  limited  (88).  Gross  household  savings  are  high  and  markedly  above  pre-
pandemic levels. 

(88)  Source: How client interest rates on loans and deposits have changed over the last two years - Czech National Bank 

76 

 
4. Country sections 

•  House prices remain a source of concern. After a decade of very fast growth, including growth 
of 19.7% and 16.9% in 2021 and 2022, respectively, house prices decreased by 1.7% in 2023, 
adjusting to the higher interest rate environment. As of the end of 2023, they were estimated 
to  be  overvalued  by  around  20-25%.  Recent  data  signals  that  the  price  adjustment  may  be 
over  as  house  prices  increased  by  4.2%  in  2024-Q2,  year-on-year.  Since  2015,  house  prices 
have grown by 111.7%, and by 20 pps. more than households’ income, with possible structural 
implications  for  the  domestic  economy.  With  the  increase  of  mortgage  rates,  from  2.3%  in 
2021  to  5.4%  in  2023,  mortgage  credit  moderated,  and  the  value  of  house  transactions 
decreased by 13.9% in 2022 and stabilized at a low level in 2023. Building permits decreased 
by 7.1% and 16.3% in 2022 and 2023, respectively. In terms of financial stability, in February 
2024,  the  ESRB  concluded  that  the  residential  real  estate  market  in  Czechia  was  subject  to 
medium  risks  and  the  macroprudential  policy  mix  was  appropriate  and  sufficient  to  mitigate 
the situation (89). 

•  Government debt remains limited even if increasing. Government debt was broadly stable at 
42.4% of GDP in 2023, which is some 13 pps. above its 2019 pre-COVID-19 level. It is forecast 
to increase somewhat further in 2024 and 2025. The government deficit increased to 3.8% of 
GDP in 2023 but is expected  to decline below 3% in 2024. Gross financing needs have been 
below the EU average and declined significantly in 2023. Yields on Czech sovereign bonds have 
been stable compared with the best rated sovereign debt.  

•  The  financial  sector  remains  sound,  as  the  banking  sector  remained  well  capitalised,  and 
increased  its  profitability  to  above  the  EU  average.  The  non-performing  loans  ratio  remains 
very  low.  Credit  stagnated  in  2023  after  a  significant  decline  in  2022.  This  is  linked  to  the 
house price correction, which seems to be coming to an end, as well as deleveraging from the 
corporate side. 

Graph 4.3: Selected graphs: Czechia 

Source: Eurostat and European Commission forecasts and calculations. 

(89)  ESRB  (2024):  ““Follow-up  report  on  vulnerabilities  in  the  residential  real  estate  sectors  of  the  EEA  countries,  February 

2024”.”. 

77 

-40-2002040600406081012141618202224% deviation of current priceb) Overvaluation gapModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap-8-6-4-2024681012101112131415161718192021222324f25f26fRate of change y-o-y (%)a) Decomposition of REERNEER IC-42Relative HICP (-)REER (HICP) IC-42REER (ULC) IC-37       
 
 
Table 4.3:  Key economic and financial indicators, Czechia 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024) 

78 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)3.9-0.11.02.4GDP deflator (1 year % change)2.88.24.02.4Harmonised index of consumer prices (1 year % change)2.312.02.72.4External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%1.1-2.1 -0.7 1.3 Current account balance, balance of payments (% of GDP)0.7 (1)-2.1 (2)0.70.3 2.2 1.3 Net international investment position (% of GDP)-35%-66.3 (3)6.8 (4)-22.8-13.4 -8.2 -3.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP)27.728.6 Net lending-borrowing (% of GDP)1.41.5 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)11.817.2 19.3 18.2 Nominal unit labour cost index per hour worked (1 year % change)4.67.4 5.5 4.3 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)8.524.2 12.9 2.0 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)2.910.1 -4.7 -0.5 Export performance against advanced economies (3y % change)-3%4.20.8 -1.1 5.2 Export performance against advanced economies (1 year % change)0.96.8 -2.3 2.3 Core inflation(5) differential vis-à-vis the euro area (pps.)0.94.4 1.3 0.6 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%72.8 (6)61.1 (7)48.441.8 40.7 40.5 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%7.20.6 4.1 4.2 Cost of borrowing for corporations2.78.57.0Households and housing marketHousehold debt, consolidated (% of GDP)+55%51.4 (6)46.6 (7)31.231.0 30.7 31.0 Household debt, consolidated (% of Households' GDI)48.244.3 45.7 47.3 Household credit flow, consolidated (% debt stock t-1)+14%7.24.9 5.3 5.9 House price index, nominal (1 year % change)+9%9.8-1.7 4.1 3.0 House prices over/undervaluation gap (8)0.223.0Building permits (m2 per 1000 inh)366.4339.2 Cost of borrowing for households for house purchase2.65.45.1GovernmentGeneral government gross debt (% of GDP)60%31.742.4 43.4 44.4 General government balance (% of GDP)0.9-3.8-2.5-2.3Banking sectorReturn on equity of banks (%)13.413.7 pTier-1 capital ratio banking sector (% risk-weighted assets)18.219.5 pGross non-performing loans, domestic and foreign entities (% gross loans)2.21.2 p1.2 Labour marketUnemployment rate (% labour force Y15-74)+10%2.5 (9)2.42.6 2.6 2.7 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp2.20.7 1.0 0.9  
          
 
4. Country sections 

DENMARK 

Denmark’s  current  account  surplus  remains  elevated,  and  household  and corporate debt  are  very 
high,  but  associated  macroeconomic  risks  appear  limited.  The  current  account  surplus  stood  at 
9.8%  in  2023  and  is  forecast  to  remain  high  in  2024  and  2025.  Despite  a  rebound  in  2023, 
household debt has decreased over the past years, and the risks associated with the prevalence of 
variable interest rates have not materialised. House prices moderated in 2023 but still show signs 
of overvaluation.  

Real GDP growth reached 2.5% in 2023 and is forecast at 2.4% in 2024 and 2.5% in 2025. Both 
headline inflation and core inflation eased markedly in 2023 and were among the lowest in the EU, 
at  3.4%  and  4.6%,  respectively.  Both  have  remained  low  in  2024,  with  core  inflation  forecast  to 
stand below 2% in 2024 and 2025. The unemployment rate stood at 5.1% in 2023 and is expected 
to remain stable (90).  

The  scoreboard  reading  for  Denmark  shows  that  three  indicators  were  beyond  their  indicative 
thresholds in 2023, namely  the current account balance, household debt, and NFC debt. Relevant 
developments worth highlighting: 

•  External  sustainability  concerns  related  to  the  high  current  account  surplus  remain. 
Denmark’s current account surplus decreased from 11.7% of GDP in 2022 to  9.8% of GDP in 
2023. The success of the pharmaceutical industry  has resulted in  Denmark displaying one of 
the  highest  current  account  surpluses  in  the  EU.  The  surplus  continues  to  reflect  a  high 
discrepancy between savings and investment in all three sectors of the economy, households, 
corporations,  and  the  government,  far  exceeding  the 
levels  explained  by  economic 
fundamentals  and  remaining  beyond  the  indicative  upper  scoreboard  threshold.  The  current 
account surplus is forecast to increase further in 2024 and remain above 10% of GDP in 2025, 
contributing to a further increase in Denmark’s positive net international investment position.  

•  Cost  competitiveness  developments  reflect  low  inflation  and  high  productivity  growth.  In 
2023, average headline inflation and core inflation rates were among the lowest in the EU and 
remained so throughout the first half of 2024. Last year, REER appreciated slightly as nominal 
appreciation  was  not  fully  offset  by  favourable inflation  differentials  but  remained  stable by 
mid-2024. ULC growth was close to 2% in 2023, as nominal wage growth was partly offset by 
relatively strong productivity gains.  

•  Corporate  debt  concerns  remain  in view  of  a  rise in  the  debt  ratio  and  an  increase  in  debt 
servicing costs. The non-financial corporates’ debt-to-GDP ratio rose by 6 pps to reach 109% in 
2023. Denmark was one of two EU countries recording an increase in debt relative to GDP. This 
rise was driven exclusively by debt excl. FDI, while FDI debt in %  of GDP declined, and can be 
attributed  predominantly  to  a  strong  increase  in  debt  securities.  Credit  growth  declined 
somewhat compared to 2021 and 2022, but remained relatively strong, at above 3%. Denmark 
has  one  of  the lowest  interest  coverage  ratios  in  the  EU,  which  fell  further  in  2023  as gross 
operating surpluses declined while interest expenses soared. Borrowing costs remain high but 
have  declined  somewhat  since  the  beginning  of  2024.  Unit  profit  growth  turned  negative  in 
2023 after falling sharply from its peak in 2022-Q3. 

(90)  However,  due  to  a  break  in  the  data  series,  the  unemployment  rate  is  expected  to  adjust  to  5.8%  (source:  Statistics 

Denmark) 

79 

 
4. Country sections 

•  Household  debt  concerns  relate  to  high  debt  levels.  Despite  a  strong  decline  over  recent 
years, Denmark’s household debt ratio is among the highest in the EU, both as a share of GDP 
(88% in 2023) and of gross disposable household income (140% in 2023). Household debt as 
a  share  of  GDP  has  fallen  by  over  20 pps.  since  2019,  and  a  further  marked  reduction  is 
expected  for  2024.  Interest  payments  have  risen  strongly  since  2022  because  of  higher 
interest rates and the prevalence of loans with an interest rate fixation period of less than a 
year,  which  potentially  could  distress  vulnerable  households,  although  delinquencies  have 
remained very  low  (91).  The rise in interest payments was  partially  counteracted  by increased 
receipts, reflecting Denmark’s high (aggregate) gross savings rate and a relatively swift pass-
through of monetary policy to deposit rates. As interest payments and receipts may accrue to 
different households, for some households the impact on balance sheets can still be significant. 
A  recent  study  by  Danmarks  Nationalbank  suggests  that  higher  interest  payments  have 
contributed  to  reducing  household  consumption  growth  (92).  At  the  same  time,  the  aggregate 
gross  savings  rate  of  households  increased  in  2022  to  its  highest  level  in  a  decade  and  is 
expected  to  remain  at  a  high  level  until  2026.  The  risks  related  to  the  high  household 
indebtedness  are  partly  abated  by  significant  household  assets,  despite  around  10%  of  the 
population  having  negative  net  wealth.  Among  the  population  between  18  and  39  years  old, 
this share is increased to 16-18%. 

•  Housing  market  concerns  remain  in  view  of  high  household  indebtedness.  House  prices  are 
estimated  to  be  slightly  overvalued  by  around  10%  and  decreased  by  4.2%  in  2023,  after 
increasing  by  11.7%  and  4.8%  in  2021  and  2022,  respectively.  In  2024-Q2,  house  prices 
increased by only 3.9%, year-on-year, signalling that price moderation may be over. Despite the 
recent moderation, house prices still grew 8.1 pps. more than households’ income since 2015. 
With the increase in average mortgage rates, from 1.8% in 2022 to 5.2% in 2023, mortgage 
credit moderated. After a significant decrease in house transactions in 2022, -24.8% in number 
and  -38.0%  in  value, in  2023  the  number  of  transactions  stabilised (-0.2%) while  the  values 
transacted  increased  by  22.7%.  With  building  permits  decreasing  by  10.5%  in  2022  and  a 
further  34.2%  in  2023,  implying  lower  supply  of  housing,  house  prices  moderation  may  be 
over. In terms of financial stability, in February 2024 the ESRB concluded that the residential 
real  estate  market  in  Denmark  was  subject  to  high  risks  and  the  macroprudential  policy  mix 
was  partially  appropriate  and  partially  sufficient  to  mitigate  the  situation.  On  the 
recommendation  of  the  Danish  Systemic  Risk  Council,  Denmark  activated  a  sector-specific 
buffer for credit institution exposures to real estate companies at a rate of 7 per cent effective 
from 30 June 2024 (93). 

•  Government debt remains low. It was at 33.6% of GDP in 2023 and is forecast to decrease 
further in 2024 and 2025. The budget balance is clearly in surplus and is forecast to remain so 
this year and next. Gross financing needs are low, and yields compare very well with  the best 
rated sovereign debt.  

•  The financial sector is sound as the banks are well capitalised, and the non-performing loans 
ratio  is  low.  Profitability  significantly  increased  in  2023  and  is  close  to  the  EU  average.  The 
house price correction slowed down in late 2023 but coupled with high household indebtedness 
still represents a risk for the financial sector.   

(91)  The  part  of  interest  rate  payments  not  paid  on  time  on  mortgage  bonds  stood  at  0,15%  in  2024-Q1,  unchanged  since 

2022-Q4: Få danskere har problemer med at betale deres boliglån (finansdanmark.dk) 

(92)  See Andersen et al. (2024) Effects of increases in monetary policy rates.  
(93)  ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

80 

 
Graph 4.4: Selected graphs, Denmark 

4. Country sections 

Source: Eurostat and ECB. 

Table 4.4:  Key economic and financial indicators, Denmark 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

81 

123456-10-50510151415161718192021222324%%a) Housing marketHouse price (y-o-y growth rate, lhs)Loans for house purchase (y-o-y growth rate, lhs)Interest rate (rhs)0501001502002503003501011121314151617181920212223% of GDPb) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sectoraverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)2.22.52.42.5GDP deflator (1 year % change)0.9-3.81.62.2Harmonised index of consumer prices (1 year % change)0.83.41.31.9External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%7.110.1 10.7 10.2 Current account balance, balance of payments (% of GDP)0.4 (1)2.2 (2)7.09.8 10.6 10.1 Net international investment position (% of GDP)-35%-96.9 (3)20.6 (4)59.351.3 35.8 44.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP)15.337.1 Net lending-borrowing (% of GDP)7.09.5 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)1.45.7 9.9 6.5 Nominal unit labour cost index per hour worked (1 year % change)0.81.9 2.7 1.8 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)0.2-1.0 -3.6 -3.8 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.11.8 -1.4 -0.4 Export performance against advanced economies (3y % change)-3%0.62.5 22.6 0.5 Export performance against advanced economies (1 year % change)1.1-3.5 6.9 -1.2 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.4-0.4 -1.5 -0.7 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%87.8 (6)75.7 (7)109.9108.6 106.0 104.4 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%2.54.7 4.7 3.3 Cost of borrowing for corporations1.04.44.6Households and housing marketHousehold debt, consolidated (% of GDP)+55%60.4 (6)78.0 (7)112.388.3 85.1 84.0 Household debt, consolidated (% of Households' GDI)171.1139.6 136.4 138.9 Household credit flow, consolidated (% debt stock t-1)+14%1.10.4 0.2 3.5 House price index, nominal (1 year % change)+9%3.9-4.2 2.9 3.0 House prices over/undervaluation gap (8)4.510.0Building permits (m2 per 1000 inh)688.1420.3 pCost of borrowing for households for house purchase2.15.24.8GovernmentGeneral government gross debt (% of GDP)60%39.033.6 31.0 29.3 General government balance (% of GDP)2.33.32.31.5Banking sectorReturn on equity of banks (%)9.211.7 pTier-1 capital ratio banking sector (% risk-weighted assets)19.821.0 pGross non-performing loans, domestic and foreign entities (% gross loans)2.21.3 p1.3 Labour marketUnemployment rate (% labour force Y15-74)+10%4.7 (9)5.35.1 b5.8 5.8 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp1.41.8 b2.3 1.3           
 
 
          
 
4. Country sections 

GERMANY 

Germany’s current account surplus bounced back in 2023 and continues to reflect weak domestic 
demand and muted investment amid stagnating economic activity. Cost competitiveness indicators 
show  mixed  developments  compared  to  the  euro  area  average,  with  unit  labour  costs  increasing 
slightly more in 2023, but Germany’s REER appreciating less than the euro area average.  

Real GDP declined by 0.3% in 2023 and is forecast to broadly stagnate at  -0.1% in 2024 before 
growing mildly by 0.7% in 2025. Headline inflation decreased in 2023 to 6.0% but was on average 
slightly above the euro area average. Headline inflation has continued to ease since the beginning 
of 2024, in line with developments in the rest of the euro area and is forecast to average 2.4% in 
2024.  Core  inflation  remains  more  persistent  and  is  forecast  to  average  3.2%  in  2024.  The 
unemployment rate stood at 3.1% in 2023, among the lowest rates in the EU, and is forecast to 
increase slightly in 2024-2025.  

The  scoreboard  reading  for  Germany  shows  that  three  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the export performance against advanced economies, unit labour costs, 
and government debt. Relevant developments worth highlighting: 

•  External  sustainability  concerns  relating  to  the  high  current  account  surplus  persist. 
Reflecting  the  terms  of  trade  shock  in  2022,  the  three-year  average  of  the  current  account 
balance had dipped to 5.8% of GDP in 2023, just below the scoreboard threshold of 6%. The 
current account surplus was 5.9% of GDP in 2023 and continued to widen in 2024. These levels 
exceed considerably those implied by economic fundamentals. The surplus mainly reflects weak 
domestic  demand,  which  continued  to  stagnate  at  pre-pandemic  levels  in  real  terms.  The 
weakness in demand may partially reflect fiscal consolidation, but was so far mainly driven by 
the private sector, as household saving, as a share of GDP, continued to exceed pre-pandemic 
levels  in  2022  and  2023.  In  addition,  corporations  increased  their  net  savings  markedly  in 
2023, reflecting subdued investments. Consequently, the net international investment position 
is expected to rise further and to remain among the largest globally in absolute terms.  

•  Cost competitiveness indicators display limited changes. By mid-2024, core inflation edged 
above  the  euro  area,  with  sticky  services  inflation  contributing  the  most.  Last  year,  REER 
appreciated by close to 4% on the back of nominal exchange rate gains of the euro. By mid-
2024  REER  appreciation  reduced  considerably  as  the  euro  nominal  gains  were  offset  by 
favourable inflation differentials. Despite productivity losses, ULCs continued to grow broadly in 
line with the euro area average, with an increase of around 7% in 2023, as real wages recover 
some  of  the  losses  suffered  in  recent  years.  At  the  same  time,  Germany  has  suffered  a 
significant  loss  of  export  market  shares  compared  to  advanced  economies  over  the  last  3 
years. 

•  Corporate debt deleveraging continued as credit growth was muted. In 2023, corporate debt-
to-GDP stood at 60%, down from 63% in 2022. Deleveraging was driven by a strong decline in 
loans  relative  to  GDP,  and  a  simultaneous  decrease  in  high  corporate  cash  holdings.  Credit 
growth decreased to 2.7% in 2023, in lockstep with declining corporate investment. The interest 
burden  of  German  NFCs  has  risen  considerably  since  mid-2022,  leading  to  a  decline  in  the 
interest coverage ratio. Borrowing costs remained high and the share of NPLs increased, albeit 
from  a  low  level.  Business  confidence  remains  low,  particularly  in  retail  and  industry.  As 
corporate investment is stagnating, the capital stock per worker continues to decline. 

•  Household  debt  continued  to  reduce  from  moderate  levels  as  credit  flows  contracted.  In 
2023, the household debt-to-GDP ratio decreased to 51%, below the 55% MIP threshold, and is 

82 

4. Country sections 

expected  to  decline  further  in  2024.  As  a  share  of  household  gross  disposable  income,  debt 
declined from 70% in 2022 to 66% in 2023. Net credit flows contracted strongly in 2023 and 
are  expected  to  continue  hovering  around  zero  in  2024,  reflecting  a  decline  in  residential 
investment.  The  high  savings  rate  reduces  risks  associated  with  household  debt  in  the  short 
term. Despite a marked increase in borrowing costs, net interest payments (% GDI) declined in 
2023, as interest receipts increased more than interest payments by households. 

•  House  prices  continued  to  fall  in  2023.  House  prices  declined  by  8.5%  in  2023  and  the 
correction of house prices slowed at the beginning of 2024 (-2.6% year-on-year in 2024-Q2). 
Mortgage credit flows moderated due to higher mortgage interest rates, which increased from 
1.3% in 2021 to 4.0% in 2023. At the same time, house price overvaluation declined from 20% 
in  2022  to  about  6%  in  2023.  Although  the  number  of  housing  completions  have  been 
relatively stable, the number of building permits decreased by 7.1% in 2022 and by more than 
31.1%  in  2023,  implying  lower  supply  of  housing  in  the  near  future,  acting  against  further 
correction in house prices. In terms of financial stability, in February 2024 the ESRB concluded 
that  the  residential  real  estate  market  in  Germany  was  subject  to  medium  risks  and  the 
macroprudential  policy  mix  was  partially  appropriate  and  partially  sufficient  to  mitigate  the 
situation (94). 

•  Government debt remains contained. The government debt declined to 62.9% of GDP in 2023 
and it is forecast to stay around that level in 2024 and 2025. The budget deficit is limited, was 
stable  in  2023  at  2.6%  of  GDP,  and  is  forecast  to  decrease  in  2024  and  2025.  Government 
guarantees are among the largest in the EU.  

•  The  financial  sector  remains  sound.  Non-performing  loans  and  Stage  2  loans  increased 
marginally in late 2023, especially for NFCs. The capital ratio and profitability, which improved 
in 2023, remain below the EU  average. The ongoing correction of residential and commercial 
real  estate  prices  amidst  an  increase  in  lending  rates  and  low  growth  prospects  in  2024 
represent a challenge for the financial sector, which has considerable exposure to real estate.  

Graph 4.5: Selected graphs: Germany 

Source: Eurostat and European Commission forecasts and calculations. 

(94)  ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

83 

DERoEA758085909510010511011512015161718192021222324Real gross fixed cap. fomation as % of 2019 levela) Investment (GFCF) : DE compared to all other EA Member States (excl IE)-50510152021222324% of GDP*Germany -CA 12M moving average, as % of GDPIncome balanceServices balanceOther goods balanceEnergy price impactEnergy bal in 2019 pricesCurrent account bal        
 
 
Table 4.5:  Key economic and financial indicators, Germany 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024) 

84 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)1.6-0.3-0.10.7GDP deflator (1 year % change)1.86.12.92.4Harmonised index of consumer prices (1 year % change)1.76.02.42.1External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%8.35.8 5.8 6.5 Current account balance, balance of payments (% of GDP)1.4 (1)2.8 (2)8.15.9 7.0 6.6 Net international investment position (% of GDP)-35%-83.9 (3)33.9 (4)51.770.8 75.1 78.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP)47.353.1 Net lending-borrowing (% of GDP)8.05.3 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)5.911.0 p17.3 15.3 Nominal unit labour cost index per hour worked (1 year % change)2.56.7 p5.4 2.6 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)1.91.9 -0.9 -0.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.73.8 -0.3 -0.3 Export performance against advanced economies (3y % change)-3%-1.6-7.8 -8.8 -1.2 Export performance against advanced economies (1 year % change)-1.01.9 -1.9 0.4 Core inflation(5) differential vis-à-vis the euro area (pps.)0.30.2 0.4 0.2 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%74.6 (6)75.7 (7)55.559.6 p59.2 59.8 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%5.42.7 4.3 4.1 Cost of borrowing for corporations1.64.95.3Households and housing marketHousehold debt, consolidated (% of GDP)+55%49.2 (6)53.9 (7)52.051.0 p49.9 50.1 Household debt, consolidated (% of Households' GDI)69.466.1 65.8 68.1 Household credit flow, consolidated (% debt stock t-1)+14%3.90.7 0.5 3.6 House price index, nominal (1 year % change)+9%6.2-8.5 -1.7 0.0 House prices over/undervaluation gap (8)3.66.3Building permits (m2 per 1000 inh)461.9297.8 pCost of borrowing for households for house purchase1.74.03.9GovernmentGeneral government gross debt (% of GDP)60%61.262.9 63.0 63.2 General government balance (% of GDP)1.5-2.6-2.2-2.0Banking sectorReturn on equity of banks (%)2.55.7 pTier-1 capital ratio banking sector (% risk-weighted assets)16.317.7 pGross non-performing loans, domestic and foreign entities (% gross loans)1.51.3 p1.3 Labour marketUnemployment rate (% labour force Y15-74)+10%3.2 (9)3.33.1 3.3 3.3 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp1.02.4 b1.8 1.5  
          
 
4. Country sections 

ESTONIA 

In Estonia, cost competitiveness pressures have strengthened, and the associated macroeconomic 
risks  have  increased.  Economic  activity  has  been  contracting  since  2022-Q2.  Unit  labour  costs 
increased  further  in  2023,  and  core  inflation  remains  persistently  high  despite  the  economic 
downturn. The REER continued to appreciate, reflecting the substantial increase in the price level in 
recent  years.  While  the  current  account  balance  improved  in  2023,  partly  because  of  weak 
economic demand, it remains in deficit and no improvement is forecast over the next years. House 
prices have continued to grow, albeit at a slower pace compared to 2021-2022.   

Real  GDP  contracted by  3.0%  in  2023  and  is  forecast  to  shrink  further  by  1.0%  in  2024,  before 
growing  by  1.1%  in  2025.  Both  headline  and  core  inflation  decreased  strongly  in  2023  while 
remaining among the highest in the euro area. Headline inflation has continued to ease somewhat 
since the beginning of 2024 but stayed elevated compared to the euro area average. It is forecast 
to  stand  at  3.6%  in  2024,  and  in  2025,  as  the  fiscal  consolidation  effort  comprises  several  tax 
hikes  translating  into  higher  prices.  The  unemployment  rate  increased  to  6.4%  in  2023  and  is 
forecast to increase to 7.5% in 2024.  

The  scoreboard  reading  for  Estonia  shows  that  two  indicators  were  beyond  their  indicative 
thresholds  in  2023,  namely  the  real  effective  exchange  rate,  and  unit  labour  costs.  Relevant 
developments worth highlighting: 

•  External sustainability indicators are stable, although the current account remains in deficit. 
The current account deficit moderated from 3.9% of GDP in 2022 to 1.7% in 2023, but these 
levels nonetheless mark a change from Estonia’s pre-pandemic surplus of around 1.3% of GDP 
between 2015 to 2019. From the saving-investment perspective, corporations played a central 
role,  considerably  increasing  their  savings  and  reducing  investments  in  2023  due  to  high 
geopolitical  uncertainty,  while  households  have  remained  net  borrowers  since  2021.  The  net 
international investment position (NIIP) was around -21% of GDP in 2023, mostly composed of 
direct  investment,  and  is  forecast  to  increase  in  2024.  The  NENDI,  which  excludes  non-
defaultable instruments from the NIIP, was positive. 

•  Cost  competitiveness  concerns  persist  and  the  core  inflation  differential  vis-à-vis  the  euro 
area  remains  high.  In  2023,  the  inflation  differential  stood  at  3.8 pps.,  and  it  has  remained 
sizeable,  at  2.1 pps.  in  September  2024.  The  REER  appreciated  strongly  in  2023,  due  to  the 
euro  nominal  exchange  rate  appreciation  and  high  domestic  inflation.  A  more  moderate 
appreciation continued into 2024. In 2023, nominal wage increases were strong and, along with 
negative  productivity  growth  on  account  of  the  recession,  pushed  ULCs  to  rise  by  over  15%. 
Wage  increases  are  likely  one  of  the  factors  contributing  to  sticky  core  inflation.  The 
appreciation of the real exchange rate and weak productivity growth could contribute to a loss 
in export market shares.  

•  Passive deleveraging helped to reduce corporate debt as a share of GDP. The corporate debt-
to-GDP ratio declined to 55% in 2023, reaching its lowest value in two decades. While FDI debt 
increased, debt excl.  FDI to GDP fell by around 5%. Deleveraging was driven exclusively by a 
strong decline in debt securities relative to GDP. Credit growth declined compared to 2021 and 
2022  but  remained  at  just  below  4%  in  2023  despite the  recession.  The interest  burden  has 
been increasing in Estonia in 2023. High borrowing costs together with a large share of flexible 
rates  indicate  that  corporate  interest  expenses  are  likely  to  remain  elevated  in  2024. 
Bankruptcies  picked  up  during  2023,  while  new  business  registrations  increased  more 
moderately, a common post-pandemic feature in Europe. The profit share continued to fall in 
2023, as did unit profit growth.  

85 

4. Country sections 

•  Household debt remains contained so far, despite solid credit flows. In 2023, the household 
debt-to-GDP  ratio  rose  by  0.4 pps.  to  37%  GDP,  making  Estonia  one  of  the  few  EU  Member 
States that saw the debt ratio increase in a context of high inflation. A contributing factor was 
the  drop  in  real  GDP.  Moreover,  credit  flows  remained  resilient  in  spite  of  the  high  cost  of 
borrowing, which peaked at 6.3% in October 2023, the highest level in the euro area. The debt 
ratio  is  expected  to  further  increase  slightly  in  2024.  As  with  corporates,  variable  rate  loans 
with an interest fixation period of less than one year are prevalent. While this is a risk factor 
when policy rates are rising, it should help to ease constraints in the current monetary easing 
cycle. The household savings rate remains relatively low, at 3% of household gross disposable 
income, noticeably below its 2019 level. 

•  The  housing  market  situation  reflects  continued  high  house  price  growth.  House  prices  are 
estimated to be slightly overvalued at around 10% and grew by 5.9% in 2023, after increasing 
by  15.1%  and  22.2%  in  2021  and  2022,  respectively.  In  2024-Q2,  house  prices  were  still 
growing at 6.7% year-on-year and overall they were 65% higher than in 2019. Mortgage rates 
increased from 2.7% in 2022 to 5.5% in 2023, moderating mortgage issuance slightly. Building 
permits  decreased  significantly  in  2022  and  2023,  returning  to  the  lower  level  of  2015, 
implying  lower  supply  of  housing  and  supporting  the  continuation  of  house  price  increases. 
However, the number of permits has started increasing again in 2024. As house price growth 
outpaced  income  growth,  the  price-to-income  ratio  stood  around  17%  above  the  long-term 
average in  2023,  with  possible  structural  implications  for  the domestic  economy.  In  terms  of 
financial stability, in February 2024 the ESRB concluded that the residential real estate market 
in  Estonia  was  subject  to  medium  risks  and  that  the  macroprudential  policy  mix  was 
appropriate and sufficient to mitigate the situation (95). 

•  Government debt is low despite recent increases. It was at 20.2% of GDP in 2023, although it 
is expected to increase in 2024 and 2025. The fiscal  deficit deteriorated in 2023 to 2.8% of 
GDP and is expected to come to 3% this year and next. Gross financing needs are increasing 
but remain low.  

•  The  financial  sector  remains  resilient.  Banks  display  a  very  low  non-performing  loan  ratio, 
while  capital  ratios  and  profitability  remain  above  the  EU  average.  Large  exposure  of  the 
banking sector to real estate represents a risk.  

(95)  ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

86 

 
Graph 4.6: Selected graphs for Estonia 

4. Country sections 

Source: Eurostat and European Commission calculations.  

Table 4.6:  Key economic and financial indicators, Estonia 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

87 

EEEA20-6-4-2024681012142021222324% growth year on yearData up to 2024M10 b) Core inflation year on year: Estonia compared to EA MS8010012014016010111213141516171819202122232409Q4=100a) Labour productivity, whole economyEELTLVFIEA20average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)4.3-3.0-1.01.1GDP deflator (1 year % change)4.18.15.14.0Harmonised index of consumer prices (1 year % change)3.19.13.63.6External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%1.3-3.1 -2.4 -1.4 Current account balance, balance of payments (% of GDP)-1.5 (1)-1.4 (2)1.4-1.7 -1.5 -1.0 Net international investment position (% of GDP)-35%-57.7 (3)-18.7 (4)-28.1-21.1 -12.2 -12.7 NENDI - NIIP excluding non-defaultable instruments (% of GDP)24.430.5 Net lending-borrowing (% of GDP)2.8-0.5 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)14.832.5 36.8 25.1 Nominal unit labour cost index per hour worked (1 year % change)5.315.0 5.5 3.0 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)5.615.7 14.3 5.9 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.97.2 1.1 1.4 Export performance against advanced economies (3y % change)-3%3.07.7 -7.8 -7.0 Export performance against advanced economies (1 year % change)1.8-4.2 -3.4 2.2 Core inflation(5) differential vis-à-vis the euro area (pps.)1.03.8 2.0 2.0 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%139.7 (6)61.4 (7)61.954.5 53.8 51.8 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%1.53.8 5.2 1.3 Cost of borrowing for corporations2.86.36.8Households and housing marketHousehold debt, consolidated (% of GDP)+55%130.5 (6)39.2 (7)37.936.8 37.8 38.9 Household debt, consolidated (% of Households' GDI)58.154.9 Household credit flow, consolidated (% debt stock t-1)+14%7.36.3 6.9 8.2 House price index, nominal (1 year % change)+9%6.15.9 4.0 4.0 House prices over/undervaluation gap (8)-10.17.6Building permits (m2 per 1000 inh)515.2402.7 Cost of borrowing for households for house purchase2.55.65.7GovernmentGeneral government gross debt (% of GDP)60%9.020.2 23.2 24.2 General government balance (% of GDP)-0.4-2.8-3.0-3.0Banking sectorReturn on equity of banks (%)9.118.5 pTier-1 capital ratio banking sector (% risk-weighted assets)28.821.5 pGross non-performing loans, domestic and foreign entities (% gross loans)1.61.1 p1.3 Labour marketUnemployment rate (% labour force Y15-74)+10%6.7 (9)5.26.4 7.5 7.7 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp2.32.0 2.3 0.3       
 
 
      
 
4. Country sections 

IRELAND 

In Ireland, external and private debt ratios are high, but the associated macroeconomic risks appear 
limited. Debt ratios in Ireland are affected by the statistical impact of the extensive operations of 
multinational corporations. Corporate debt-to-GDP decreased in 2023 despite strong credit growth 
and  credit  flows  to  households  were  muted.  The  current  account  surplus  remained  high  in  2023 
and the negative net international investment position improved. 

Real  GDP  declined  by  5.5%  in  2023  and  is  forecast  to  contract  further  by  0.5%  in  2024  before 
growing by 4.0% in 2025. Headline inflation decreased in line with the euro area average in 2023 
and is forecast to stand below the euro area average also in 2024, at 1.4%. Core inflation has also 
been  below  the  euro  area  average  in  2023  and  2024.  The  unemployment  rate  stood  at  4.3%  in 
2023 and is forecast to remain almost unchanged in 2024 and 2025.  

The scoreboard reading for Ireland shows that six indicators were beyond their indicative thresholds 
in 2023, namely the current account balance, the net international investment position, the export 
performance  against  advanced  economies,  unit  labour  costs,  NFC  debt,  and  NFC  credit  flows. 
Relevant developments worth highlighting: 

•  The external sector continued to strengthen. External sector data are inflated and made very 
volatile  by  activities  of  multinational  enterprises  present  in  Ireland.  In  2023,  the  current 
account  surplus  declined  from  8.8%  of  GDP  in  2022  to  8.1%  of  GDP.  The  trade  in  goods 
excluding  energy  was  the  main  contributor  to  this  change.  The  surplus  remained  beyond  the 
indicative  upper  scoreboard  threshold.  The  net  international  investment  position  (NIIP),  which 
had reached around -180% of GDP before the pandemic, increased to around -101% of GDP in 
2023.  A  further  increase  in  this  position  is  expected  in  the  coming  years,  driven  by  the 
continued current account surpluses.  

•  Cost  competitiveness  indicators  reflect  inflation  rates  below  the  euro  area  in  2023  and 
2024.  Although  Ireland  saw  strong  increases  in  ULCs  in  2023  –  and  these  continue  to  be 
sizeable in 2024 – they come after years of reductions, and in recent years the HICP-REER has 
been  depreciating,  with  the  exception  of  2023.  Export  performance  against  advanced 
economies has dropped below the scoreboard threshold in 2023, albeit after a period of very 
large  gains  that  seems  to  have  reflected  to  a  considerable  extent  the  activities  of  a  limited 
number of very large multinational enterprises.   

•  Corporate  debt  is  declining  but  remains  high.  In  2023,  the  corporate  debt-to-GDP  ratio 
continued  to  decline,  reaching  110%,  its  lowest  value  since  2005.  This  decrease  was  driven 
largely  by  a  fall  in  FDI  debt-to-GDP,  and  was,  in  contrast  to  the  EU  trend,  also  caused  by  a 
comparatively  strong  decline  in  debt  securities  relative  to  GDP.  Corporate  credit  growth, 
measured  as  credit  flows  excl.  FDI  over  lagged  debt  stock,  was  the  highest  across  the  EU  in 
2023 (96). The interest coverage ratio fell as interest expenses increased, but less than in most 
of the other EU countries. Borrowing costs remain high. Unit profit growth declined markedly in 
2023 and remained negative in the first half of 2024.   

•  After  a  period  of  strong  deleveraging,  household  debt  is  slowly  picking  up  again,  from 
moderate  levels.  In  2023,  the  household  debt-to-GDP  ratio  rose  by  more  than  1 pp.,  making 

(96)  In  Ireland,  operations  by  multinational  corporations  strongly  affect  corporate  credit  flows  and  stocks.  Even  though  Irish 
credit growth exceeded the threshold of 13% set in the MIP scoreboard, a further decomposition shows that the evolution 
of bond and loan liabilities was relatively stable.   

88 

 
4. Country sections 

Ireland one of the few EU countries that saw their debt ratio increasing in 2023. The increase 
resulted mainly from a fall in nominal GDP coinciding with an uptick in credit flows. A further 
increase in household debt is expected for 2024. As a result of the rise in borrowing costs, the 
use of mixed and flexible interest rates for loans for house purchase resurged in 2023, after a 
long  period  of  persistent  decline.  That  should  give  some  relief  to  debt  service  when  interest 
rates  go  down.  At  the  same  time,  household  savings  remain  steady  and  above  their  pre-
pandemic average. 

•  Housing  market  developments  remain  a  concern.  House  prices  grew  3.1%  in  2023,  after 
increasing 8.3% and 12.3% in 2021 and 2022, respectively. In 2024-Q2 house prices growth 
edged  to  8.4%  from  one  year  earlier.  The  house  price-to-income  ratio  remains  amongst  the 
highest  in  the  EU,  with  possible  structural  implications  for  the  domestic  economy,  including 
Ireland’s  ability  to  attract  skilled  workers.  Mortgage  credit  and  house  transactions  remained 
stable  in  2023,  even  as  mortgage  rates  increased  by  over  1  percentage  point,  further 
highlighting  the  demand  supply  imbalance.  However,  building  permits  increased  by  20.6%  in 
2023, much offsetting the decrease of 20.5% in 2022 and new housing completions continued 
to increase. This suggests that housing supply may remain dynamic and may help moderating 
the  pace  of  house  prices.  Nonetheless,  population  growth  has  been  high  and  should  add  to 
housing  demand.  In  terms  of  financial  stability,  in  February  2024  the  ESRB  concluded  that 
residential real estate market in Ireland was subject to medium risks and the macroprudential 
policy mix was appropriate and sufficient to mitigate the situation (97). 

•  Government debt remains low and continues to recede. Government debt was broadly stable 
at  43.3%  of  GDP in  2023  and is  forecast to  fal+.21/0.l  in  2024  and  2025. Government  debt 
relative  to  national  income  remains  more  significant,  at  around  85%  in  2023,  but  has  been 
declining markedly too and is expected to recede further. The government balance has been in 
surplus since 2022 and is forecast to remain so.  

•  The  resilience  of  the  large  financial  sector  is  underpinned  by  a  well-capitalised  banking 
sector. The profitability of banks (both domestic retail banks and international investment ones) 
increased in 2023 but remains below the EU average. The non-performing loans ratio remains 
low but the Stage 2 ratio is rather high, especially due to vulnerabilities in some NFC segments. 
However, it declined in 2023. Credit provision remained muted over the same period. 

(97)  ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

89 

 
Graph 4.7: Selected graphs: Ireland 

4. Country sections 

Source: ECB, Eurostat and European Commission calculations. 

Table 4.7:  Key economic and financial indicators, Ireland 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

90 

050100150200-25-20-15-10-50510152025091011121314151617181920212223242015=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 axis050100150200020406080100120140081012141618202224*% GDI% of GDP and assetsb) Leverage, HouseholdsDebt / GDP, HouseholdsDebt / fin. assets, HouseholdsDebt / gross Adj disposable income, Households (right axis)average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)7.5-5.5-0.54.0GDP deflator (1 year % change)1.93.63.32.1Harmonised index of consumer prices (1 year % change)0.65.21.41.9External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%-0.69.7 10.2 10.5 Current account balance, balance of payments (% of GDP)5.1 (1)0.4 (2)-5.18.1 13.7 9.7 Net international investment position (% of GDP)-35%-149.6 (3)27.5 (4)-180.2-101.4 -89.7 -79.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-261.0-279.2 Net lending-borrowing (% of GDP)-16.36.4 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)-6.011.9 27.0 27.9 Nominal unit labour cost index per hour worked (1 year % change)-1.116.6 7.7 1.9 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)-1.6-1.2 -2.5 -2.0 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.43.7 -1.3 -0.3 Export performance against advanced economies (3y % change)-3%23.6-9.2 -7.2 -1.3 Export performance against advanced economies (1 year % change)4.9-1.3 0.3 1.7 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.5-0.5 -0.5 -0.3 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%78.6 (6)94.6 (7)194.9109.7 111.4 102.1 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%-52.339.5 -9.4 -2.7 Cost of borrowing for corporations2.95.65.9Households and housing marketHousehold debt, consolidated (% of GDP)+55%47.8 (6)77.2 (7)47.928.9 31.4 30.7 Household debt, consolidated (% of Households' GDI)114.172.4 78.9 79.9 Household credit flow, consolidated (% debt stock t-1)+14%-2.53.7 11.5 4.0 House price index, nominal (1 year % change)+9%7.73.1 7.8 5.0 House prices over/undervaluation gap (8)-6.4-5.7Building permits (m2 per 1000 inh)819.4864.8 Cost of borrowing for households for house purchase3.03.84.1GovernmentGeneral government gross debt (% of GDP)60%60.943.3 41.6 38.3 General government balance (% of GDP)0.11.54.41.4Banking sectorReturn on equity of banks (%)4.57.6 pTier-1 capital ratio banking sector (% risk-weighted assets)23.321.8 pGross non-performing loans, domestic and foreign entities (% gross loans)6.31.3 p1.2 Labour marketUnemployment rate (% labour force Y15-74)+10%4.5 (9)5.84.3 4.4 4.4 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.76.7 3.3 1.6        
 
 
          
 
4. Country sections 

GREECE 

Vulnerabilities  related  to  the  external  position,  to  government  debt,  and  to  the  banking  sector 
remain,  although  there  are  signs  of  improvement.  In  2023,  the  net  international  investment 
position and the government debt-to-GDP ratio improved mainly due to nominal GDP growth. The 
current account deficit remained high due to relatively robust domestic demand and is forecast to 
remain  elevated.  House  prices  are  increasing  strongly.  The  share  of  non-performing  loans  in  the 
banking sector has fallen but remains high. Unemployment has decreased but remains high. 

Real GDP increased by 2.3% in 2023 and is forecast to grow by 2.1% in 2024 and 2.3% in 2025. At 
4.2%, headline inflation was lower than the euro area average in 2023 but it has been above the 
euro  area  average  since  the  beginning  of  2024  and  is  expected  to  average  3.0%  this  year.  Core 
inflation  was  also  slightly  above the euro  area  average  in  2023  and  has  been  above  it  so  far in 
2024. While decreasing to 11.1% in 2023, the unemployment rate remained among the highest in 
the EU. It is expected to decrease to below 10% by 2025.  

The  scoreboard  reading  for  Greece  shows  that  five  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the current account balance, the net international investment position, 
house  prices,  government  debt,  and  the  unemployment  rate.  Relevant  developments  worth 
highlighting: 

•  External  sustainability  concerns  remain.  The  current  account  deficit  saw  a  substantial 
decline in 2023, to 6.2% of GDP, but it remained  high and well above its pre-2020 levels  as 
well as above levels explained by economic fundamentals.  Price effects on the trade balance 
played a major role in the recent dynamics, as the trade balance in real terms has remained 
broadly  stable  since  its  sharp  decline  in  2020.  Continued  robust  investment  activity,  partly 
funded  by  the  RRF,  contributed  to  the  negative  trade  balance.  Consumption  was  also  an 
important factor behind the higher deficit despite a notable slowdown in consumer spending in 
2023. The current account deficit is set to stay sizeable in 2024. Grants and loans from the EU 
will  help  cover  part  of  external  financing  needs.  The  combination  of  substantial  net  external 
borrowing  and  an  expected  deceleration  in  nominal  growth  will  constrain  further  increases  in 
the net international investment position, which stood at approximately -140% of GDP in 2023. 

•  Cost competitiveness indicators reflect inflation that is broadly in line with the euro area. The 
core  inflation  differential  vis-à-vis  the  euro  area  decreased  lately,  reaching  0.9 pps.  in 
September  2024.  Last  year,  the  HICP-based  REER  appreciated  slightly,  as  the  nominal 
appreciation  was  only  partly  offset  by  favourable inflation  differentials.  It  remained  stable  in 
the first half of 2024. 2023 ULC growth was almost 4%, as nominal wage growth was strong 
and only partly offset by productivity gains. The ULC-based REER depreciated further in 2023 
as the wage growth was lower than that of the trade partners. Following years of improvement 
in  the labour market,  the unemployment  rate is expected to  drop  below  the  10%  scoreboard 
threshold in 2025. At the same time, unemployment remains high and the labour market faces 
skill mismatches and structural bottlenecks.  

•  Corporate  debt  developments  remained  broadly  stable.  The  corporate  debt-to-GDP  ratio 
declined  slightly  to  52%  in  2023,  while  NFC  credit  growth  was  buoyant  at  just  below  5%, 
supported by the Loan Facility under Greece’s Recovery and Resilience Plan. While the interest 
burden has risen less than in other EU  countries and borrowing costs have started  to decline 
somewhat,  average  borrowing  costs  remain  high  compared  to  historical  standards.  Thus,  the 
interest  burden  of  NFCs  is  likely  to  remain  elevated  in  the  near  term  despite  two-thirds  of 
corporate loans facing interest rate resets in 2024. The share of non-performing loans (NPLs) 
decreased further down to 6.7% in the second quarter of 2024, after averaging at above 8% of 

91 

4. Country sections 

total  loans  and  advances in  2023.  Profit  indicators deteriorated in  2023  but picked  up  again 
slightly at the beginning of 2024.  

•  Household debt  continues to decline. The household debt-to-GDP ratio decreased to 41% in 
2023,  14 pps.  below  its  pre-pandemic  level  and  below  the  EU  average.  It  is  expected  to 
continue declining in 2024. Deleveraging was particularly helped by still high inflation in 2023. 
Net credit flows have been negative over the last five years, but  are gradually  converging to 
zero. Remaining risk factors focus on the low savings rate, which has been negative over most 
of  the  last  ten  years,  and  the  still  high  proportion  of  non-performing  loans,  in  spite  of 
significant progress made over recent years.  

•  Concerns related to the housing market increased due to elevated house price growth. House 
prices  are  estimated  to  be  overvalued  by  around  20%  after  significant  increases  of  7.6%, 
11.9%, and 13.8% in 2021, 2022, and 2023, respectively. In the second quarter of 2024, house 
prices continued to increase at 9.3% year-on-year, although they remained below their 2007 
levels. House price growth has been driven by both reviving domestic and foreign demand, and 
limited  supply  due  to  years  of  subdued  construction  investment.  Since  2017,  house  price 
growth  has  exceeded  households’  income  growth  by  more  than  20 pps.  Accelerating 
construction  activity  (building  permits  grew  by  28.8%  in  2023)  may  moderate  the  pace  of 
house prices in the following years. In terms of financial stability, in February 2024 the ESRB 
concluded  that  the  residential  real  estate  market  in  Greece  was  subject  to  low  risks  and  the 
macroprudential policy mix was appropriate and sufficient (98). 

•  Government debt remains high, although it is declining. Government debt is still the highest in 
the EU, at 163.9% of GDP in 2023. It is some 15 pps. below its 2019 pre-COVID-19 level and is 
forecast  to  fall  further  in  2024  and  2025  on  account  of  strong  nominal  GDP  growth,  and 
limited  and  narrowing  budgetary  deficits.  The  government  budget  is  expected  to  continue 
declining and to get around balance next year with primary surpluses of some 3% of GDP. As 
Greece’s government debt is predominantly held by official lenders at favourable interest rates 
and  long  maturities,  interest  expenditure  is  contained  in  the  short  and  medium  term,  and 
moreover  annual  gross  financing  needs  are  limited  and  declining.  In  2023,  yields  on  Greek 
sovereign  bonds  narrowed  further  compared  with  the  best  rated  euro  area  sovereign  debt, 
helped  by  the  Greek  sovereign  debt  reacquiring  investment-grade  status.  The  fiscal 
sustainability risks are high in the medium term and low in the long term (99). 

•  The financial sector situation improved further, but some concerns remain. Whereas in 2023 
the  overall  non-performing  loans  (NPL)  ratio  of  the  banking  sector  continued  decreasing,  in 
2024  it  slightly  increased,  and  at  5.2%  in  2024-Q2  it  remained  the  highest  in  the  EU.  Risks 
have largely migrated to the non-bank financial sector and to a lesser extent to the state, and 
so still have the capacity to weigh on the economy. The share of Stage 2 loans decreased to 
the  EU  average,  whereas  the  share  of  forborne  loans  is  above  the  euro  area  average.  The 
capitalisation of the banking sector increased further, but remained below the EU average and 
profitability was close to the EU average in 2023. 

(98)  ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(99)  Estimated based on the Commission’s 2024 autumn forecast. 

92 

 
Graph 4.8: Selected graphs: Greece 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.8:  Key economic and financial indicators, Greece 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

93 

-15-10-50510152002040608010012014016018006081012141618202224Rate of change y-o-y (%)2015 = 100b) Nominal house pricesNominal house price indexNominal house price growth rate, right axis-30-20-100102016171819202122232424*25*26*% of GDPa) Current account, 4-quarter moving sumGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowingaverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)2.02.32.12.3GDP deflator (1 year % change)0.15.93.52.4Harmonised index of consumer prices (1 year % change)0.84.23.02.4External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%-1.9-7.7 -7.3 -5.8 Current account balance, balance of payments (% of GDP)-1.6 (1)-0.6 (2)-2.1-6.2 -5.4 -5.9 Net international investment position (% of GDP)-35%-47.9 (3)-49.7 (4)-147.8-139.3 -130.4 -128.1 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-131.7-110.7 Net lending-borrowing (% of GDP)-1.7-5.0 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)-3.4-1.8 p3.3 7.0 Nominal unit labour cost index per hour worked (1 year % change)-0.81.8 p3.3 1.7 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)0.5-1.2 -1.3 -1.3 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.21.7 0.3 0.1 Export performance against advanced economies (3y % change)-3%6.032.1 12.5 2.3 Export performance against advanced economies (1 year % change)4.8-0.7 3.3 1.3 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.50.4 0.5 0.2 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%45.9 (6)60.4 (7)59.052.4 p50.4 48.9 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%0.44.6 4.5 1.8 Cost of borrowing for corporations4.25.95.8Households and housing marketHousehold debt, consolidated (% of GDP)+55%26.3 (6)33.4 (7)57.440.9 p38.4 38.2 Household debt, consolidated (% of Households' GDI)75.953.1 52.7 53.7 Household credit flow, consolidated (% debt stock t-1)+14%-2.2-1.0 -0.7 4.4 House price index, nominal (1 year % change)+9%2.613.8 f10.2 6.0 House prices over/undervaluation gap (8)-8.519.6Building permits (m2 per 1000 inh)84.1260.7 pCost of borrowing for households for house purchase3.04.14.2GovernmentGeneral government gross debt (% of GDP)60%184.8163.9 153.1 146.8 General government balance (% of GDP)0.8-1.3-0.6-0.1Banking sectorReturn on equity of banks (%)-0.312.0 pTier-1 capital ratio banking sector (% risk-weighted assets)16.216.2 pGross non-performing loans, domestic and foreign entities (% gross loans)40.75.0 p5.2 Labour marketUnemployment rate (% labour force Y15-74)+10%9.3 (9)19.811.1 10.4 9.8 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.54.2 2.9 1.2           
 
 
          
 
4. Country sections 

SPAIN 

In Spain, vulnerabilities related to the external position and to the indebtedness of the private and 
public sectors are reducing. The net international investment position improved due to nominal GDP 
growth  and  current  account  surpluses,  and  the  trend  is  forecast  to  continue  in  the coming  years. 
The  REER  appreciated  only  mildly  in  2023  due  to  favourable  inflation  differentials  and  Spain 
continued  to  gain  export  market  shares  against  other  advanced  economies.  Corporate  and 
household  debt-to-GDP  ratios  decreased  further  in  2023.  Government  debt  remains  high  but  is 
forecast to decrease due to high nominal growth and narrowing deficits. Unemployment continued 
to decline but remains high.  

Real  GDP  growth  reached  2.7%  in  2023  and  is  forecast  at  3.0%  in  2024  and  2.3%  in  2025 
Headline inflation stood well below the euro area average in 2023, at 3.4%, and remained broadly 
stable in the first half of 2024, albeit above the euro area average. It is expected to stand at 2.8% 
in  2024.  At  the  same  time,  core  inflation  has  gradually  decreased  in  line  with  the  euro  area 
average. The unemployment rate decreased to 12.2% in 2023. It is forecast to decrease gradually 
to 11% in 2024-2025. 

The  scoreboard  reading  for  Spain  shows  that  four  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the net international investment position, unit labour costs, government 
debt, and the unemployment rate. Relevant developments worth highlighting: 

•  The external sector continued to strengthen, with a current account surplus at 2.7% of GDP in 
2023 and an increasing net international investment position (NIIP). The increase in the current 
account balance was primarily driven by the higher surplus attained by both tourism and non-
tourism service exports and the reduction of energy prices. The NIIP, at around -52% of GDP in 
2023, continued to experience a notable increase compared to previous years and is expected 
to further increase in 2024 and 2025. 

•  Cost competitiveness developments remain contained. In 2023, the REER remained broadly 
stable as nominal appreciations were offset by favourable inflation differentials, a trend that 
continued in mid-2024. In 2023, ULC growth was around 6%, similar to the euro area overall, 
as  nominal  wage  growth  picked  up  over  the  year  and  was  only  partly  offset  by  productivity 
gains.  The  labour  market  has  improved  in  the  past  years  and  the  unemployment  rate  has 
decreased markedly while remaining the highest in the EU. 

•  Corporate debt-to-GDP has been declining continuously over the past three years, falling to 
66% in 2023, its lowest level since 2002. The deleveraging was driven mainly by a decline in 
total  loan  debt  excluding  FDI,  with  credit  growth  remaining  negative  in  2023.  The  interest 
burden  of  Spanish  NFCs  has  increased  strongly,  leading  to  a  decline  in  the  interest  coverage 
ratio. Borrowing costs were below the euro area average in 2023 but remained high compared 
to  the  previous  decade.  Bankruptcy  procedures  picked  up  during  2023,  which  could  partly  be 
related to the implementation of a new legal framework for insolvencies, while new business 
registrations increased more moderately than in 2022. Unit profit growth fell during 2023 but 
picked up somewhat at the beginning of 2024.  

•  Household debt is on a steady downward path. The household debt-to-GDP ratio stands at a 
moderate  level,  declining  by  5 pps.  to  46%  in  2023,  and  is  expected  to  further  decrease  in 
2024. The already low net credit flows to households turned negative in 2023 but are expected 
to reverse in 2024. The use of flexible interest rates temporarily surged at the end of 2022 for 
new  loans  for  house  purchase  in  response  to  the  rising  borrowing  costs,  but  then  returned 

94 

4. Country sections 

swiftly  to  its  longer-term  downward  trend.  The  proportion  of  non-performing  loans  among 
loans given out to households remains above 3% and picked up slightly in 2023.  

•  House price growth has moderated. House prices are estimated to be slightly overvalued by 
around 10% and their growth was moderate in 2023 (4.0%, after increasing by 3.7% and 7.4% 
in  2021  and  2022,  respectively).  In  2024-Q2,  house  prices  continued  to  grow  at  a  constant 
pace, by 7.9% year-on-year. Reflecting limited housing investment, house prices have outpaced 
household income by  around  10 pps.  since  2015.  With  the  increase  in mortgage  rates,  which 
rose from 1.5% in 2021 to 3.7% in 2023, mortgage credit reduced by 3.2%, and the number of 
house  transactions  fell  by  12.5%  in  2023.  Building  permits  continued  to  increase  in  2023, 
signalling  that  supply  remains  dynamic  and  contributing  to  some  moderation  in  house  prices 
growth. In terms of financial stability, in February 2024 the ESRB concluded that the residential 
real  estate  market in  Spain  was  subject to low  risks  and  the macroprudential policy mix  was 
appropriate and sufficient (100). 

•  Government  debt  remains  high  but  has  kept  decreasing.  While  government  debt  fell  to 
105.1%  of  GDP  in  2023,  it  is  still  some  7½ pps.  above  its  2019  pre-COVID-19  level.  The 
government  debt-to-GDP  is  forecast  to  fall  further  in  2024  and  2025  on  account  of  high 
nominal GDP growth and narrowing budgetary deficits. The government deficit came in at 3.5% 
of GDP in 2023 and is forecast to decrease to 3% of GDP in 2024. Gross financing needs have 
been above the euro area average. In the course of 2024, yields on Spanish sovereign bonds 
have slightly improved in comparison with the best rated euro area sovereign debt. The fiscal 
sustainability risks are high in the medium term and medium in the long term (101).  

•  The  financial  sector  remained  resilient.  In  2023,  profitability  increased  to  approach  the  EU 
average. However, banking capitalisation remains on the low side compared to other EU peers. 
The non-performing loans ratio was stable in 2023, remaining slightly above the EU average. 
The ratio of Stage 2 loans slightly increased in 2023 but remains below the EU average. 

Graph 4.9: Selected graphs: Spain 

Source: Eurostat and European Commission forecasts and calculations. 

(100) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(101) Estimated based on the Commission’s 2024 autumn forecast. 

95 

-125-100-75-50-25025101112131415161718192021222324*% of GDPa) NIIP decompositionReserve assetsPortfolio inv, equityPortfolio inv, debtOther investmentDirect investmentFin derivatives and ESONIIPNENDI0501001502002503003501011121314151617181920212223% of GDPb) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sector               
 
 
Table 4.9:  Key economic and financial indicators, Spain 

4. Country sections 

(1) See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

96 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)2.42.73.02.3GDP deflator (1 year % change)1.36.23.12.4Harmonised index of consumer prices (1 year % change)1.53.42.82.2External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%2.51.3 2.1 3.2 Current account balance, balance of payments (% of GDP)0.8 (1)-1.0 (2)2.32.7 3.4 3.5 Net international investment position (% of GDP)-35%-61.9 (3)-15.8 (4)-78.1-51.7 -42.1 -34.6 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-51.6-23.8 Net lending-borrowing (% of GDP)2.63.7 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)2.310.0 p12.5 13.6 Nominal unit labour cost index per hour worked (1 year % change)2.16.2 p4.0 2.9 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)1.2-0.8 -2.5 -2.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.60.6 0.2 0.0 Export performance against advanced economies (3y % change)-3%2.314.0 10.8 2.8 Export performance against advanced economies (1 year % change)-0.26.3 -0.2 -0.9 Core inflation(5) differential vis-à-vis the euro area (pps.)0.1-0.8 0.0 -0.1 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%51.5 (6)47.1 (7)78.465.9 p63.1 61.0 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%0.4-3.1 1.4 1.3 Cost of borrowing for corporations1.84.54.9Households and housing marketHousehold debt, consolidated (% of GDP)+55%35.4 (6)43.8 (7)58.746.1 p43.9 42.5 Household debt, consolidated (% of Households' GDI)79.961.6 60.5 60.5 Household credit flow, consolidated (% debt stock t-1)+14%-0.1-1.9 1.1 1.4 House price index, nominal (1 year % change)+9%6.04.0 2.0 3.0 House prices over/undervaluation gap (8)0.29.1Building permits (m2 per 1000 inh)338.2299.7 psCost of borrowing for households for house purchase1.93.83.6GovernmentGeneral government gross debt (% of GDP)60%99.6105.1 102.3 101.3 General government balance (% of GDP)-2.9-3.5-3.0-2.6Banking sectorReturn on equity of banks (%)7.311.8 pTier-1 capital ratio banking sector (% risk-weighted assets)13.514.7 pGross non-performing loans, domestic and foreign entities (% gross loans)3.72.7 p2.7 Labour marketUnemployment rate (% labour force Y15-74)+10%12.5 (9)15.512.2 d11.5 11.0 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp-0.42.3 d1.0 1.0  
          
 
4. Country sections 

FRANCE 

In France, vulnerabilities related  to cost competitiveness have decreased, but government debt is 
forecast to increase due to a widening of the government deficit amid relatively weak growth. Cost 
competitiveness  improved,  and  France  gained  export  market  shares  against  other  advanced 
economies in 2023, with the growth in nominal unit labour costs and the REER appreciation being 
below  the  euro  area  averages.  After  a  small  reduction  in  2023,  government  debt  is  forecast  to 
increase in the next years.  

Real  GDP growth reached 0.9% in 2023 and is forecast  at 1.1% in 2024 and 0.8%  in 2025 (102). 
Headline inflation was slightly above the euro area average in 2023. It has come down since the 
beginning of 2024, broadly in line with the euro area average, and is forecast to stand at 2.4% this 
year. Core inflation was below the euro area average in 2023 and has stabilised at levels close to 
2.2% in recent months, below the euro area average. The unemployment rate remained at 7.3% in 
2023,  a  historically  low  level  but  slightly  above  the  euro  area  average.  It  is  forecast  to  increase 
mildly in 2024-2025.  

The  scoreboard  reading  for  France  shows  that  four  indicators  were  beyond  their  indicative 
thresholds  in  2023,  namely  unit  labour  costs,  household  debt,  NFC  debt  and  government  debt. 
Relevant developments worth highlighting: 

•  External  sustainability  developments  remain  contained,  despite  the  net  international 
investment position (NIIP) deteriorating somewhat. The current account deficit reduced slightly, 
from  1.2%  of  GDP  in  2022  to  1.0%  of  GDP  in  2023,  primarily  due  to  the  moderation  in  the 
energy goods balance. The current account balance is forecast to shift into surplus in 2024 and 
2025.  The  net  international  investment  position  deteriorated  from  around  -25%  of  GDP  in 
2022  to  -28%  of  GDP  in  2023.  Looking  ahead,  the  NIIP  is  projected  to  increase  over  the 
forecast period, remaining above the MIP threshold of -35%. 

•  Recent cost competitiveness developments continue to be more favourable than for the euro 
area  overall,  but  non-cost  competitiveness  concerns  remain.  Last  year,  the  HICP-based  REER 
(42  trade  partners)  appreciated,  pushed  by  nominal  appreciation  of  the  euro  but  remained 
broadly  stable  by mid-2024.  In  2023,  and  over  3  years,  France  gained  export  market  shares 
against advanced economies for the first time since 2020. 2023 ULC growth was above 4%, as 
nominal  wage  growth  was  robust  and  growth  in  productivity  per  hour  muted.  Weak  labour 
productivity in recent years has been partly due to temporary factors linked to support schemes 
and apprenticeships which underpinned an increase in declared number of hours worked (time 
spent  in  training  was  recorded  as  effective  hours  worked),  while  some  key  sectors  suffered 
drops  in  generated  value  added  after  the  recent  crises,  accompanied  by  labour  hoarding. 
Overall,  in  recent  years  both  the  REER  appreciation  and  the  growth  in  unit  labour  costs  have 
been below the euro area averages. 

•  Corporate debt continued to decline but remains elevated. Corporate debt declined to 92% of 
GDP  in  2023,  considerably  below  its  peak  of  106%  in  2020,  and  it  is  expected  to  fall  below 
pre-pandemic  levels  in  2024.  This  decrease  can  be  largely  attributed  to  a  marked  fall  in  FDI 
debt  relative  to  GDP  and  a  decline  in  credit  growth  in  2023.  The  interest  coverage  ratio  of 
French NFCs has been low relative to other EU countries and fell further as interest expenses 

(102) These  forecasts  are  made  under  a  “no-policy-change”  assumption  which,  in  the  case  of  France,  does  not  reflect  the 

possible impact of the 2025 draft government budget.  

97 

 
4. Country sections 

increased. Borrowing costs have started to descend somewhat but remain elevated compared 
to the preceding decade.  

•  Household  debt  is  on  a  declining  path,  but  remains  high.  The  household  debt-to-GDP  ratio 
decreased in 2023 to 63% but remains high. France is one of the few EU Member States where 
the  debt  ratio  remains  above  pre-pandemic  levels,  although  that  is  expected  to  change  by 
2024. Net credit flows continued to contract in 2023, approaching zero even though the cost of 
borrowing  remains  among  the  lowest  in  the  EU.  Households’  high  savings  rate  and  the 
predominance  of  fixed  interest  rates  among  loans  for  house  purchase  have  supported 
household  balance  sheets  in  times  of  rising  interest  rates:  as  interest  payments  remained 
stable and receipts increased, net interest payments declined in 2023. On the downside, 2021 
Household Finance and Consumption Survey data suggest that the debt-service-to-income ratio 
is higher in France than in most other euro area countries.  

•  The housing market continues to adjust slowly. House prices are estimated to be overvalued 
by 10-15% and slightly decreased in 2023 by 0.4%, after increasing 6.3% both in 2021 and 
2022. Recent data show that the adjustment is ongoing with house prices decreasing 4.6% in 
2024-Q2, year-on-year. Since 2015, house prices grew slightly in line with household income. 
With  the  increase  in  mortgage  rates,  from  1.1%  in  2021  to  3.0%  in  2023,  mortgage  credit 
stabilised, but the number of house transactions decreased by 21.5% in 2023 after a decrease 
of 4.5% in 2022. Accordingly, building permits also decreased by 26.4% in 2023 but seem to 
have  stabilised  in  2024,  suggesting  that  the  ongoing  adjustment  in  house  prices  is  already 
being reflected in the construction sector. In terms of financial stability, in February 2024 the 
ESRB concluded that the residential real estate market in France was subject to medium risks 
and  the  macroprudential  policy  mix  was  appropriate  and  sufficient  to  mitigate  the  situation 
(103). 

•  Government  debt  is  high  and  is  increasing  with  high  deficits.  While  the  government  debt 
declined  slightly  to  109.9%  of  GDP  in  2023,  it  is  still  almost  12 pps.  above  its  2019 
pre-COVID-19  level,  and  debt  is  forecast  to  inch  up  in  2024  and  2025  as  the  government 
deficit remains high. The government deficit reached 5.5% of GDP in 2023 and it is expected to 
widen  further  in  2024  and  to  remain  elevated in  2025.  Gross  financing  needs  are  above the 
euro area average. Yields on French sovereign bonds were somewhat volatile in recent months, 
particularly  since  June,  and  have  widened  in  comparison  with  the  best  rated  euro  area 
sovereign debt. Government guarantees are among the largest in the EU. An excessive deficit 
procedure has been opened for France this July. The fiscal sustainability  risks are high in the 
medium term and medium in the long term (104).   

•  The  financial  sector  continues  to  be  characterised  by  the  relatively  low  profitability  and 
capitalisation  of  banks.  The  NPL  ratio  has  been  stable  and  close  to  the  EU  average,  as  have 
Stage  2  loans.  Credit  flows  to  households  and  NFCs  contracted  significantly  in  2023.  The 
correction  of  commercial  real  estate  prices  warrants  attention,  given  the  relatively  high 
exposure of the banking sector.  

(103) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(104) Estimated based on the Commission’s 2024 spring forecast. 

98 

 
Graph 4.10: Selected graphs: France 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.10:  Key economic and financial indicators, France 

(1) See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

99 

0501001502002503003501011121314151617181920212223% of GDPb) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sector-4-202468131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)1.90.91.10.8GDP deflator (1 year % change)1.05.32.21.6Harmonised index of consumer prices (1 year % change)1.55.72.41.9External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%-0.4-0.6 -0.6 0.0 Current account balance, balance of payments (% of GDP)0.0 (1)-0.8 (2)-0.2-1.0 0.5 0.7 Net international investment position (% of GDP)-35%-79.8 (3)11.2 (4)-25.7-28.1 -22.9 -22.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-32.3-29.4 Net lending-borrowing (% of GDP)-0.1-0.7 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)1.89.5 p11.6 8.3 Nominal unit labour cost index per hour worked (1 year % change)0.34.2 p2.3 1.6 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)1.1-1.8 -3.4 -0.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.63.6 -0.3 -0.4 Export performance against advanced economies (3y % change)-3%-2.02.1 -1.5 0.2 Export performance against advanced economies (1 year % change)-0.61.7 -0.5 0.9 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.3-1.0 -0.5 -0.2 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%49.4 (6)63.8 (7)88.691.9 p88.7 88.9 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%5.53.1 2.2 2.7 Cost of borrowing for corporations1.54.34.7Households and housing marketHousehold debt, consolidated (% of GDP)+55%42.1 (6)62.5 (7)60.962.6 p60.5 60.7 Household debt, consolidated (% of Households' GDI)77.877.4 76.2 77.8 Household credit flow, consolidated (% debt stock t-1)+14%5.51.3 p0.0 2.8 House price index, nominal (1 year % change)+9%3.1-0.4 -4.2 -1.0 House prices over/undervaluation gap (8)7.015.3Building permits (m2 per 1000 inh)573.8430.4 pCost of borrowing for households for house purchase1.53.03.5GovernmentGeneral government gross debt (% of GDP)60%98.4109.9 112.7 115.3 General government balance (% of GDP)-2.7-5.5-6.2-5.3Banking sectorReturn on equity of banks (%)6.35.9 pTier-1 capital ratio banking sector (% risk-weighted assets)15.717.3 pGross non-performing loans, domestic and foreign entities (% gross loans)2.81.9 p2.0 Labour marketUnemployment rate (% labour force Y15-74)+10%7.8 (9)8.97.3 d7.4 7.5 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.41.9 d1.3 0.9              
 
 
      
 
4. Country sections 

CROATIA 

In Croatia, high core inflation is fuelling cost competitiveness concerns, while house prices continue 
to  grow  strongly  and  show  signs  of  overvaluation;  however,  the  associated  macroeconomic  risks 
appear  limited.  Unit  labour  costs  increased  strongly  in  2023,  while  core  inflation  was  among  the 
highest  in  the  euro  area  and  has  remained  persistently  elevated.  The  government  deficit  is 
widening  somewhat,  but  government  debt  is  forecast  to  decrease  further  due  to  nominal  GDP 
growth.  

Real  GDP  growth  reached  3.3%  in  2023  and  is  forecast  at  3.6%  in  2024  and  3.3%  in  2025. 
Headline and core inflation were among the highest in the euro area in 2023, at 8.4% and 8.8%, 
respectively. Headline inflation  has  decreased  and was  close  to  3%  in the  third  quarter  of  2024, 
still  above the euro area average. It is forecast to stand at  4.0% in 2024. Core inflation remains 
elevated  and  above  the  euro  area  average,  but  the  differential  has  narrowed  significantly 
compared to 2023. The unemployment rate continued to decrease and stood at 6.1% in 2023. It is 
forecast to decrease to around 5% in 2024 and 2025.  

The  scoreboard  reading  for  Croatia  shows  that  four  indicators  were  beyond  their  indicative 
thresholds  in  2023,  namely  the  real  effective  exchange  rate,  unit  labour  costs,  house prices,  and 
government debt. Relevant developments worth highlighting: 

•  The external sustainability strengthened in 2023, with the current account balance turning 
positive.  The  current  account  balance  shifted  from  a  deficit  of  3.2%  of  GDP  in  2022  to  a 
surplus  of  0.7%  in  2023,  due  to  a  smaller  trade  deficit  in  energy  goods  and  a  positive 
contribution of travel services. The current account is forecast to remain broadly balanced over 
the  coming  years.  The  net  international  investment  position  (NIIP)  increased  from  -33.9%  of 
GDP in 2022 to -26% in 2023, owing to the current account surplus and nominal growth. The 
NIIP excluding non-defaultable instruments (NENDI) was 20.5% of GDP in 2023. 

•  Cost competitiveness concerns persist due to high core inflation. Core inflation was 3.9 pps. 
above the euro area average in 2023, but the differential decreased to 2.1 pps. by September 
2024.  The  comparatively  higher  inflation  is  partly  due  to  the  relatively  larger  size  of  the 
tourism-related services in the price index. Last year, the REER appreciated markedly by 4.6%, 
on  the  back  of  nominal  exchange  rate  appreciation  and  a  slightly  unfavourable  inflation 
differential. It continued to appreciate in the first half of 2024 but more slowly. In 2023, ULC 
growth was substantially higher than the euro area average (14.9% vs. 6.3%), as nominal wage 
increases  (partly  related  to  a  unique,  wide-ranging  public  wage-system  reform)  considerably 
exceeded the productivity gains. At the same time, Croatia has been gaining export shares in 
recent years. 

•  Corporate debt continued to fall, reaching 43 percent of GDP in 2023. Credit growth remained 
strong (at above 7%, similar to 2022), but was below nominal GDP growth. Consequently, the 
corporate  debt-to-GDP  in Croatia,  which  is  among  the  lowest  in  the  EU,  continued  to  decline. 
The decrease in debt-to-GDP was predominantly loan driven and can be largely attributed to a 
fall  in  FDI debt-to-GDP.  The  share  of  NPLs  decreased  further  but  remains  above  5%  of  total 
loans  and  advances.  Unit  profit  growth  fell  during  2023  but  picked  up  somewhat  at  the 
beginning of 2024.  

•  Household debt remains contained, but credit flows are growing. The household debt-to-GDP 
ratio  is  low,  at  31%  in  2023.  While  the  household  debt  ratio  declined  strongly  due  to  high 
nominal  GDP  growth,  credit  flows  to  households  have  been  growing  strongly  since  2020, 
reaching 9.5% of the (comparatively low) previous year’s debt stock in 2023 and showing signs 

100 

4. Country sections 

of  further  increase.  The  increase  initially  reflected  strong  housing  loans  dynamics  spurred  by 
the government’s subsidised housing loans scheme and house price growth. In the meantime, 
growth  of  housing  loans  decelerated  despite  further  growth  in prices,  and  more  recent  credit 
growth  was  mainly  driven  by  general  purpose  loans.  The  latter  make  up  almost  40%  of  the 
stock  of  loans  to  households  (and  55%  of  recent  transactions)  and  are  not  backed  by  a 
mortgage, therefore presenting higher risk, and warranting further monitoring. Non-performing 
loans have been declining but still made up around 4% of all loans to households by the end of 
2023.   

•  Housing  market  concerns  relate  to  continued  strong  house  price  growth.  House  prices  are 
estimated to be slightly  overvalued at around 10%, and have grown fast, by 11.9% in 2023, 
after increasing by 7.3% and 14.9% in 2021 and 2022, respectively. In 2024-Q2, house prices 
showed  signs  of  deceleration,  growing  by  10.0%  year-on-year.  However,  house  price  growth 
has been in line with the growth of households’ income since 2015. Mortgage rates increased 
from 2.8% in 2021 to 3.3% in 2023, and mortgage credit remains dynamic (+9.8% in 2023). 
Compared  with  2015,  building  permits  showed  signs  of  stabilising  at  a  high  level,  but  then 
continued increasing into mid-2024. If supply remains strong – which may be supported by the 
announced  new  legislation  increasing  taxation  on  non-rented  or  shortly-rented  properties  –  it 
may  moderate  the  evolution  of  house  prices,  but  it  requires  close  monitoring.  In  terms  of 
financial stability, in February 2024, the ESRB concluded that the residential real estate market 
in  Croatia  was  subject  to  medium  risks  and  the  macroprudential  policy  mix  was  partially 
appropriate and partially sufficient to mitigate the situation (105). 

•  Government  debt  is  contained  and  is  declining.  The  government  debt  decreased  further  to 
61.8%  of  GDP  in  2023  and  is  forecast  to  continue  decreasing  this  year  and  next.  The  fiscal 
balance  turned  into  a  small  deficit  in  2023,  which  is  expected  to  widen  further  in  2024  and 
2025, but to remain contained and below 3% of GDP. In the course of 2024, yields on Croatian 
sovereign  bonds  have  changed  little  compared  with  the  best  rated  euro  area  sovereign  debt; 
gross  financing  needs  are  below  the  euro  area  average,  whereas  average  debt  maturity  is 
among the lowest in the euro area.  

•  The financial sector remains stable. The non-performing loans ratio dropped below 2.4% (as 
of second quarter 2024) but remains above the EU average. Bank profitability further increased 
in  2023,  above  the  EU  average.  The  Common  Equity  Tier  1  capital  ratio  remains  one  of  the 
highest in the EU. Credit growth has slowed down in 2023 but remains rather strong. Croatia’s 
banking  system  is  characterised  by  large  liquidity  surplus.  The  financial  sector’s  exposure  to 
domestic sovereign debt is significant and one of the highest in the euro area. 

(105) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

101 

 
Graph 4.11: Selected graphs: Croatia 

4. Country sections 

Source: Eurostat and European Commission calculations. 

Table 4.11:  Key economic and financial indicators, Croatia 

(1) See Annex 1 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024) 

102 

-15-10-5051015202505010015020025006081012141618202224Rate of change y-o-y (%)2015 = 100a) Nominal house priceNominal House Price Index (2015=100), right axisNominal House Price (y-o-y growth rate), right axisHREA20-6-4-2024681012142021222324% growth year on yearData up to 2024M10b) Core inflationaverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)3.13.33.63.3GDP deflator (1 year % change)1.711.76.63.2Harmonised index of consumer prices (1 year % change)1.28.44.03.4External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%2.7-0.6 -0.8 0.3 Current account balance, balance of payments (% of GDP)-1.0 (1)-1.9 (2)2.60.7 0.1 0.2 Net international investment position (% of GDP)-35%-55.4 (3)-30.1 (4)-59.2-26.0 -21.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-9.420.5 Net lending-borrowing (% of GDP)3.83.5 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)0.217.1 p36.3 31.7 Nominal unit labour cost index per hour worked (1 year % change)0.814.9 p10.6 3.6 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)2.14.3 4.4 4.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.64.6 1.4 1.1 Export performance against advanced economies (3y % change)-3%11.936.6 17.2 5.0 Export performance against advanced economies (1 year % change)3.05.2 2.8 0.7 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.13.9 1.9 0.5 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%72.9 (6)39.2 (7)58.642.8 p41.2 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%-3.47.7 Cost of borrowing for corporations2.74.65.0Households and housing marketHousehold debt, consolidated (% of GDP)+55%49.7 (6)18.3 (7)34.830.1 pHousehold debt, consolidated (% of Households' GDI)48.542.2 Household credit flow, consolidated (% debt stock t-1)+14%5.99.5 House price index, nominal (1 year % change)+9%6.311.9 9.5 3.0 House prices over/undervaluation gap (8)-9.810.9Building permits (m2 per 1000 inh)331.5520.0 Cost of borrowing for households for house purchase3.53.23.7GovernmentGeneral government gross debt (% of GDP)60%73.361.8 57.3 56.0 General government balance (% of GDP)0.2-0.9-2.1-2.1Banking sectorReturn on equity of banks (%)7.915.7 pTier-1 capital ratio banking sector (% risk-weighted assets)20.721.7 pGross non-performing loans, domestic and foreign entities (% gross loans)7.12.5 p2.4 Labour marketUnemployment rate (% labour force Y15-74)+10%6.8 (9)8.86.1 5.1 4.7 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.22.9 2.6 3.1       
 
 
          
 
4. Country sections 

ITALY 

In  Italy,  concerns  related  to  high  government  debt  remain.  Following  a  decrease  in  2023,  the 
government  debt-to-GDP  ratio  is  forecast  to  increase  in  the  next  few  years,  despite  smaller 
government deficits, due to unfavourable stock-flow adjustments and interest-growth differentials 
against a backdrop of low productivity and potential GDP growth. Pressures on Italy’s relative cost 
competitiveness are limited, as unit labour costs have increased less than the euro area average, 
while  Italy  gained  export  market  shares  against  other  advanced  economies  in  2023.  Despite 
significant  progress,  the  continued  interconnectedness  between  the  government  and  the  banking 
sector still represents a risk of feedback loops.  

Real GDP growth reached 0.7% in 2023 and is forecast at 0.7% in 2024 followed by 1.0% in 2025. 
Average headline inflation was slightly above the euro area average in 2023, at 5.9%. It has then 
fallen well below the euro area average and is forecast to stand at 1.1% on average in 2024. Core 
inflation  has  stabilised  around  2%  in  the  past  months,  below  the  euro  area  average.  The 
unemployment rate decreased to 7.7% in 2023 and is forecast to continue decreasing in 2024 and 
2025.  

The  scoreboard  reading  for  Italy  shows  that  one  indicator  was  beyond  its  indicative  threshold  in 
2023, namely government debt. Relevant developments worth highlighting: 

•  The  external  sector  strengthened  further  in  2023.  The  current  account  balance  increased 
from  a  deficit  of  1.7%  in  2022  to  a  broadly  balanced  position  in  2023,  primarily  due  to  the 
moderation in the energy balance. The current account balance is forecast to further increase in 
2024  and  to  broadly  stabilise  in  2025.  Italy’s  positive  Net  International  Investment  Position 
(NIIP) increased in 2023 and is forecast to continue doing so.  

•  Cost  competitiveness  developments  were  overall  positive  in  2023.  Last  year,  the  REER 
appreciated, pushed by the nominal appreciation of the euro, but depreciated by mid-2024 on 
the back of a favourable inflation differential. In 2023, over a 3-year period, Italy gained export 
market shares against advanced economies following several years of losses, and yearly ULC 
growth was well below the euro area average, at close to 4%. Despite the moderate nominal 
wage growth, ULCs increased due to a drop in productivity per hour. 

•  Corporate debt reduced further to 58% of GDP in 2023, down from 62% in 2022, reaching 
its lowest level in two decades. Credit growth was negative in 2023, contracting at around 2%. 
The  interest  coverage  ratio  fell  as  interest  expenses  increased  but  remained  relatively  high. 
Borrowing  costs  remained  elevated,  and  bankruptcies  picked  up  in  2023,  while  new  business 
registrations increased more moderately. Unit profit growth fell during 2023, turning negative 
at the beginning of 2024. Italy’s NFCs have a comparatively low investment rate (around 20% 
of gross value added), which fell strongly in 2023 but recovered somewhat at the beginning of 
2024.  

•  Household debt continues to fall. The household debt-to-GDP ratio declined to 37% in 2023, 
helped by high inflation and subdued lending. The debt ratio is set to decline further in 2024. 
Net credit flows to households hovered around zero in 2023 and 2024 as a result of the rise in 
borrowing  costs.  Non-performing  loans  slightly  decreased  in  2023  to  just  below  3%  of 
household loans. 

•  House prices are growing slowly. House prices are estimated not to be overvalued and grew 
by  just  1.3%  in  2023,  after  increasing  by  2.5%  and  3.8%  in  2021  and  2022,  respectively.  In 
2024-Q2,  house  prices  increased  by  2.9%  year-on-year.  House  transactions  and  building 

103 

4. Country sections 

permits  decreased  in  2023,  as  the  economy  adjusted  to  higher  mortgage  rates.  In  terms  of 
financial stability, in February 2024, the ESRB concluded that the residential real estate market 
in  Italy  was  subject  to  low  risks  and  the  macroprudential  policy  mix  was  appropriate  and 
sufficient (106). 

•  Government debt is high and is expected to increase with still high deficits. Government debt 
declined to 134.8% of GDP in 2023, close to its 2019 pre-COVID-19 level. Yet it is forecast to 
inch up in 2024 and 2025 reflecting still sizeable though decreasing government deficits, lower 
nominal  GDP  growth  against  a  backdrop  of  low  potential  GDP  growth,  and  debt-increasing 
stock-flow adjustments. The government deficit reached 7.2% of GDP in 2023 and is expected 
to decline visibly in 2024 but to remain above 3% of GDP this year and next. Gross financing 
needs are the highest in the euro area and are not declining. Yields on Italian sovereign bonds 
remain  the  highest  in  the  euro  area,  although  their  spread  to  the  best  rated  euro  area 
sovereign bonds narrowed in 2023 and to a lesser extent also in 2024. Government guarantees 
decreased in 2023 but are still among the largest in the EU. An excessive deficit procedure has 
been opened for Italy this July. The fiscal sustainability risks are high in the medium term and 
medium in the long term (107). 

•  Financial  sector  vulnerabilities  remain  despite  substantial  improvements  over  recent  years. 
The  non-performing  loans  ratio  remained  stable  at  2.8%  (as  of  the  second  quarter  of  2024) 
but above the euro-area average. Bank profitability improved significantly and was close to the 
EU average in 2023. The Common Equity Tier 1 capital ratio remained broadly stable, although 
below the EU average. Bank lending volumes were very muted in 2023. Italian banks’ exposure 
to  domestic  sovereign  debt  is  significant  and  among  the  highest  in  the  euro  area.  The  link 
between the government and financial sectors still represents a risk of feedback loops.  

Graph 4.12: Selected graphs for Italy 

Source: Eurostat and European Commission calculations. 

(106) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(107) Estimated based on the Commission’s 2024 spring forecast. 

104 

0204060801001201401601802002021222324Market value in % of GDP (last 4 quarters)b) Holders of government debt, market valueUnallocated foreignInternational central banksLiabilities to rest of EA20ProgrammeUnallocated domesticPrivate sector (NFCs & HH)Non-bank fin. corp.MFIs excl. central banksDomestic central banksTotal domestic-held debt0501001502002503001011121314151617181920212223% of GDPa) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sector       
 
 
Table 4.12:  Key economic and financial indicators, Italy 

4. Country sections 

(1) See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

105 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)0.90.70.71.0GDP deflator (1 year % change)0.95.81.61.9Harmonised index of consumer prices (1 year % change)1.05.91.11.9External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%2.40.1 -0.2 0.8 Current account balance, balance of payments (% of GDP)1.8 (1)0.5 (2)2.70.0 1.1 1.2 Net international investment position (% of GDP)-35%-71.3 (3)24.1 (4)-6.17.4 12.1 12.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-5.95.1 Net lending-borrowing (% of GDP)2.70.7 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)1.65.0 10.2 12.2 Nominal unit labour cost index per hour worked (1 year % change)1.03.9 5.0 2.8 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)0.30.7 -1.9 -2.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.13.5 -1.7 -0.4 Export performance against advanced economies (3y % change)-3%-1.03.1 0.8 5.6 Export performance against advanced economies (1 year % change)-0.64.4 0.0 0.3 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.4-0.4 -0.6 -0.4 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%62.5 (6)30.3 (7)65.558.1 56.5 55.9 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%-0.6-1.9 -1.0 1.9 Cost of borrowing for corporations1.84.95.3Households and housing marketHousehold debt, consolidated (% of GDP)+55%36.6 (6)28.4 (7)40.937.2 36.3 35.5 Household debt, consolidated (% of Households' GDI)52.649.4 48.4 48.5 Household credit flow, consolidated (% debt stock t-1)+14%2.5-0.5 0.0 0.7 House price index, nominal (1 year % change)+9%-0.61.3 3.6 3.0 House prices over/undervaluation gap (8)-8.5-8.7Building permits (m2 per 1000 inh)79.980.2 Cost of borrowing for households for house purchase1.94.23.9GovernmentGeneral government gross debt (% of GDP)60%133.9134.8 136.6 138.2 General government balance (% of GDP)-2.1-7.2-3.8-3.4Banking sectorReturn on equity of banks (%)5.912.7 pTier-1 capital ratio banking sector (% risk-weighted assets)14.416.9 pGross non-performing loans, domestic and foreign entities (% gross loans)8.82.7 p2.8 Labour marketUnemployment rate (% labour force Y15-74)+10%8.6 (9)10.67.7 6.8 6.3 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp1.53.2 2.7 2.0  
          
 
4. Country sections 

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 deficit widened in 2023 and is 
forecast to remain very large, reflecting high domestic demand and the repatriation of profits by 
foreign-owned companies. The corporate, household and government debt-to-GDP ratios continue 
to  decline.  The  government  recorded  budgetary  surpluses  and  is  forecast  to  continue  doing  so, 
which would further support the reduction of government debt in the coming years. 

Real  GDP  growth  reached  2.6%  in  2023  and  is  forecast  at  3.6%  in  2024  and  2.8%  in  2025. 
Headline inflation was below the euro area average in 2023, at 3.9%. It is forecast to decrease to 
2.2% in 2024. Core inflation has been mostly below the euro area average in 2023 and 2024. The 
unemployment rate stood at 5.8% in 2023 and is forecast to decrease to below 5% in 2024-2025.  

The  scoreboard  reading  for  Cyprus  shows  that  five  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the current account balance, the net international investment position, 
household debt, non-financial corporate debt, and government debt. Relevant developments worth 
highlighting: 

•  External  sustainability  concerns  remain.  In  2023,  the  current  account  deficit  widened  to 
9.5% from 5.4% of GDP in 2022, recording the highest deficit in the EU and far exceeding its 
average deficits recorded before the pandemic as well as the level suggested by fundamentals. 
Non-energy  goods  and  primary  income  balances  were  the  key  contributors,  mainly  reflecting 
strong  domestic  demand  and  the  repatriation  of  profits.  The  current  account  deficit  remains 
beyond the indicative scoreboard thresholds, and is forecast to stay high, at 9.2% in 2024 and 
8.4%  in  2025.  The  net  international  investment  position  (NIIP)  increased  to  around  -93%  of 
GDP in  2023,  despite the high  current  account  deficit, driven  by  strong  growth  and  valuation 
effects. It is forecast to increase in 2024 and 2025. The NIIP largely reflects the activities of 
special purpose entities (SPEs). The NIIP without the impact of SPEs is estimated at -36% GDP 
in 2023. The NIIP net of non-defaultable instruments increased from around -164% in 2022 to 
around -134% in 2023. 

•  Cost  competitiveness  indicators  remain  stable.  In  2023,  the  REER  appreciated  by  close  to 
4%, pushed by nominal appreciation of the euro, but was partly offset by favourable inflation 
differentials. With the euro strengthening further, the REER continued to appreciate in the first 
half of 2024, albeit at a slower pace. 2023 ULC growth was close to 4%, as productivity gains 
were  not  enough  to  offset  the  strong  nominal  wage  growth.  Recent  increases  in  unit  labour 
costs and REERs have been more modest than in the euro area overall. 

•  Corporate debt concerns remain, but they have eased over time. The corporate debt-to-GDP 
ratio continued to decline from 139% in 2022 to 130% in 2023 and fell further to 125% in the 
second  quarter  of  2024,  reaching  its  lowest  level  in  two  decades.  The  high  share  of  foreign 
debt  of  non-financial  ship-owning  special  purpose  entities  and  high  liquidity  buffers  mitigate 
risks. Credit growth just turned positive in 2023. Corporate non-performing loans (NPLs) have 
been  steadily  declining.  More  than  60%  of  loans  to  NFCs  have  their  interest  rates  reset  in 
2024,  which  may  impact  the  interest  burden  of  corporates  and  affect  their  debt  service 
capacity. Unit profit growth fell during 2023 but picked up at the beginning of 2024.  

•  Household  debt  is  declining  steadily  but  concerns  remain.  The  household  debt-to-GDP  ratio 
dropped  by  5  pps.  to  64%  GDP  in  2023,  marking  the  third  year  of  significant  decline.  The 
decline  is  set  to  continue  in  2024,  underpinned  by  real  GDP  growth  and  persistent  inflation. 
Downside  risks  are  associated  with  the  significant  stock  of  existing  mortgages  with  highly 

106 

4. Country sections 

variable  interest  rates  (with  a  fixation  period  of  less  than  one  year).  Over  time,  the  share  of 
such loans decreased: by mid-2024, 54% of new loans carried flexible rates, down from more 
than  90%  two  years  before,  although  still  far  above  the  euro  area  average.  The  still  tight 
financing  conditions  may  impact  the  ability  of  some  households  to  service  their  debts.  The 
2021 Household Finance and 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 the 
income distribution, which make up around 11% of all households. The household saving rate is 
low and kept decreasing in 2023, with a rebound expected for 2024 and 2025. Non-performing 
loans have been declining but remain elevated, at 10% of all household loans by end-2023. 

•  The  Cypriot  residential  housing  market  remains  resilient,  and  house  prices  continue  to 
increase,  driven  by  foreign,  as  well  as  domestic  demand.  House  prices  show  no  significant 
deviation from market fundamentals and their evolution has been moderated in 2023 (+2.9%). 
In  2021,  house  prices  decreased  by  3.4%  and  they  increased  2.7%  in  2022.  For  the  second 
quarter  of  2024,  this  moderation  continues,  as  house  prices  grew  by  2.5% year-on-year.  In 
terms  of  financial  stability,  in  February  2024 the  ESRB  concluded  that  residential  real  estate 
market in Cyprus was subject to low risks and the macroprudential policy mix was appropriate 
and sufficient (108). 

•  Government debt is moderate and is decreasing visibly. It decreased further to 73.6% of GDP 
in  2023.  It  is  some  19 pps.  below  its  2019  pre-COVID-19  level  and  is  forecast  to  decrease 
visibly further in 2024 and 2025. The recording of budgetary surpluses since 2022, which are 
expected  to  continue,  is  helping  the  debt  reduction  and  keeps  gross  financing  needs  low. 
Sovereign bond yields have narrowed compared with the best rated euro area sovereign debt.  

•  The  financial  sector  situation  has  improved  over  recent  years,  but  concerns  persist.  The 
Cypriot  banking  sector  performed  positively  in  2023.  Rising  interest  rates  and  a  slow  pass-
through to deposits pushed banks' profits and solvency ratios to a decade high, with Common 
Equity Tier 1 and return-on-equity increasing well above the EU average. The non-performing 
loans  further  declined,  reaching  3.5%  in  the  second  quarter  of  2024.  Risks  have  largely 
migrated to the non-bank financial sector and to a lesser extent to the state, and so still have 
the  capacity  to  weigh  on  the  economy.  Credit  provision  remained  very  muted  in  2023.  High 
exposure to commercial real estate represents a source of risk. 

(108) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

107 

 
Graph 4.13: Selected graphs: Cyprus 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.13:  Key economic and financial indicators, Cyprus 

(1) See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

108 

-500-400-300-200-10001002003001415161718192021222324*% of GDPb) Net International Investment PositionReserve assetsPortfolio inv, equityPortfolio inv, debtOther investmentDirect investmentFin derivatives and ESONIIPNENDI-40-200204016171819202122232424*25*26*% of GDPa) Current account, 4-quarter moving sumGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowingaverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)6.02.63.62.8GDP deflator (1 year % change)1.13.83.52.3Harmonised index of consumer prices (1 year % change)0.73.92.22.1External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%-4.1-6.7 -8.0 -9.0 Current account balance, balance of payments (% of GDP)-2.7 (1)-0.6 (2)-4.8-9.5 -9.2 -8.4 Net international investment position (% of GDP)-35%-63.1 (3)-48.0 (4)-124.9-92.7 -84.4 -84.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-319.6-133.8 Net lending-borrowing (% of GDP)-4.5-9.6 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)0.33.7 p11.5 9.0 Nominal unit labour cost index per hour worked (1 year % change)2.33.8 p3.4 1.5 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)-1.50.3 -2.8 -2.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-0.13.8 -0.4 -0.2 Export performance against advanced economies (3y % change)-3%14.317.4 -2.1 4.4 Export performance against advanced economies (1 year % change)4.52.9 6.7 4.7 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.6-1.1 -0.3 0.0 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%46.6 (6)128.6 (7)191.3130.2 p120.6 118.4 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%2.80.4 -0.4 3.4 Cost of borrowing for corporations3.65.55.6Households and housing marketHousehold debt, consolidated (% of GDP)+55%30.3 (6)90.3 (7)96.464.3 p59.9 58.7 Household debt, consolidated (% of Households' GDI)128.783.7 Household credit flow, consolidated (% debt stock t-1)+14%1.31.0 -0.1 3.2 House price index, nominal (1 year % change)+9%2.62.9 2.8 2.0 House prices over/undervaluation gap (8)-4.6-13.3Building permits (m2 per 1000 inh)1764.22103.3 Cost of borrowing for households for house purchase2.44.24.6GovernmentGeneral government gross debt (% of GDP)60%96.573.6 66.4 61.4 General government balance (% of GDP)-0.12.03.52.7Banking sectorReturn on equity of banks (%)-0.421.8 pTier-1 capital ratio banking sector (% risk-weighted assets)16.823.4 pGross non-performing loans, domestic and foreign entities (% gross loans)23.03.7 p3.5 Labour marketUnemployment rate (% labour force Y15-74)+10%7.1 (9)8.95.8 b4.9 4.7 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp1.14.2 b3.1 1.7         
 
 
          
 
4. Country sections 

LATVIA 

In Latvia, high inflation from 2022-2023 led to cost competitiveness pressures, but the associated 
macroeconomic  risks  appear  limited  at  present.  In  2023,  REER  appreciation  and  growth  in  unit 
labour costs were among the strongest in the euro area. The current account continued to record a 
deficit  that  has  emerged  in  recent  years.  In  2024,  headline  inflation  has  eased  markedly  and 
contributed to a REER depreciation.  

Real GDP growth reached 1.7% in 2023 and GDP is forecast to stagnate in 2024 before growing by 
1.0% in 2025. Both headline inflation and core inflation were among the highest in the euro area in 
2023, at 9.1% and 8.4%, respectively. Headline inflation is forecast to decrease strongly to 1.2% in 
2024. At the same time, core inflation, driven by services inflation, has remained more persistent 
and slightly above the euro area  average in the past months. The unemployment rate decreased 
further to 6.5% in 2023 and is forecast to increase slightly to 6.7% in 2024-2025.  

The  scoreboard  reading  for  Latvia  shows  that  four  indicators  were  beyond  their  indicative 
thresholds  in  2023,  namely  the  current  account  balance,  the  real  effective  exchange  rate,  unit 
labour costs, and the participation rate. Relevant developments worth highlighting: 

•  The  current  account  remains  in  a  sizable  deficit.  Unlike  in  many  EU  countries,  the  current 
account deficit did not decrease noticeably in 2023. As a result, the three-year average of the 
current  account  balance  fell  below  the  scoreboard  threshold  of  -4%.  From  the  saving-
investment  perspective,  a  lower  saving  of  the  economy  combined  with  relatively  resilient 
investment  have  been  the  key  drivers  of  persistent  current  account  deficits  in  the  past  two 
years. On a four-quarter-moving-sum basis, the current account deficit narrowed to around 3% 
in the second quarter of 2024, and it is forecast to reduce further next year. Capital transfers 
from the EU, including the RRF,  are set to noticeably lower external financing needs. The net 
international  investment  position  was  at  -26%  of  GDP  in  2023,  mostly  composed  of  direct 
investment,  and  is  forecast  to  strengthen  somewhat.  The  net  position  excluding  non-
defaultable instruments, the NENDI, was positive. 

•  Cost competitiveness  concerns persist. In 2023, annual  average core inflation was 3.5 pps. 
above  the  euro  area  value  and  the  differential  remains,  at  1.3 pps.  in  September  2024.  Last 
year,  the  HICP-based  REER  appreciated  strongly,  driven  by  both  nominal  exchange  rate 
appreciations  and  high  inflation  differentials,  but  by  mid-2024  it  depreciated  on  account  of 
favourable  inflation  developments.  Nominal  wage  growth  remained  rather  strong  in  2023, 
despite  strong productivity  growth,  pushing  ULC to  increase  by  close to  14%.  The  ULC-based 
REER has appreciated markedly over recent years. ULC growth is expected to slow this year on 
the back of more moderate wage increases and strong productivity growth. The 3-year change 
in the participation rate dropped by 1.4 pps. in 2023, above the scoreboard threshold.   

•  Corporate debt remained broadly constant as a share of GDP at 36% in 2023, well below its 
peak  value  of  83%  in  2009  and  2010.  Despite  an  increase  in  interest  expenses,  the  interest 
coverage ratio is comparatively high. However, high borrowing costs and a large share of loans 
with  interest  resets  in  2024  will  likely  keep  the  interest  burden  of  Latvian  NFCs  elevated.  
Overall  financial  risks  increased  somewhat  during  2023,  as  profitability  was  low  and  debt 
service  capacity  deteriorated,  but  remain  contained.  Unit  profit  growth  continued  to  fall  in 
2023, even turning negative. Household debt remains low, at 19% of GDP in 2023. 

•  House  price  growth  moderated  in  2023.  House  prices  are  estimated  to  be  overvalued  by 
around  15%,  but  growth  moderated  in  2023,  at  3.7%,  after  recording  10.9%  and  13.8%  in 
2021  and  2022,  respectively.  More  recent  data  show  that  house  prices  continued  growing 

109 

4. Country sections 

moderately, by 1.1% year-on-year, in 2024-Q2. Since 2015, house prices have grown slightly 
faster than household income. House transactions and building permits have fallen since 2021, 
showing  some  adjustment  to  the  higher  interest  rate  environment  of  the  last  two  years.  In 
terms  of  financial  stability,  in  February  2024  the  ESRB  concluded  that  the  residential  real 
estate  market  in  Latvia  was  subject  to  low  risks  and  the  macroprudential  policy  mix  was 
appropriate and sufficient (109). 

•  Government  debt  is  limited.  Government  debt  edged  up  to  45%  of  GDP  in  2023,  which  is 
some 7 pps. above its 2019 pre-COVID-19 level, and it is expected to increase further in 2024 
and 2025. The fiscal deficit narrowed in 2023 but is expected to increase somewhat in 2024 
and  2025,  being  forecast  to  average  3%  of  GDP.  Gross  financing  needs  are  below  the  euro 
area average; yields on Latvian sovereign bonds have narrowed compared with best rated euro 
area sovereign debt.  

•  Financial  sector  resilience  reflects  the  sound  and  well  capitalised  banking  sector.  The 
Common  Equity  Tier  1  capital  ratio  declined  in  2023  but  remains  the  highest  in  the  EU. 
Profitability  improved  significantly  in  2023  and  is  well  above  the  EU  average.  The  non-
performing loans ratio at 1.2% (as of 2024-Q1) is one of the lowest in the EU. Stage 2 loans 
slightly increased in the past few quarters but remained below the EU average. Credit dynamics 
remain rather muted. Significant exposure of lenders to real estate represents a potential risk. 

Graph 4.14: Selected graphs: Latvia 

Source: Eurostat and European Commission forecasts and calculations. 

(109) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

110 

-15-10-505101516171819202122232424*25*26*% of GDPa) Current account, 4-quarter moving sumGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing-10-505101520131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)b) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27        
 
 
Table 4.14:  Key economic and financial indicators, Latvia 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

111 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)2.81.70.01.0GDP deflator (1 year % change)3.66.42.52.9Harmonised index of consumer prices (1 year % change)2.79.11.22.2External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%0.8-4.5 -4.2 -3.1 Current account balance, balance of payments (% of GDP)-1.3 (1)-2.9 (2)0.3-3.9 -3.2 -2.1 Net international investment position (% of GDP)-35%-51.9 (3)-21.9 (4)-47.1-26.0 -25.6 -25.3 NENDI - NIIP excluding non-defaultable instruments (% of GDP)1.420.6 Net lending-borrowing (% of GDP)1.8-2.0 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)14.425.8 38.0 27.7 Nominal unit labour cost index per hour worked (1 year % change)5.113.8 8.8 3.0 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)3.610.8 7.9 1.0 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.37.3 -1.5 -0.1 Export performance against advanced economies (3y % change)-3%4.5-1.7 -5.7 -9.0 Export performance against advanced economies (1 year % change)1.7-4.8 -2.1 0.7 Core inflation(5) differential vis-à-vis the euro area (pps.)0.93.5 0.8 0.3 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%75.4 (6)68.1 (7)50.635.8 36.5 35.5 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%1.81.8 3.5 1.1 Cost of borrowing for corporations3.05.96.5Households and housing marketHousehold debt, consolidated (% of GDP)+55%51.9 (6)18.9 (7)21.818.6 19.1 19.6 Household debt, consolidated (% of Households' GDI)31.326.4 Household credit flow, consolidated (% debt stock t-1)+14%2.05.2 5.3 6.6 House price index, nominal (1 year % change)+9%9.13.7 4.0 3.0 House prices over/undervaluation gap (8)-1.615.4Building permits (m2 per 1000 inh)304.6345.5 Cost of borrowing for households for house purchase2.75.55.6GovernmentGeneral government gross debt (% of GDP)60%38.845.0 48.1 50.3 General government balance (% of GDP)-0.6-2.4-2.8-3.2Banking sectorReturn on equity of banks (%)8.820.3 pTier-1 capital ratio banking sector (% risk-weighted assets)20.220.6 pGross non-performing loans, domestic and foreign entities (% gross loans)4.91.3 p1.2 Labour marketUnemployment rate (% labour force Y15-74)+10%6.6 (9)7.56.5 6.7 6.7 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp1.8-1.4 1.1 0.2  
          
 
4. Country sections 

LITHUANIA 

In Lithuania, inflationary pressures in 2021-23 had an adverse impact on cost competitiveness, and 
house  prices  continue  to  grow  strongly,  but  associated  macroeconomic  risks  appear  limited. 
Headline and core inflation rates in Lithuania were among the highest in the euro area in 2023 but 
have recently come down markedly. Unit labour costs continued to increase strongly in 2023 and 
are expected to increase more than the euro area average in 2024.  

Real  GDP  grew  by  0.3%  in  2023  and  is  forecast  to  grow  at  2.2%  in  2024  and  3.0%  in  2025. 
Headline and core inflation stood among the highest in the euro area in 2023, at 8.7% and 9.6%, 
respectively.  Headline  inflation  is  forecast  to  decrease  markedly  to  0.9%  in  2024.  Core  inflation 
gradually  decreased  and is  expected  to  stand  slightly  above  the  euro  area  average  in  2024.  The 
unemployment rate increased to 6.9% in 2023 and is forecast to increase to 7.5% in 2024 before 
easing to 7.0% in 2025.  

The  scoreboard  reading  for  Lithuania  shows  that  three  indicators  were  beyond  their  indicative 
thresholds  in  2023,  namely  the  real  effective  exchange  rate,  unit  labour  costs,  and  house prices. 
Relevant developments worth highlighting: 

•  External  sustainability  improved  in  2023.  In  2023,  the  current  account  balance  increased 
significantly from a deficit of 6.1% of GDP in 2022 to a surplus of 1.1%, primarily driven by a 
reduction in the trade in energy goods deficit and higher net-exports of services. It is forecast 
to further increase this year and next. The net international investment position (NIIP) increased 
and  is  expected  to  continue  increasing  in  2024.  As  liabilities  largely  consist  of  foreign  direct 
investment, the NIIP net of non-defaultable instruments is positive. 

•  Cost  competitiveness  concerns  persist.  In  2023,  both  average  headline  and  core  inflation 
were among the highest in the euro area. Last year, the REER continued to appreciate strongly, 
as  both  nominal  exchange  rate  appreciations  and  high  inflation  rate  differentials  contributed. 
By mid-2024, it depreciated on account of favourable inflation differentials, which more than 
offset the nominal euro gains. Overall, the 3-year appreciation of the HICP-based REER stood at 
12.8%  in  2023.  Furthermore,  nominal  wages  increased  strongly  in  2023  and,  along  with 
negative productivity growth, pushed ULC to increase by more than 14%. The 3-year increase 
in  ULC  has  been  above  the  scoreboard  threshold  since  2015  and,  together  with  REER 
appreciations,  has  added  to  a  long  track  record  of  cost-competitiveness  declines,  although 
these have so far not translated into losses of export market shares. ULC growth, despite being 
projected  to  slow  this  year  and  the  next,  as  productivity  growth  resumes,  would  still  remain 
above the euro area value. 

•  Corporate debt remained broadly stable at 30 percent of GDP in 2023, despite strong credit 
growth.  Although  Lithuania  was  one  of  few  EU  countries  not  recording  a  decrease  in  its 
corporate  debt-to-GDP  ratio,  its  corporate  debt  remains  very  low.  Despite  an  increase  in 
corporate interest expenses, the interest coverage ratio remained comparatively high. However, 
high  corporate  borrowing  costs  and  a  large  share  of  corporate  loans  with  interest  resets  in 
2024 will likely further increase the interest burden of Lithuanian NFCs. Unit profit growth fell 
during 2023 but picked up somewhat at the beginning of 2024. The household debt-to-GDP 
ratio is low and remained stable at 21% in 2023. 

•  Strong house price growth moderated somewhat in 2023. House prices are estimated not to 
be overvalued but increased by 9.8% in 2023, after increasing by 16.1% and 19% in 2021 and 
2022, respectively. More recent data shows that house prices continue to grow at a strong pace 
(10.4%  year-on-year  in  2024-Q2).  From  2015  until  2020,  house  prices  grew  less  than 

112 

4. Country sections 

household income, but more strongly since then. However, in 2023, the house price-to-income 
ratio stands around its long-term average. House transactions and building permits have fallen 
since 2021, adjusting to the higher interest rate environment of the last two years. In terms of 
financial stability, in February 2024, the ESRB concluded that the residential real estate market 
in Lithuania was subject to medium risks and the macroprudential policy mix was appropriate 
and sufficient to mitigate the situation (110). 

•  Government  debt  remains  limited.  Government  debt  receded  to  37.3%  of  GDP  in  2023, 
although  it  is  expected  to  increase  somewhat  in  2024  and  2025.  The  fiscal  deficit  remained 
limited  in  2023;  while  it  is  expected  to  increase  in  2024  and  2025,  it  is  still  forecast  to  be 
below 3% of GDP over those years. Gross financing needs are below the euro area average.  

•  The  financial  sector  is  characterised  by  a  sound  and  well-capitalised  banking  sector.  While 
the Common Equity Tier 1 capital ratio declined in 2023, it remains one of the highest in the 
EU. Profitability significantly increased in 2023 and became one of the highest in the EU. The 
non-performing loans ratio is at 0.8% (as of 2024-Q2), the lowest in the EU. Credit provision 
remains dynamic, although credit growth declined in early 2024. 

Graph 4.15: Selected charts for Lithuania 

Source: Eurostat and European Commission forecasts and calculations. 

(110) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

113 

8090100110120130140150160121314151617181920212223b) REERs evolution, 2012=100REER HICP 42REER GDP 42REER ULC 37REER XPI 37-15-551525131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27          
 
 
Table 4.15:  Key economic and financial indicators, Lithuania 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

114 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)4.70.32.23.0GDP deflator (1 year % change)3.49.03.63.5Harmonised index of consumer prices (1 year % change)2.88.70.91.7External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%0.3-1.2 -0.8 2.1 Current account balance, balance of payments (% of GDP)-0.1 (1)-1.4 (2)1.71.1 2.7 2.5 Net international investment position (% of GDP)-35%-62.9 (3)-2.7 (4)-30.4-4.6 3.3 6.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-1.626.7 Net lending-borrowing (% of GDP)3.12.7 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)14.737.3 39.0 25.2 Nominal unit labour cost index per hour worked (1 year % change)4.812.4 7.7 3.4 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)4.512.8 8.9 -0.3 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.36.4 -1.9 -0.6 Export performance against advanced economies (3y % change)-3%14.86.6 0.8 -0.8 Export performance against advanced economies (1 year % change)7.4-1.9 0.3 2.5 Core inflation(5) differential vis-à-vis the euro area (pps.)1.34.6 0.4 -0.1 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%73.7 (6)49.3 (7)34.229.9 29.6 28.2 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%7.312.1 7.9 1.2 Cost of borrowing for corporations2.66.06.3Households and housing marketHousehold debt, consolidated (% of GDP)+55%52.8 (6)16.8 (7)22.521.2 21.6 22.2 Household debt, consolidated (% of Households' GDI)33.330.1 Household credit flow, consolidated (% debt stock t-1)+14%8.36.6 7.9 9.4 House price index, nominal (1 year % change)+9%7.79.8 10.9 7.0 House prices over/undervaluation gap (8)-13.6-1.1Building permits (m2 per 1000 inh)531.1445.7 Cost of borrowing for households for house purchase2.35.55.5GovernmentGeneral government gross debt (% of GDP)60%36.037.3 38.3 41.0 General government balance (% of GDP)0.5-0.7-2.0-2.4Banking sectorReturn on equity of banks (%)12.021.2 pTier-1 capital ratio banking sector (% risk-weighted assets)18.918.6 pGross non-performing loans, domestic and foreign entities (% gross loans)2.50.8 p0.8 Labour marketUnemployment rate (% labour force Y15-74)+10%6.6 (9)6.56.9 7.5 7.0 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp2.60.3 3.2 2.8  
          
 
4. Country sections 

LUXEMBOURG 

Private sector debt is high and house prices are estimated to be overvalued despite a strong recent 
correction. High household indebtedness and moderating house prices can constitute a risk for the 
domestic  banking  sector.  Unit  labour  costs  increased  strongly  in  2023  despite  a  contraction  in 
economic activity and inflation being well below the euro area average.  

Real GDP contracted by 1.1% in 2023 and is forecast to rebound and grow by 1.2% in 2024 and 
2.3% in 2025. Both headline inflation and core inflation were among the lowest in the euro area in 
2023, at 2.9% and 3.9%, respectively, mainly due to emergency measures taken. Headline inflation 
is  forecast  to  decrease  to  2.3%  in  2024.  Core  inflation  has  continued  to  decrease  in  2024.  The 
unemployment  rate  increased  to  5.2%  in  2023,  below  the  euro  area  average.  It  is  expected  to 
increase to 6.0% in 2024 and 2025. 

The  scoreboard  reading  for  Luxembourg  shows  that  five  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the current account balance, the export performance against advanced 
economies,  unit  labour  costs,  household  debt,  and  NFC  debt.  Relevant  developments  worth 
highlighting: 

•  The external sector displayed gradually declining, but still sizeable, current account surpluses, 
and  a  positive  but  moderating  net  international  investment  position.  In  2023,  the  current 
account surplus decreased to 6% from 6.7% of GDP in 2022, reaching pre-pandemic levels and 
remaining beyond the indicative upper scoreboard threshold.  

•  Cost  competitiveness  developments  remain  moderate.  The  REER  remained  relatively 
constant in 2023 and appreciated by close to 1% in the first half of 2024 on account of euro’s 
appreciation. In 2023, ULC growth was close to 11%, as both strong nominal wage increases 
and drops in productivity per hour contributed. Over 3 years, ULC appreciated by close to 21%, 
considerably above the scoreboard threshold. Luxembourg’s 3-year export performance against 
advanced economies has deteriorated in 2023. 

•  There are concerns about corporate debt which increased further from high levels. It reached 
273%  of  GDP  in  2023;  its  highest value  since  2000.  A  fall  in  debt  securities  relative  to GDP 
was more than offset by an increase in loan debt. Credit growth was negative in 2023. Overall 
financial vulnerabilities increased during 2023 on account of high leveraging, a deterioration in 
debt service capacity and low profitability. Confidence remains low, and unit profit growth fell 
during  2023,  but  picked  up  somewhat  in  the  beginning  of  2024.  Real  investment  growth 
dropped sharply in 2022 and remained negative in 2023. Additionally, a relatively large share 
of  firms  reported  difficulties  accessing  finance  to  fund  investment  activities  according  to  the 
latest EIB investment survey (111). 

•  Although declining for a number of years, the  high level  of  household debt is a concern,  at 
68% of GDP in 2023. Luxembourg is one of the  few EU Member States where the debt ratio 
grew  and  stood  above  pre-pandemic  levels  in  2023.  Household  debt  is  even  higher  when 
expressed  as  a  ratio  of  household  gross  disposable  income,  coming  in  at  around  135%.  Net 
credit  flows  contracted  strongly  in  2023  on  the  back  of  rising  borrowing  costs.  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, 

(111) EIB Investment Survey 2023: European Union overview. 

115 

 
4. Country sections 

which make up 9% of all households, and a high price-to-income ratio. On the upside, the gross 
savings rate is high, and remains firmly above its pre-pandemic levels.  

•  Concerns  related  to  the  housing  market  persist.  House  prices  are  still  estimated  to  be 
overvalued by 45% in 2023 while in 2022 the overvaluation was estimated to be around 60%. 
Supply constraints continue to support house prices owing to a structural lack of housing supply 
and  low  or  negative  residential  real  estate  investment  growth.  Still,  after  years  of  strong 
growth, house prices exhibited a significant decrease in 2023 by 9.1%. In contrast, house prices 
had  increased  by  13.9%  and  9.6%  in  2021  and  2022  respectively.  In  2024,  the  correction 
continues  with  house  prices  decreasing  by  8.3%  in  2024-Q2,  year-on-year.  The  ongoing 
correction is driven by the adjustment to the current environment of higher interest rates, which 
increased from 1.3% in 2021 to 4.1% in 2023. The continuation of this correction is unlikely as 
high  population  growth,  the  large  number  of  cross-border  workers,  tax  measures  support 
demand while housing supply remains low. Nevertheless, the growth of house prices exceeded 
significantly that of households’ income, with house price-to-income ratio standing more than 
60%  above  the  long-term  average,  with  possible  structural  implications  for  the  domestic 
economy. The number of transacted houses decreases accentuated in 2023, decreasing 43.3% 
after  decreasing  15.1%  in  2022  and  building  permits  decreased  by  7.5%  in  2023  after 
decreasing 22.9% in 2022. In terms of financial stability, in February 2024 the ESRB concluded 
that  the  residential  real  estate  market  in  Luxembourg  was  subject  to  high  risks  and  the 
macroprudential  policy  mix  was  partially  appropriate  and  partially  sufficient  to  mitigate  the 
situation (112). 

•  Government debt remains low. It edged up to 25.5% of GDP in 2023 and is forecast to edge 
up somewhat further in 2024 but to remain low though. The government balance turned into a 
small deficit in 2023, which is expected to persist while standing below 1% of GDP.  

•  The  large  financial  sector  is  stable  but  has  substantial  exposures  to  certain  sectors.  The 
banking  sector  is  well  capitalised,  but  profitability  remained  slightly  below  the  EU  average  in 
2023.  The  ratio  of  non-performing  loans  has been very low  despite  a mild increase  in  2023. 
High household indebtedness, coupled with still ongoing adjustment of overvalued house prices, 
represents the main risk for the domestically oriented banking sector. The credit provision has 
been very muted in 2023. The financial sector is also significantly exposed to the commercial 
real estate sector, although mainly via large investment funds without a direct link to domestic 
real estate.  

(112) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

116 

 
Graph 4.16: Selected graphs, Luxembourg 

4. Country sections 

Source: Eurostat, ECB and European Commission calculations. 

Table 4.16:  Key economic and financial indicators, Luxembourg 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

117 

123456-20-15-10-5051015201415161718192021222324%%a) Housing marketHouse price (y-o-y growth rate, lhs)Loans for house purchase (y-o-y growth rate, lhs)Interest rate (rhs)0501001502002503003504001011121314151617181920212223% of GDPb) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sectoraverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)1.8-1.11.22.3GDP deflator (1 year % change)1.73.43.93.0Harmonised index of consumer prices (1 year % change)1.92.92.32.4External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%7.27.9 6.1 5.7 Current account balance, balance of payments (% of GDP)5.1 (1)2.3 (2)7.76.0 5.7 5.5 Net international investment position (% of GDP)-35%-164.2 (3)65.6 (4)57.133.1 26.2 25.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-3739.2-3867.0 Net lending-borrowing (% of GDP)8.55.6 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)9.320.9 22.8 16.9 Nominal unit labour cost index per hour worked (1 year % change)4.210.9 2.6 2.7 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)1.5-1.5 -3.7 -2.9 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.7-0.5 -0.3 0.2 Export performance against advanced economies (3y % change)-3%2.8-14.4 -10.4 6.2 Export performance against advanced economies (1 year % change)1.21.5 1.1 0.5 Core inflation(5) differential vis-à-vis the euro area (pps.)0.4-1.1 -0.3 0.3 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%124.6 (6)87.5 (7)231.7273.1 262.3 237.4 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%-7.8-25.7 -5.8 -4.6 Cost of borrowing for corporations1.33.84.3Households and housing marketHousehold debt, consolidated (% of GDP)+55%97.2 (6)81.3 (7)65.167.9 65.4 64.0 Household debt, consolidated (% of Households' GDI)133.2134.5 Household credit flow, consolidated (% debt stock t-1)+14%7.31.0 1.2 3.2 House price index, nominal (1 year % change)+9%7.6-9.1 -4.7 -1.0 House prices over/undervaluation gap (8)18.344.7Building permits (m2 per 1000 inh)1640.9913.5 pCost of borrowing for households for house purchase1.74.14.1GovernmentGeneral government gross debt (% of GDP)60%21.725.5 27.5 27.6 General government balance (% of GDP)2.4-0.7-0.6-0.8Banking sectorReturn on equity of banks (%)5.58.3 pTier-1 capital ratio banking sector (% risk-weighted assets)20.618.5 pGross non-performing loans, domestic and foreign entities (% gross loans)0.71.3 p0.9 Labour marketUnemployment rate (% labour force Y15-74)+10%5.7 (9)5.65.2 6.0 6.0 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.51.9 0.8 0.5         
 
 
          
 
4. Country sections 

HUNGARY 

In  Hungary,  vulnerabilities  related  to  price  and  cost  pressures  increased  while  concerns  around 
government debt and house prices remain. Headline and core inflation rates in Hungary were the 
highest in the EU in 2023 and led to pressures on the country’s cost competitiveness, amplified by 
very high unit labour costs growth. Inflationary pressures persist in 2024. The large current account 
deficit  closed  in  2023  amid  a  contraction  in  economic  activity.  The  growth  in  house  prices 
moderated temporarily in 2023 but prices still show signs of overvaluation. The government deficit 
increased in 2023 and is forecast to remain significant in the next few years. 

Real  GDP  growth  reached  -0.9%  in  2023  and  is  forecast  at  1.4%  in  2024  and  2.6%  in  2025.  In 
2023 average headline and core inflation were the highest in the EU. Both decreased markedly but 
remain  above  the  EU  averages,  with  headline  inflation  forecast  to  stand  at  3.8%  in  2024.  The 
unemployment rate increased slightly in 2023 and stood at 4.1%, well below the EU average. It is 
forecast to increase to 4.5% in 2024 and to stand at 4.2% in 2025.  

The  scoreboard  reading  for  Hungary  shows  that  four  indicators  were  beyond  their  indicative 
thresholds in 2023, namely  the  net international investment position, the real effective exchange 
rate, unit labour costs, and government debt. Relevant developments worth highlighting: 

•  External  sustainability  concerns  have  receded  somewhat  in  recent  years.  In  2023,  the 
current account balance shifted to a small surplus of 0.8% from a deficit of 8.5% of GDP in 
2022,  mainly  driven  by  softened  domestic  demand  due  to  the  recession  and  falling  energy 
prices. The current account has continued to increase this year and is projected to reach around 
1% of GDP in 2025. The net international investment position (NIIP) increased from -44.6% of 
GDP  in  2022  to  -36.8%  in  2023,  mainly  on  the  back  of  nominal  GDP  growth  and  valuation 
effects and is forecast to increase further.  

•  Cost competitiveness concerns persist. In 2023 core inflation was 9.1 pps. above euro area 
value,  and  the  differential  remains  high  (2.9 pps.  in  September  2024).  Last  year,  the  HICP-
based  REER  appreciated  by  more  than  15%,  on  the  back  of  a  nominal  exchange  rate 
appreciation and high inflation. By mid-2024 it depreciated on account of nominal depreciation. 
Strong  nominal  wage  growth  pushed  ULC  to  increase  by  more  than  15%  in  2023,  while 
productivity growth was subdued on account of the recession. The 3-year increase in ULC has 
been  above  the  scoreboard  threshold  since  2019.  ULC  continued  to  grow by close  to  12% in 
2024-Q2; for 2024 as a whole and for 2025, ULC growth is forecast to be among the highest 
in the EU. 

•  Risks  associated  with  corporate  debt  are  receding  as  the  debt-to-GDP  ratio  declined  from 
63% in 2022 to 56% in 2023. This decrease can to a large extent be attributed to a marked 
fall in FDI debt-to-GDP. Credit growth eased but remained considerably above the EU average 
at close to 8%, which was favoured by sizeable government-subsidised loan programmes. The 
interest coverage ratio fell as interest expenses increased, but less than in most of the other EU 
countries. Bankruptcies picked up during 2023, while new business registrations fell. Business 
confidence  remains  low  across  sectors,  and  unit  profit  growth  has  fallen  markedly  from  its 
peak in the beginning of 2023.  

•  The  household  debt-to-GDP  ratio  was  low  and  declined  in  2023,  reaching  17%.  Net  credit 
flows to households continued to moderate in 2023 amid higher interest rates but are expected 
to  pick  up  in  2024.  The  major  driver  has  been  the  rise  in  borrowing  costs,  which  peaked  at 
around 11% in January 2023 but have since then come down somewhat to less than 7% by 

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4. Country sections 

mid-2024. The proportion of non-performing loans is on the decline but remained around 4% 
of all loans to households in 2023. 

•  There are concerns related to the housing market, as house prices continue to grow strongly. 
House price growth moderated to 9.8% in 2024-Q2 from its peak of 22.3% in 2022, but house 
prices were estimated to be overvalued by around 15% in 2023. Since 2014 until 2023, house 
price  growth  exceeded  households’  income  growth  resulting  in  increased  concerns  about 
housing  affordability.  The  house  price-to-income  ratio  stands  27%  above  the  long-term 
average  in  2023.  Mortgage  rates  increased  from  4.2%  in  2021  to  9.8%  in  2023.  The 
adjustment to higher interest rates has reduced housing transactions and building activity. The 
number of housing transactions reduced 9.9% and 27.0% in 2022 and 2023, respectively while 
building permits fell by nearly 40% in 2023, which may suggest a lower supply in the future 
and  the  subsequent  risk  of  lingering  price  pressures.  Despite  the  decline  in  transactions, 
mortgage credit increased in 2023, after some stagnation in 2022, driven by mortgage subsidy 
schemes  and  lower  lending  rates.  In  terms  of  financial  stability,  in  February  2024  the  ESRB 
concluded that the residential real estate market in Hungary was subject to medium risks and 
the macroprudential policy mix was appropriate and sufficient to mitigate the situation (113). 

•  Government  debt  is  significant  and  not  declining  while  deficits  remain  high.  While 
government  debt  decreased  very  slightly  to  73.4%  of  GDP  in  2023,  it  is  still  above  its  2019 
pre-COVID-19  level  by  some  8 pps.  and  is  not  forecast  to  improve  by  2025.  Government 
deficits  have  been  sizeable  since  2020,  but  their  impact  on  the  debt-to-GDP  ratio  has  been 
mitigated so far by strong nominal GDP growth. The budget deficit worsened to 6.7% of GDP in 
2023 and is forecast to narrow gradually in 2024 and 2025, while staying significant at well 
above 3% of GDP. Government gross financing needs have been sizeable. A significant share of 
government debt is denominated in foreign currencies (around 30%) or held by non-residents. 
While  Hungarian  sovereign  bond  yields  declined  in  the  course  of  2023,  and  by  more  than 
benchmark yields, they continue to be among the highest in the EU and have not receded in the 
course  of  2024.  The  increase  in  interest  expenditure  was  particularly  strong  in  2023  and 
spending on interest is expected to remain elevated in 2025 at least. Government guarantees 
are  significant  and  have  been  increasing  in  recent  years.  An  excessive  deficit  procedure  has 
been opened for Hungary this July.  

•  The financial sector remains sound overall, but some vulnerabilities remain. Bank profitability 
strongly increased in 2023 to above the EU average, whereas the Common Equity Tier 1 capital 
ratio  remained  slightly  below.  The  non-performing  loans  ratio  has  been  declining  (2.5%  in 
2023),  while  the  Stage  2  loans  ratio  has  increased  significantly  since  2020.  Government 
policies, including specific taxes on the banking sector and interest rate caps, have an adverse 
impact on profitability, which was nonetheless overcome by higher interest income on deposits 
held at the central bank and weak repricing on rates of deposit held in commercial banks. The 
extensive use of caps on loans and deposits rates hampers the working of monetary policy too. 
Hungarian banks’ exposure to domestic sovereign debt is among the highest in the EU even if it 
has declined in recent years, and the government is promoting tax incentives for banks to hold 
more sovereign debt.  

(113) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

119 

 
Graph 4.17: Selected graphs: Hungary 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.17:  Key economic and financial indicators, Hungary 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

120 

-15-10-505101516171819202122232424*25*26*% of GDPa) Current account, 4-quarter moving sumGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing-505101520131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)b) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)4.9-0.90.61.8GDP deflator (1 year % change)4.514.67.24.1Harmonised index of consumer prices (1 year % change)2.917.03.83.6External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%1.8-3.9 -1.9 1.3 Current account balance, balance of payments (% of GDP)-0.3 (1)-4.3 (2)0.50.8 2.0 1.1 Net international investment position (% of GDP)-35%-53.3 (3)-15.4 (4)-46.5-36.8 -34.3 -31.8 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-4.6-6.7 Net lending-borrowing (% of GDP)2.11.7 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)10.635.4 p48.4 37.6 Nominal unit labour cost index per hour worked (1 year % change)3.915.3 p12.5 6.0 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)0.910.2 6.4 9.3 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.215.2 -2.1 -0.7 Export performance against advanced economies (3y % change)-3%2.81.2 4.2 7.2 Export performance against advanced economies (1 year % change)0.97.5 0.4 4.0 Core inflation(5) differential vis-à-vis the euro area (pps.)0.99.1 3.2 1.5 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%60.7 (6)46.1 (7)50.355.5 p54.6 55.4 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%9.28.0 6.9 7.4 Cost of borrowing for corporations1.712.79.3Households and housing marketHousehold debt, consolidated (% of GDP)+55%41.6 (6)32.5 (7)18.316.9 p16.8 17.3 Household debt, consolidated (% of Households' GDI)27.224.1 24.3 26.6 Household credit flow, consolidated (% debt stock t-1)+14%7.53.4 7.4 9.0 House price index, nominal (1 year % change)+9%14.57.1 p10.0 6.0 House prices over/undervaluation gap (8)1.815.3Building permits (m2 per 1000 inh)406.5259.6 pCost of borrowing for households for house purchase4.59.87.2GovernmentGeneral government gross debt (% of GDP)60%68.673.4 74.5 74.5 General government balance (% of GDP)-2.2-6.7-5.4-4.6Banking sectorReturn on equity of banks (%)14.521.8 pTier-1 capital ratio banking sector (% risk-weighted assets)15.617.0 pGross non-performing loans, domestic and foreign entities (% gross loans)6.02.5 p2.3 Labour marketUnemployment rate (% labour force Y15-74)+10%5.0 (9)3.64.1 4.5 4.3 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp3.52.9 2.6 1.9         
 
 
          
 
4. Country sections 

MALTA 

Economic activity grew robustly in Malta and inflation developments were in line with the euro area 
average. Cost pressures were limited, and unit labour costs were stable in 2023 while the current 
account turned to a surplus. Despite a small decrease, the government deficit remains sizable and 
is forecast to narrow only gradually in the next years.  

Real GDP growth reached 7.5% in 2023 and is forecast at 5.0% in 2024 and 4.3% in 2025. Both 
headline  and  core  inflation  decreased  gradually  in  2023  and  2024,  broadly  in  line  with  the  euro 
area averages. Headline inflation, which stood at 5.6% in 2023, is forecast to decrease to 2.5% in 
2024. The unemployment rate stood at 3.5% in 2023 and is forecast to decrease to close to 3% in 
2024-2025.  

The scoreboard reading for Malta shows that two indicators were beyond their indicative threshold 
in  2023,  namely  the  export  performance  against  advanced  economies  and  NFC  credit  flows. 
Relevant developments worth highlighting: 

•  The  external  sector  is  characterised  by  a  positive  current  account  and  net  international 
investment position. In 2023, the current account balance shifted from a deficit of 0.8% of GDP 
in 2022 to a surplus of 6.4%, with a trade in services surplus more than offsetting the deficits 
in trade in goods and primary income. The current account is expected to  somewhat decrease 
but  remain  above  5%  of  GDP  over  the  forecast  period.  The  net  international  investment 
position (NIIP) decreased markedly from around 100 % of GDP in 2022 to around 93% of GDP 
in  2023.  Still,  it  remains  large,  reflecting  the  country’s  position  as  an  international  financial 
centre. 

•  Cost competitiveness developments were contained, supported by inflation rates very close 
to those in the euro area. Last year, REER appreciated  on account of the nominal  euro gains, 
and  continued  to  appreciate  by  mid-2024  as  well,  albeit  at  lower  magnitudes  due  to  more 
favourable inflation differentials. ULC were broadly constant (-0.1%), as productivity advances 
were strong and nominal compensation increases subdued.   

•  The corporate debt-to-GDP ratio remained stable at 70% as a result of strong credit growth. 
Reductions  in  FDI  debt-to-GDP  were  offset  by  an  increase  in  debt  excl.  FDI  relative  to  GDP. 
Credit growth accelerated to around 18%, the second highest value across the EU.   

•  Household debt  is on a declining path. The household debt-to-GDP ratio dropped to  49% in 
2023. A further reduction is expected for 2024. Net credit flows to households remained robust 
in 2023 as borrowing costs continued to be fairly low and stable over the last few years. Credit 
flows are expected to remain stable in 2024. 

•  The  housing  market  remains  stable.  House  prices  are  estimated  not  to  be  overvalued  but 
increased  by  6.2%  in  2023.  In  2021  and  2022,  house  prices  increased  by  5.1%  and  6.7%, 
respectively, and in 2024 this pace continues, with an annual increase of 7% in 2024-Q2. The 
evolution of house prices has been broadly in line with households’ income and mortgage rates 
remain low and stable at 2.1% 2023. In terms of financial stability, in February 2024 the ESRB 
concluded that the residential real estate market in Malta was subject to medium risks and the 
macroprudential policy mix was appropriate and sufficient to mitigate the situation (114). 

(114) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

121 

 
4. Country sections 

•  Government debt is limited but deficits remain significant. While government debt decreased 
to  47.4%  of  GDP  in  2023,  it  is  some  8 pps.  above  its  2019  pre-COVID-19  level,  and  debt  is 
forecast  to  increase  in  2024  and  2025.  Government  deficits  remain  significant  despite  a 
reduction to 4.5% of GDP in 2023 and are forecast to remain above 3% of GDP in 2024 and 
2025. An excessive deficit procedure has been opened for Malta this July.  

•  The  financial  sector  remains  sound  overall.  The  banking  sector  has  high  levels  of 
capitalisation and its profitability improved significantly in 2023, remaining only slightly below 
the EU average. The non-performing loans ratio, at 1.9% (as of second quarter of 2024), has 
been slightly above the EU average. The financial sector has a relatively high exposure to the 
housing market, but housing market has been growing with no sign of overvaluation. 

Graph 4.18: Selected charts for Malta 

Source: ECB, Eurostat and European Commission calculations. 

122 

02040608010012014016018005101520060810121416182022242015=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 axis010203040506070802021222324% of GDPb) Bank exposure to real estate (mortgage credit as % of GDP)NFCHouseholds      
 
Table 4.18:  Key economic and financial indicators, Malta 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

123 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)8.07.55.04.3GDP deflator (1 year % change)2.15.32.62.5Harmonised index of consumer prices (1 year % change)1.55.62.52.2External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%11.45.0 3.7 5.8 Current account balance, balance of payments (% of GDP)-2.2 (1)2.6 (2)16.76.4 5.6 5.5 Net international investment position (% of GDP)-35%-84.3 (3)-16.4 (4)82.692.9 104.6 104.2 NENDI - NIIP excluding non-defaultable instruments (% of GDP)85.6142.5 Net lending-borrowing (% of GDP)18.67.6 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)6.10.4 9.4 6.9 Nominal unit labour cost index per hour worked (1 year % change)3.1-0.1 3.8 3.0 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)1.3-0.5 -3.0 -0.5 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.64.2 -0.1 -0.1 Export performance against advanced economies (3y % change)-3%3.8-10.7 6.8 13.8 Export performance against advanced economies (1 year % change)2.811.7 5.4 2.2 Core inflation(5) differential vis-à-vis the euro area (pps.)0.20.0 -0.8 -0.5 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%56.4 (6)59.2 (7)72.169.6 64.8 61.5 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%5.218.1 1.7 1.5 Cost of borrowing for corporations3.85.04.8Households and housing marketHousehold debt, consolidated (% of GDP)+55%45.2 (6)40.2 (7)51.949.1 48.9 49.8 Household debt, consolidated (% of Households' GDI)84.580.0 Household credit flow, consolidated (% debt stock t-1)+14%10.26.8 7.4 8.7 House price index, nominal (1 year % change)+9%5.76.2 p7.1 5.0 House prices over/undervaluation gap (8)3.8-5.1Building permits (m2 per 1000 inh)3710.52221.9 Cost of borrowing for households for house purchase2.72.22.1GovernmentGeneral government gross debt (% of GDP)60%42.147.4 49.8 50.4 General government balance (% of GDP)2.0-4.5-4.0-3.5Banking sectorReturn on equity of banks (%)6.110.7 pTier-1 capital ratio banking sector (% risk-weighted assets)20.222.1 pGross non-performing loans, domestic and foreign entities (% gross loans)3.12.0 p1.9 Labour marketUnemployment rate (% labour force Y15-74)+10%3.5 (9)4.03.5 3.2 3.1 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp4.64.7 4.0 2.3  
          
 
4. Country sections 

THE NETHERLANDS 

Concerns related to the high current account surplus, to private debt, and to house prices remain. 
The current account surplus reached 10% of GDP in 2023 and is forecast to remain at this level in 
coming years. Economic activity remained subdued as the external environment held back exports 
while  private  consumption  weakened.  Private  sector  debt-to-GDP  ratios  remain  high  and  house 
prices continue to be overvalued despite a small correction in 2023.  

Real  GDP  growth  reached  0.1%  in  2023  and  is  forecast  at  0.8%  in  2024  and  1.6%  in  2025. 
Headline inflation decreased throughout 2023 and stood below the euro area average in 2023, at 
4.1%.  It  is  forecast  to  decrease  to  3.2%  in  2024.  Core  inflation  was  well  above  the  euro  area 
average  in  2023  but  has  decreased  broadly  in  line  with  the  euro  area  average  in  2024.  The 
unemployment  rate  was  stable  in  2023,  at  3.6%.  It  is  forecast  to  increase  gradually  to  3.8%  in 
2025. 

The scoreboard reading for the Netherlands shows that four indicators were beyond their indicative 
thresholds in 2023, namely the current account balance, unit labour costs, household debt, and NFC 
debt. Relevant developments worth highlighting: 

•  External  sustainability  concerns  related  to  the  high  and  long-standing  current  account 
surplus remain. In 2023, the current account surplus increased to 9.9% of GDP from 6.6% in 
2022, and it is expected to increase in the coming years, far exceeding the levels explained by 
economic  fundamentals.  Despite  rather  resilient  domestic  demand,  the  surplus  increased 
further  mainly  due  to  terms  of  trade  effects.  The  primary  income  balance  increased  slightly, 
remaining  above  the  pre-pandemic  average.  The  net  international  investment  position  (NIIP) 
remained  broadly  unchanged  in  2023,  at  52.9%,  but  is  expected  to  increase  strongly  in  the 
coming years, owing to high current account surpluses.  

•  Cost  competitiveness  developments  remain  contained.  In  2023  core  inflation  was  1.4 pps. 
above euro area value, but by September 2024 the differential decreased to 0.9 pps. Last year, 
the HICP-based REER appreciated marginally, as nominal exchange rate gains of the euro were 
offset by favourable inflation differentials. The REER remained constant over the first half of 
2024. ULCs increased strongly in 2023, at close to 8%, and somewhat higher in the rest of the 
euro  area,  driven  by  robust  nominal  wage  growth  and  losses  in  productivity  per  hour,  as 
economic activity was subdued. 

•  Corporate debt is high but decreased from 129% of GDP in 2022 to 114% in 2023. Despite 
reaching  its  lowest  level  in  two  decades,  the  debt-to-GDP  ratio  remains  elevated.  Special 
purpose entities have played an important role in the Netherlands, but their number as well as 
the  foreign  assets  held  by  them  have  decreased  over  the  last  years.  By  the  end  of  2023, 
special  purpose  entities  accounted  for  around  30%  of  FDI  liabilities  in  the  Netherlands  (115). 
Bankruptcies picked  up during  2023,  while  new  business  registrations  remained  stable.  Profit 
indicators  such  as  unit  profit  growth  deteriorated  in  2023.  Corporate  investment  activity  has 
been weak compared to the EU average with both real investment growth and the investment 
share falling further in 2023.  

•  Despite  a  marked  decrease  over  recent  years,  household  debt  concerns  remain.  The 
household  debt-to-GDP  ratio  decreased  by  6 pps.  in  2023  to  just  below  95%  of  GDP, 

(115) Decreased activity among mostly smaller special purpose entities | De Nederlandsche Bank (dnb.nl) and Understanding the 

relevance of special purpose entities across the euro area | ECB Data Portal (europa.eu) 

124 

 
4. Country sections 

significantly above the MIP threshold of 55% (116). It is expected to decrease further in 2024. 
The  debt  ratio  is  even  higher  when  expressed  as  a  proportion  of  adjusted  household  gross 
disposable  income,  at  144%.  Net  credit  flows  to  households contracted  significantly  in  2023, 
but are picking up in 2024. On the downside, the 2021 Household Finance Consumption Survey 
suggests  a  high  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. On the upside, household gross savings are high and stable. 

•  Concerns  related  to  the  housing  market  remain,  in  view  of  high  household  indebtedness. 
House  prices  are  estimated  to  be  overvalued  by  around  15%  despite  a  decrease  of  1.9%  in 
2023. House prices had grown by 14.5% and 13.3% in 2021 and 2022, respectively, and they 
grew  by  7.7%  year-on-year  in  2024-Q2.  The  temporary  moderation  follows  several  years  of 
strong  growth  of  house  prices  above  the  growth  of  households’  income  and  is  partially 
correcting the existing overvaluation. House prices are expected to remain on a moderated path 
in 2024 and 2025 but risk to pick up strongly on the back of increased wages and a continuing 
lack  in  housing  supply.  Mortgage  rates  increased  from  1.7%  in  2021  to  3.8%  in  2023, 
moderating  mortgage  credit  that  nonetheless  continued  to  increase  in  2023  by  2.9%.  The 
adjustment  to  the  higher  interest  rate  environment  occurred  more  significantly  on  the 
quantities side with both house transactions and building permits falling. The number of house 
transactions fell by 16.2% and 8.7%, while building permits fell by 14.9% and 14.3% in 2022 
and  2023,  respectively.  The  evolution  of  house  prices  exceeded  slightly  households’  income 
which is reflected in the house price-to-income ratio standing around 7% above the long-term 
average.  In  terms  of  financial  stability,  in  February  2024,  the  ESRB  concluded  that  the 
residential  real  estate  market  in  the  Netherlands  was  subject  to  high  risks  and  the 
macroprudential  policy  mix  was  appropriate  and  partially  sufficient  to  mitigate  the 
situation (117). 

•  Government  debt  remains  limited.  Government  debt  declined  further  to  45.1%  of  GDP  in 
2023,  while  it  is  forecast  to  remain  close  to  that  level  in  2024  and  2025  on  average  on 
account  of  the  expected  moderate  government  deficits,  after  a  balanced  position  in  2023. 
Yields on Dutch sovereign bonds remain one of the lowest in the euro area.  

•  The financial sector is characterised by sound banks and a complex non-banking sector.  The 
capitalisation of banks has been stable in 2023 and remained slightly below the EU average. 
Profitability  increased  but  remained  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  been  very  muted  amid  tight  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. 

(116) A data correction by Statistics Netherlands in July 2024 increased the household debt ratio by almost 10 ppt. See here for 

more details. 

(117) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

125 

 
Graph 4.19: Selected graphs: The Netherlands 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.19:  Key economic and financial indicators, The Netherlands 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

126 

-10-50510152016171819202122232424*25*26*% of GDPa) Current account, 4-quarter moving sumGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing-15-10-5051015202502040608010012014016018020006081012141618202224Rate of change y-o-y (%)2015 = 100b) Nominal house pricesNominal house price indexNominal house price growth rate, right axisaverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)2.50.10.81.6GDP deflator (1 year % change)2.37.35.03.0Harmonised index of consumer prices (1 year % change)1.94.13.22.4External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%7.68.8 9.2 10.7 Current account balance, balance of payments (% of GDP)1.7 (1)2.3 (2)8.09.9 11.1 11.1 Net international investment position (% of GDP)-35%-95.9 (3)36.2 (4)52.652.9 47.9 57.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-9.513.8 Net lending-borrowing (% of GDP)7.49.6 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)3.99.2 p17.3 18.2 Nominal unit labour cost index per hour worked (1 year % change)2.17.9 p6.1 3.4 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)1.32.4 1.6 -1.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.81.1 0.6 0.1 Export performance against advanced economies (3y % change)-3%3.3-2.0 -4.0 -4.3 Export performance against advanced economies (1 year % change)1.60.4 -2.5 -0.4 Core inflation(5) differential vis-à-vis the euro area (pps.)0.21.4 0.4 0.4 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%75.0 (6)107.0 (7)139.3114.3 p107.0 102.9 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%-0.2-1.4 -2.8 0.6 Cost of borrowing for corporations1.33.94.3Households and housing marketHousehold debt, consolidated (% of GDP)+55%47.2 (6)69.5 (7)111.794.5 p92.3 91.5 Household debt, consolidated (% of Households' GDI)170.9143.8 148.5 149.3 Household credit flow, consolidated (% debt stock t-1)+14%2.31.1 p3.4 3.8 House price index, nominal (1 year % change)+9%8.2-1.9 8.6 8.0 House prices over/undervaluation gap (8)-1.814.2Building permits (m2 per 1000 inh)670.4464.3 pCost of borrowing for households for house purchase2.43.83.9GovernmentGeneral government gross debt (% of GDP)60%51.745.1 43.3 44.3 General government balance (% of GDP)1.5-0.4-0.2-1.9Banking sectorReturn on equity of banks (%)8.211.1 pTier-1 capital ratio banking sector (% risk-weighted assets)18.918.6 pGross non-performing loans, domestic and foreign entities (% gross loans)1.91.3 p1.4 Labour marketUnemployment rate (% labour force Y15-74)+10%3.8 (9)5.13.6 3.7 3.8 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.82.1 2.1 1.1         
 
 
          
 
4. Country sections 

AUSTRIA 

In  Austria,  high  and  persistent  inflationary  pressures  have  weighed  on  economic  activity  while 
concerns about cost competitiveness have increased. Economic activity contracted in 2023, as the 
decline in real wages weighed on private consumption. While real wages then increased following 
the  wage  rounds  at  the  end  of  2023,  private  consumption  has  remained  muted,  and  investment 
has declined amid high interest rates. Unit labour costs increased strongly in 2023 and are forecast 
to increase further in 2024. The government deficit is expected to  be above 3% of GDP in 2024-
2025. House prices remain overvalued despite their recent decrease. 

Real  GDP  declined  by  1.0%  in  2023  and  is  forecast  to  contract  further  by  0.6%  in  2024  before 
growing by 1.0% in 2025. In 2023, both average headline and core inflation rates were noticeably 
above the  euro  area  averages,  at  7.7%  and  7.3%,  respectively.  While  the  gap  narrowed  in  2024, 
core  inflation  is  forecast  to  average  3.9%  this  year.  The  unemployment  rate  increased  mildly  to 
5.1% in 2023 and is forecast to increase slightly further to 5.3% in 2024-2025.  

The  scoreboard  reading  for  Austria  shows  that  two  indicators  were  beyond  their  indicative 
thresholds in 2023, namely unit labour costs, and government debt. Relevant developments worth 
highlighting: 

•  External  sustainability  indicators  remained  close  to  balance  in  2023.  The  current  account 
recorded a moderate surplus and the net international investment position remained positive.  

•  The evolution of cost competitiveness indicators mainly reflected moderately higher inflation 
than in the euro area aggregate. In 2023, core inflation was 2.3 pps. above the euro area value 
due to services inflation which remains elevated on the back of high nominal wage increases, 
hence maintaining the high core inflation differential vis-à-vis the euro area. In 2023, the HICP-
based REER appreciated by close to 4%, as both nominal euro gains and unfavourable inflation 
differentials  contributed.  It  continued  to  appreciate  by  mid-2024,  albeit  more  slowly.  ULC 
increased strongly, by almost 9% in 2023 as productivity dropped on account of the subdued 
economic  activity  and  nominal  wage  increases  were  robust  to  catch  up  with  the  high  past 
inflation. The 3-year increase in ULC has been very close to or above the scoreboard threshold 
since 2020. 

•  Corporate debt declined from 74% of GDP in 2022 to 71% in 2023, but debt servicing costs 
increased while profitability and activity indicators weakened.  In contrast to the general trend 
of  loan-driven  deleveraging  in  the  EU,  debt  securities  contributed  strongly  to  deleveraging  in 
Austria.  The  interest  coverage  ratio  fell  markedly  due  to  a  strong  rise  in  the  interest  burden. 
Borrowing costs have plateaued in line with euro area average but remain high and will further 
affect debt service costs as more than half of the loans to Austrian NFCs have interest rates 
resetting  in  2024.  Corporate  vulnerabilities  increased  more  than  in  other  EU  countries  as 
activity remained  weak, profitability low, and debt service capacity deteriorated. The share of 
NPLs and bankruptcies rose. The profit share fell sharply over the course of 2023, as did gross 
operating surplus as a percentage of GDP and unit profit growth.  

•  Household  debt  is  at moderate  levels  and  continues  to  decline.  The  household  debt-to-GDP 
ratio declined to 45% in 2023 and is expected to further decrease in 2024. Net credit flows to 
households  turned  negative  in  2023  and  are  expected  to  continue  doing  so  in  2024. 
Households’ gross savings are robust and stable and remain above pre-pandemic levels.  

•  Concerns  related  to  the  housing  market  remain  despite  a  recent  reduction  in  house  prices. 
While  house  prices  are  still  overvalued  by  an  estimated  15-20%,  this  is  a  decline  relative  to 

127 

4. Country sections 

last  year  when  house  prices  were  overvalued  by  an  estimated  30%.  In  2023  house  prices 
decreased  by  2.9%  and  in  2024-Q2  continued  decreasing  at  0.7%,  year-on-year.  The  current 
moderation  follows  years  of  noticeable  growth  and  is  driven  by  the  adjustment  to  higher 
interest rates. Structural implications for the domestic economy could arise from high prices, as 
house price growth has exceeded the pace of household income growth by more than 45 pps. 
since 2008. Mortgage rates increased from 1.2% in 2021 to 3.9% in 2023, impacting mortgage 
credit  that  shrunk  by  2.4%  in  2023.  The  adjustment  to  higher  interest  rates  resulted  in  the 
number of house transactions declining by 17.0% and 27.4%, while that of building permits by 
18.4%  and  33.8%  in  2022  and  2023,  respectively. In  terms  of  financial  stability,  in  February 
2024  the  ESRB  concluded  that  the  residential  real  estate  market  in  Austria  was  subject  to 
medium  risks  and  the  macroprudential  policy  mix  was  appropriate  and  sufficient  to  mitigate 
the situation (118). 

•  Government  debt  is  moderate  but  is  increasing.  While  government  debt  was  essentially 
unchanged at 78.6% of GDP in 2023, it is some 8 pps. above its 2019 pre-COVID-19 level and 
is forecast to increase in 2024 and 2025. The government deficit narrowed further to 2.6% of 
GDP in 2023 but is forecast to worsen to over 3% in 2024 and to not improve in 2025. Gross 
financing needs increased visibly in recent years but are expected to decline marginally and to 
come close to the euro area average amid an average debt maturity that is the highest in the 
euro area; yields on Austrian sovereign bonds have narrowed marginally in comparison with the 
best rate euro area sovereign debt since late 2022 and stayed much unchanged for most of 
2024.  This  November,  the  Commission  communicated  that  it  will  consider  proposing  to  the 
Council  to  open  an  excessive  deficit  procedure  for  Austria  (119).  Fiscal  sustainability  risks  are 
high in the medium term and medium in the long term (120).  

•  The financial sector remains stable. The Common Equity Tier 1 capital ratio remained stable 
in  2023,  while  profitability  increased,  and  both  are  slightly  below  the  EU  average.  The  non-
performing loans ratio slightly increased to 2.2% (as of second quarter of 2024), and the Stage 
2  ratio  stagnated  at  levels  well  above  the  EU  average.  The  provision  of  credit,  notably 
mortgages,  has  further  declined.  The  existing  exposure  of  the  banking  sector  to  Russia 
represents a source of risk. 

(118) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”.. 
(119) Report  prepared  in  accordance  with  Article  126(3) of  the  Treaty  on  the  Functioning of  the  European  Union,  26.11.2024, 

COM(2024) 959 final. 

(120) Estimated based on the Commission’s 2024 spring forecast. 

128 

 
Graph 4.20: Selected graphs: Austria 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.20:  Key economic and financial indicators, Austria 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

129 

-10-5051015131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27-10-50510152002040608010012014016018020006081012141618202224Rate of change y-o-y (%)2015 = 100b) Nominal house priceNominal House Price Index (2015=100), right axisNominal House Price (y-o-y growth rate), right axisaverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)2.2-1.0-0.61.0GDP deflator (1 year % change)1.46.64.22.3Harmonised index of consumer prices (1 year % change)1.97.72.92.1External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%1.60.7 0.7 1.4 Current account balance, balance of payments (% of GDP)1.4 (1)0.6 (2)1.51.3 1.6 1.4 Net international investment position (% of GDP)-35%-84.2 (3)18.4 (4)7.516.6 20.7 21.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-4.2-5.6 Net lending-borrowing (% of GDP)1.31.8 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)5.010.3 19.9 20.7 Nominal unit labour cost index per hour worked (1 year % change)1.88.6 8.2 2.8 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)2.51.8 0.8 1.2 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.73.9 0.3 -0.2 Export performance against advanced economies (3y % change)-3%1.3-1.4 -0.9 -0.4 Export performance against advanced economies (1 year % change)0.63.2 -1.1 -1.2 Core inflation(5) differential vis-à-vis the euro area (pps.)0.82.4 1.1 -0.1 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%69.5 (6)70.9 (7)72.771.4 69.4 67.6 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%4.01.3 0.2 0.6 Cost of borrowing for corporations1.54.55.0Households and housing marketHousehold debt, consolidated (% of GDP)+55%48.1 (6)68.2 (7)49.745.0 42.9 43.2 Household debt, consolidated (% of Households' GDI)69.660.7 58.4 60.7 Household credit flow, consolidated (% debt stock t-1)+14%2.9-1.6 -1.2 3.9 House price index, nominal (1 year % change)+9%5.7-2.9 0.0 1.0 House prices over/undervaluation gap (8)8.020.8Building permits (m2 per 1000 inh)934.1467.7 eCost of borrowing for households for house purchase1.83.94.1GovernmentGeneral government gross debt (% of GDP)60%74.978.6 79.5 80.8 General government balance (% of GDP)0.0-2.6-3.6-3.7Banking sectorReturn on equity of banks (%)8.412.8 pTier-1 capital ratio banking sector (% risk-weighted assets)16.118.1 pGross non-performing loans, domestic and foreign entities (% gross loans)2.82.1 p2.2 Labour marketUnemployment rate (% labour force Y15-74)+10%5.1 (9)5.35.1 5.3 5.3 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp1.01.8 1.1 1.1      
 
 
          
 
4. Country sections 

POLAND 

In Poland, high inflation increased pressures on cost competitiveness. Inflation rates were among 
the  highest  in  the  EU  in  2023,  with  high  services  inflation  and  wage  increases  pushing  core 
inflation. Inflation rates have converged closer to euro area averages in 2024. Poland’s REER has 
continued to appreciate. Nominal unit labour costs increased markedly in 2023 but are set to slow 
in 2024. At the same time, Poland recorded a current account surplus in 2023 and gained export 
market  shares  against  other  advanced  economies.  The  government  deficit  has  widened  and  is 
forecast to remain significant, partly reflecting higher defence spending.  

Real GDP growth declined to 0.1% in 2023 and is forecast to increase to 3.0% in 2024 and 3.6% in 
2025,  which  would  make Poland  among  the  fastest  growing  economies  in the  EU.  Both  headline 
inflation  and  core  inflation  were  among  the  highest  in  the  EU  in  2023,  at  10.9%  and  9.3% 
respectively,  despite  subdued  economic  activity.  They  have  decreased  markedly  towards  EU 
averages and headline inflation is forecast to stand at 3.8% in 2024. The unemployment rate stood 
at 2.8% in 2023, among the lowest in the EU. It is forecast to remain broadly stable in 2024-2025.   

The scoreboard reading for Poland shows that one indicator was beyond its indicative threshold in 
2023, namely unit labour costs. Relevant developments worth highlighting: 

•  External  sustainability  improved  somewhat  as  the  current  account  turned  positive.  The 
current account balance turned from a deficit of 2.2% of GDP in 2022 into a surplus of 1.8% in 
2023, due to an increase in both energy and non-energy goods balances. The current account is 
expected  to  slightly  decrease  but  to  remain  in  surplus  over  2024  and  2025.  The  net 
international  investment  position  (NIIP)  slightly  increased  in  2023,  to  -32.6%  of  GDP,  and  is 
expected to further increase. The NIIP excluding non-defaultable instruments (NENDI) is slightly 
positive.  

•  Cost competitiveness concerns remain. In 2023, core inflation was 4.3 pps. Above the euro 
area value, but by September 2024, the differential decreased to 1 pp. In 2023, the HICP-REER 
(42  trade  partners)  appreciated  strongly,  by  almost  11%,  with  both  nominal  exchange  rate 
appreciations  and  high  inflation  rate  differentials  contributing.  By  mid-2024,  the  HICP-REER 
continued  to  appreciate  by  more  than  6%,  on  account  of  strong  nominal  zloty  gains  in  the 
context of rising real interest rates. Nominal wage growth was strong in 2023, including due to 
a large minimum wage increase, and much in excess of productivity growth, pushing ULCs to 
increase by close to 13%. As productivity is set to accelerate and the labour market to cool, the 
ULC increase is expected to slow in 2024 and 2025. In terms of export market shares against 
advanced economies, Poland continues to perform strongly. 

•  The corporate debt-to-GDP ratio continued to fall and stood at 32% in 2023. Credit growth, 
measured  as  credit  flows  excl.  FDI  relative  to  lagged  debt  stock,  fell  compared  to  2022,  but 
remained  at  4%.  In  2023,  the  share  of  total  corporate  non-performing  loans  out  of  total 
corporate  gross  loans  and  advances  decreased  further  but  remains  at  over  5%.  Unit  profit 
growth fell sharply during 2023, turning negative at the beginning of 2024. Poland has a low 
investment rate compared to the EU average and regional peers, while real investment growth 
improved  markedly  in  2023,  the  final  year  in  which  EU  funding  from  the  2014-20 
programming period could be spent.  

•  Household debt continues to decline as a share of GDP. The household debt-to-GDP ratio is 
low,  at  24%  in  2023,  and  is  expected  to  further  decline  in  2024.  As  a  result  of  the 
extraordinary  rise  in  borrowing  costs,  net  credit  flows  to  households  dropped  to  negative 
territory in 2022. They hovered around zero in 2023 but are expected to pick up in 2024. The 

130 

4. Country sections 

cost  of borrowing  peaked at  above  9%  in  November  2022  and  has  since  come  down to  less 
than 8% by mid-2024. The proportion of NPLs remains stable at close to 5% of all household 
loans in 2023, a still relatively high level compared to the EU average. 

•  The  housing  market  has  been  characterised  by  strong  house  price  growth  recently.  House 
prices were growing at a significant pace in 2023, by 8.8% and showing signs of acceleration, 
increasing  by  17.7%  in  2024-Q2  in  the  context  of  rising  demand  for  housing  as  well  as 
additional  mortgage  support  for  first  time  buyers  adopted  in  the  runup  to  the  2023 
parliamentary  elections.  However,  there  are  no  signs  of  overvaluation  as  house  price  growth 
has  been  broadly  in  line  with  household  income  since  2013.  Mortgage  rates  increased 
significantly from 3.1% in 2021 to 8.3% in 2023. Housing transactions increased by 3.9% in 
2023  after  having  decreased  by  8.2%  in  2022.  Building  permits  decreased  by  12.7%  and 
19.4% in 2022 and 2023, respectively but have started to increase in 2024. The slowdown of 
new  housing  supply  may  support  further  increases  in  nominal  house  prices,  which  would 
warrant  closer  monitoring.  In  terms  of  financial  stability  risks,  in  February  2024,  the  ESRB 
concluded  that the  residential  real  estate market  in  Poland  was  subject to medium  risks  and 
that  the  macroprudential  policy  mix  was  appropriate  and  sufficient  to  mitigate  the 
situation (121). 

•  Government debt remains moderate but is increasing and deficits are high. The government 
debt  increased  to  49.7%  of  GDP  in  2023  after  having  declined  in  earlier  years.  It  is  some  4 
percentage points above its 2019 pre-COVID-19 level and debt is forecast to increase this year 
and  next  to  reach  59%  of  GDP  in  2025.  The  government  deficit  widened  to  5.3%  of  GDP  in 
2023 and is forecast to increase further in 2024 and to shrink but remain above 5% of GDP in 
2025. Gross financing needs are below the EU average but have been rising on account of the 
large  deficits  and  average  maturities  that  are  among  the  lowest  in  the  EU.  Polish  sovereign 
long-term  bond  yields  declined  in  the  course  of  2023,  and  by  more  than  the  best  rated 
sovereign debt, but have not receded in the course of 2024. An excessive deficit procedure has 
been opened for Poland this July. Fiscal sustainability risks are high in the medium term and 
medium in the long term (122).  

•  The financial sector remains stable. The profitability and capital ratios of banks increased in 
2023 and are close to the EU average. In the future, the profitability of banks can be affected 
by legal risks related to previously granted foreign currency mortgages. The NPLs ratio slightly 
decreased in 2023, but at 4% (as of second quarter of 2024) remains one of the highest in the 
EU. The credit dynamics further slowed down in 2023, but in early 2024 there were some signs 
of  recovery.  Polish  banks’  exposure  to  domestic  sovereign  debt  is  significant  and  among  the 
highest  in  the  EU.  Relatively  high  exposure  of  banks  to  domestic  sovereign  represents  a 
potential source of risk. 

(121) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(122) Estimated based on the Commission’s 2024 spring forecast. 

131 

 
Graph 4.21: Selected graphs: Poland 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.21:  Key economic and financial indicators, Poland 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

132 

PLEA20-10-5051015202530192021222324% growth year on year (nominal)Data up to 24Q2b) House price growth: Poland vs. non-EA MS-10-5051015131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)5.30.13.03.6GDP deflator (1 year % change)2.09.53.94.6Harmonised index of consumer prices (1 year % change)1.610.93.84.7External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%-1.2-0.6 0.1 1.1 Current account balance, balance of payments (% of GDP)0.1 (1)-2.4 (2)-1.21.8 0.8 0.6 Net international investment position (% of GDP)-35%-57.9 (3)-5.8 (4)-55.0-32.6 -30.1 -26.7 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-14.75.2 Net lending-borrowing (% of GDP)0.31.9 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)5.723.9 p32.4 25.4 Nominal unit labour cost index per hour worked (1 year % change)2.312.8 p8.5 2.4 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)-0.19.2 16.5 18.0 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.910.6 7.0 2.3 Export performance against advanced economies (3y % change)-3%13.87.7 9.8 12.0 Export performance against advanced economies (1 year % change)4.67.0 2.9 1.4 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.14.3 1.2 1.0 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%66.5 (6)29.4 (7)40.332.2 30.4 28.4 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%4.04.0 0.3 1.3 Cost of borrowing for corporations3.68.77.7Households and housing marketHousehold debt, consolidated (% of GDP)+55%44.5 (6)20.0 (7)34.523.7 23.1 22.3 Household debt, consolidated (% of Households' GDI)48.134.3 34.2 34.6 Household credit flow, consolidated (% debt stock t-1)+14%5.7-0.2 4.3 4.8 House price index, nominal (1 year % change)+9%6.48.8 16.3 8.0 House prices over/undervaluation gap (8)-11.4-1.5Building permits (m2 per 1000 inh)621.2540.5 Cost of borrowing for households for house purchase4.48.37.7GovernmentGeneral government gross debt (% of GDP)60%47.949.7 54.7 58.9 General government balance (% of GDP)-0.8-5.3-5.8-5.6Banking sectorReturn on equity of banks (%)6.911.6 pTier-1 capital ratio banking sector (% risk-weighted assets)16.118.1 pGross non-performing loans, domestic and foreign entities (% gross loans)6.34.1 p3.9 Labour marketUnemployment rate (% labour force Y15-74)+10%2.8 (9)4.12.8 2.9 2.8 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp2.44.3 1.6 1.1    
 
 
      
 
4. Country sections 

PORTUGAL 

In  Portugal,  concerns  related  to  the  external  debt  as  well  as  to  the  private  and  public  sector 
indebtedness  have  moderated.  The  current  account  turned  to  a  surplus  in  2023,  which  together 
with nominal GDP growth contributed to a decrease in external debt. The government debt-to-GDP 
ratio is continuing to decrease due to nominal GDP growth and the government balance surplus, a 
trend that is forecast to persist in the coming years. House prices continue to rise very strongly, and 
overvaluation has increased.  

Real  GDP  growth  reached  2.5%  in  2023  and  is  forecast  at  1.7%  in  2024  and  1.9%  in  2025. 
Headline  and core inflation  have remained close to the euro area averages in 2023 and  the  first 
half  of  2024.  Headline  inflation  is  forecast  to  stand  at  2.6%  in  2024,  close  to  the  euro  area 
average.  The  unemployment  rate  increased  slightly  in  2023,  to  6.5%.  It  is  forecast  to  decrease 
marginally in 2024-2025.  

The  scoreboard  reading  for  Portugal  shows  that  four  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the net international investment position, unit labour costs, household 
debt, and government debt. Relevant developments worth highlighting: 

•  External  sustainability  continues  to  improve.  The  current  account  balance  turned  from  a 
deficit of 1.9% of  GDP in 2022 to a  slight  surplus of  0.5% of GDP in 2023, mainly due to a 
rebound in the energy balance and steady growth in foreign tourism. The surplus will increase 
further  in  2024  and  is  forecast  at  around  1%  in  2025.  The  net  international  investment 
position (NIIP) continued to increase from -83% of GDP in 2022 to -72.3% in 2023, mainly due 
to nominal growth and the current account surplus, and a further increase is expected for 2024.  

•  Cost competitiveness developments remain contained. In 2023, the REER appreciated by 2%, 
pushed by nominal euro gains, and it continued to marginally appreciate into 2024. ULCs rose 
by  7.2%  in  2023  as  nominal  wage  growth  was  strong  and  only  partly  offset  by  productivity 
gains. ULC growth has been stronger than the euro area average in 2021 and 2023, but REER 
growth has overall been more contained.  

•  Corporate debt continued to decline on the back of active deleveraging. The corporate debt-
to-GDP  ratio  declined  from  79%  in  2022  to  71%  in  2023,  which  is  the  lowest  value  for 
Portugal since the beginning of the monetary union. The interest coverage ratio of Portuguese 
NFCs  is  low  compared  to  other  EU  countries  and  fell  further  as  interest  expenses  surged. 
Borrowing  costs  increased  substantially  in  2023  but  moderated  somewhat  in  2024.  A  large 
share  of  corporate  loans  will  have  their  interest  rates  reset  in  2024,  suggesting  a  further 
decline  in  the  interest  coverage  ratio  and  possible  deterioration  in  the  debt  service  capacity. 
Bankruptcies  picked  up  during  2023,  while  new  business  registrations  declined.  Unit  profit 
growth fell during 2023, but increased somewhat at the beginning of 2024.  

•  Household  debt  continues  to  decline.  The  household  debt-to-GDP  ratio  dropped  to  55%  in 
2023,  helped  by  high  inflation,  reaching  the  MIP  threshold.  The  ratio  is  expected  to  decline 
further  in  2024.  As  a  result  of  the  rise  in  borrowing  costs,  net  credit  flows  to  households 
hovered around zero in 2023 and are expected to stay there in 2024. Reflecting the large stock 
of  highly  flexible  mortgage  loans  (which  have  become  less  common  among  new  loans  given 
out), debt servicing costs also rose significantly: net interests paid by households doubled from 
1%  of  gross  disposable  income  in  2021  to  2%  in  2023.  The  savings  rate  of  households 
recovered to 8% in 2023 and is expected to increase further in 2024 due to positive real wage 
developments. 

133 

4. Country sections 

•  Concerns  related  to  the  housing  market  remain,  as  house  prices  continued  to  grow  strongly. 
House  prices  increased  by  8.2%  in  2023  and  are  estimated  to  be  overvalued  by  around  25-
30%.  The  growth  continued  in  2024-Q2  at  7.8%  year-on-year.  Since  2016,  house  prices  in 
Portugal  have  grown  between  7%  and  13%  each  year,  significantly  higher  than  incomes  and 
housing affordability concerns are becoming highly significant with house price-to-income ratio 
standing around 30% above the long-term average in 2023. This cumulated growth of house 
prices has been driven by strong tourism demand, significantly supported by short-term rentals, 
low  interest  rates  and  a  low  level  of  residential  construction.  Mortgage  rates  increased  from 
0.8%  in  2021  to  4.0%  in  2023,  impacting  mortgage  credit  that  decreased  by  1.4%.  The 
adjustment  to  the  higher  interest  rate  environment  is  occurring  more  significantly  on  the 
quantities side with house transactions decreasing by 19.8% in 2023 after stabilising in 2022. 
However, building permits continued to increase, at 5.4% in 2023. In terms of financial stability, 
in February 2024, the ESRB concluded that the residential real estate market in Portugal was 
subject to medium risks and the macroprudential policy mix was appropriate and sufficient to 
mitigate the situation (123). 

•  Government  debt  is  high  but  is  declining.  Government  debt  decreased  further  to  97.9%  of 
GDP  in  2023  and  it  is  some  19 pps.  below  its  2019  pre-COVID-19  level.  It  is  forecast  to 
continue  declining in  2024  and  2025.  The  government  balance  improved  further,  recording a 
budget  surplus  in  2023,  and  it  is  expected  to  remain  in  positive  territory  in  2024  and  2025. 
These developments, together with a strong nominal GDP growth, helped debt reduction. Gross 
financing needs have fallen, while yields on Portuguese sovereign bonds and spreads vis-à-vis 
the  best  rated  euro  area  sovereign  debt  have  declined.  Fiscal  sustainability  risks  are  now 
medium in the medium term and low in the long term (124).  

•  The  financial  sector  showed  improvements  in  2023,  while  some  moderate  vulnerabilities 
remain. Banks’ capital ratio and profitability increased in 2023 and are close to the EU average. 
The non-performing loans ratio declined and at 2.7% (as of the first quarter of 2024) remained 
above the EU average, as do Stage 2 loans, which slightly increased in 2023. Credit dynamics 
remained  very  muted  in  2023,  with  some  signs  of  recovery  in  the  first  half  of  2024.  Risks 
associated with financial and public sector feedback loops have decreased.  

Graph 4.22: Selected graphs: Portugal 

Source: Eurostat and European Commission calculations. 

(123) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(124) Estimated based on the Commission’s 2024 autumn forecast. 

134 

0501001502002503003501011121314151617181920212223% of GDPb) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sector-20-15-10-50510152025302021222324% growth year on yeara) House price growth: Portugal compared to EA MSPTEA  
 
 
Table 4.22:  Key economic and financial indicators, Portugal 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

135 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)3.02.51.71.9GDP deflator (1 year % change)1.76.93.82.5Harmonised index of consumer prices (1 year % change)1.05.32.62.1External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%1.1-0.7 -0.1 0.9 Current account balance, balance of payments (% of GDP)-0.4 (1)-0.4 (2)1.00.5 1.2 0.9 Net international investment position (% of GDP)-35%-56.7 (3)-14.6 (4)-105.5-72.3 -60.6 -55.1 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-52.9-19.4 Net lending-borrowing (% of GDP)2.01.9 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)5.211.0 e16.6 16.8 Nominal unit labour cost index per hour worked (1 year % change)2.67.2 e6.0 2.7 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)0.8-1.4 -0.6 -0.3 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.02.3 -0.1 -0.1 Export performance against advanced economies (3y % change)-3%6.516.2 15.7 6.5 Export performance against advanced economies (1 year % change)2.36.7 1.7 -0.1 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.20.4 -0.2 -0.2 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%51.9 (6)58.8 (7)88.170.8 e67.2 64.4 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%-1.2-0.6 1.4 0.0 Cost of borrowing for corporations2.65.45.5Households and housing marketHousehold debt, consolidated (% of GDP)+55%32.6 (6)32.3 (7)65.655.0 e51.9 49.3 Household debt, consolidated (% of Households' GDI)84.071.4 67.9 65.7 Household credit flow, consolidated (% debt stock t-1)+14%0.90.1 -0.5 -0.7 House price index, nominal (1 year % change)+9%9.88.2 7.5 5.0 House prices over/undervaluation gap (8)-0.827.7Building permits (m2 per 1000 inh)438.0628.7 epCost of borrowing for households for house purchase1.54.14.1GovernmentGeneral government gross debt (% of GDP)60%121.197.9 95.7 92.9 General government balance (% of GDP)-1.11.20.60.4Banking sectorReturn on equity of banks (%)2.113.8 pTier-1 capital ratio banking sector (% risk-weighted assets)14.517.9 pGross non-performing loans, domestic and foreign entities (% gross loans)9.62.7 p2.6 Labour marketUnemployment rate (% labour force Y15-74)+10%6.0 (9)7.76.5 6.4 6.3 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp2.14.0 3.5 2.7  
      
 
4. Country sections 

ROMANIA 

The macroeconomic risks related to external sustainability and cost competitiveness have generally 
increased.  Large  fiscal  deficits  have  fuelled  domestic  demand  growth,  resulting  in  high  current 
account deficits, which are persisting. Headline and core inflation have declined steadily but remain 
among  the  highest  in  the  EU,  partly  due  to  large  increases  in  wages.  The  REER  has  appreciated 
further,  and  unit  labour  costs  grew  by  15%  in  2023,  with  wage  dynamics  remaining  strong  into 
2024. Risks are mitigated by still low levels of domestic and external indebtedness.  

Real  GDP  growth  reached  2.4%  in  2023  and  is  forecast  at  1.4%  in  2024  and  2.5%  in  2025.  In 
2023 both average headline and core inflation were among the highest in the EU, coming in close 
to  10%.  Inflation  rates  have  reduced  in  2024,  and  headline  inflation  is  forecast  to  decrease  to 
5.5% this year. At the same time, core inflation remains very high and well above the EU average, 
fuelled by strong increases in the services component. The unemployment rate remained stable in 
2023, at 5.6%, and is expected to remain almost unchanged in 2024-2025.  

The  scoreboard  reading  for  Romania  shows  that  three  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the current account balance, the net international investment position, 
and unit labour costs. Relevant developments worth highlighting: 

•  External sustainability concerns remain. Large fiscal deficits have fuelled domestic demand 
growth,  resulting  in  sizeable  current  account  deficits,  which  markedly  exceeded  estimated 
current  account  benchmarks.  Despite  some  reduction,  the  current  account  deficit  remained 
substantial, at 7% in 2023, down from 9.2% in 2022. The deficit is expected to widen to about 
8% of GDP in 2024 before improving somewhat. A growing cost of government debt adds to 
the  primary  deficits expected  for  the  next  two years,  keeping  the economy  heavily  reliant  on 
external  financing.  Capital  transfers  from  the  EU,  including  the  RRF,  and  foreign  direct 
investment  covered  slightly  more  than  half  of  external  financing  needs  in  2023.  Substantial 
foreign  exchange  reserves  mitigate  the  immediate  risks  of  liquidity  drying  out.  The  net 
international  investment  position  (NIIP),  which  stood  at  close  to  -40%  of  GDP  in  2023,  was 
broadly  stable,  owing  to  strong  nominal  growth.  The  NIIP  seems  unlikely  to  improve 
substantially,  as  nominal  growth  is  slowing  down  and  external  financing  needs  remain 
substantial. The composition of the NIIP is dominated by non-defaultable instruments, notably 
FDI.   

•  Cost competitiveness concerns persist due to significant inflation differentials and high wage 
increases.  In  2023  core  inflation  was  4.7 pps.  above  euro  area  value,  and  remains  high, 
reaching 3.7 pps. in September 2024. In 2023, the REER appreciated by more than 5%, as both 
nominal effective exchange rate appreciations and high inflation rate differentials contributed. 
By  mid-2024,  it  continued  to  appreciate  by  close  to  3%,  on  account  of  nominal  gains  of  the 
Romanian  leu  and  still  unfavourable  inflation  differentials.  In  2023  nominal  wage  increases 
were  strong  and  ULC  grew  by  close  to  15%,  despite  the  solid  productivity  growth.  ULC  has 
continued to grow strongly in 2024. The 3-year increase in nominal ULC has been above the 
scoreboard threshold since 2016. 

• 

In 2023, corporate debt decreased to 28% of GDP from 30% in 2022. This was the lowest 
across the EU and also the lowest value recorded for Romania since 2007. Deleveraging was 
exclusively  loan  driven  and  supported  by  a  strong  decline  in  FDI  debt-to-GDP.  Credit  growth 
eased  slightly  to  close  to  10%  in  2023,  but  remained  considerably  above  the  EU  average. 
Bankruptcies picked up somewhat during 2023, while new business registrations fell. According 
to the latest EIB investment survey, Romania is the EU country with the largest share of firms 
reporting to be finance-constrained.   

136 

4. Country sections 

•  Household debt  remains low and has fallen further. The household debt-to-GDP ratio is the 
lowest in the EU and declining, reaching 12.5% in 2023. Net credit flows to households are very 
low  as  well,  even  when  expressed  as  a  share  of  the  previous  year’s  debt  stock  (2.8%),  but 
consumer  credit  started  to  accelerate  in  2024.  Non-performing  loans  remain  stable  at  a  bit 
below 4% of all loans to households in 2023.   

•  The  situation  on  the  housing  market  remains  stable.  House  prices  are  estimated  not  to  be 
overvalued and their evolution has been moderate, increasing 3.3% in 2023 and 6.8% year-on-
year  in  2024-Q2,  after  4.4%  in  2021  and  2022,  which  was  below  the  growth  in  private 
consumption deflator. In terms of financial stability, in February 2024, the ESRB concluded that 
the residential real estate market in Romania was subject to low risks and the macroprudential 
policy mix was appropriate and sufficient (125). 

•  Government debt is contained but is increasing as the government deficit remains very high. 
The government deficit remained  at 6.5% of GDP in 2023 and is forecast to widen to 8% in 
2024.  The  government  debt  increased  to  48.9%  of  GDP  in  2023,  despite  the strong  nominal 
GDP growth. It is some 14 pps. above its 2019 pre-COVID-19 level and is forecast to increase 
further to 56% of GDP in 2025, as nominal  GDP growth slows down and the deficit remains 
high.  Around  half  of  the  government  debt  is  denominated  in  foreign  currencies,  which  can 
create risks for financing, and about half was held by non-residents at the end of 2023. Gross 
financing  needs  have  become  more  significant  in  recent  years  on  account  of  continued  high 
deficits. Sovereign bond yields remain among the highest in the EU and have not improved in 
2024  after  declining  in  2023.  An  excessive  deficit  procedure  for  Romania  has  been  ongoing 
since 2020. The fiscal sustainability risks are high in both the medium and the long term (126). 

•  The financial sector is stable but subject to moderate risks in specific asset categories. The 
Common Equity  Tier 1 capital  ratio and profitability slightly increased in 2023 and were well 
above the EU average. The non-performing loans ratio of the banking sector mildly declined in 
2023, but at 2.6% (as of second quarter of 2024) remains above the EU average. Helped by 
monetary  easing  and  high  increases  in  disposable  income,  private  credit  has  been  growing 
strongly  in  2024.  Romanian  banks’  exposure  to  domestic  sovereign  debt  is  rather  significant 
and the highest in the EU, partly due to shallow financial markets, and has increased recently. 

(125) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(126) Estimated based on the Commission’s 2024 spring forecast. 

137 

 
Graph 4.23: Selected charts: Romania 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.23:  Key economic and financial indicators, Romania 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

138 

-20-15-10-5051016171819202122232424*25*26*% of GDPa) Current account, 4-quarter moving sumGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing-10-505101520131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)b) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)6.12.41.42.5GDP deflator (1 year % change)5.912.89.05.9Harmonised index of consumer prices (1 year % change)3.09.75.53.9External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%-3.0-7.8 -8.1 -7.4 Current account balance, balance of payments (% of GDP)-0.4 (1)-4.1 (2)-4.2-7.0 -8.0 -7.3 Net international investment position (% of GDP)-35%-53.3 (3)-11.4 (4)-44.8-39.5 -38.0 -39.0 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-4.5-4.8 Net lending-borrowing (% of GDP)-3.0-4.9 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)23.627.5 p42.3 38.9 Nominal unit labour cost index per hour worked (1 year % change)7.313.3 p13.6 7.9 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)-2.06.7 7.6 6.8 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.15.5 2.3 1.6 Export performance against advanced economies (3y % change)-3%11.66.8 6.5 8.9 Export performance against advanced economies (1 year % change)3.14.4 2.0 3.6 Core inflation(5) differential vis-à-vis the euro area (pps.)0.74.7 5.4 2.3 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%66.4 (6)23.6 (7)32.628.2 p26.3 25.1 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%1.09.6 5.8 3.7 Cost of borrowing for corporations5.49.08.2Households and housing marketHousehold debt, consolidated (% of GDP)+55%52.6 (6)14.1 (7)15.812.5 p12.3 12.4 Household debt, consolidated (% of Households' GDI)24.120.0 f26.5 27.8 Household credit flow, consolidated (% debt stock t-1)+14%8.02.8 8.1 9.8 House price index, nominal (1 year % change)+9%5.03.3 5.1 5.0 House prices over/undervaluation gap (8)-11.7-16.1Building permits (m2 per 1000 inh)541.6456.9 pCost of borrowing for households for house purchase4.97.36.5GovernmentGeneral government gross debt (% of GDP)60%34.948.9 52.2 56.1 General government balance (% of GDP)-3.2-6.5-8.0-7.9Banking sectorReturn on equity of banks (%)12.516.8 pTier-1 capital ratio banking sector (% risk-weighted assets)18.119.9 pGross non-performing loans, domestic and foreign entities (% gross loans)5.32.5 p2.6 Labour marketUnemployment rate (% labour force Y15-74)+10%5.6 (9)5.45.6 5.5 5.5 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp2.92.7 2.0 1.1       
 
 
          
 
4. Country sections 

SLOVENIA 

While  high  inflation  continued  to  weigh  on  cost  competitiveness  in  2023,  the  government  deficit 
narrowed,  and macroeconomic  risks  appear to be  limited.  Inflation  was  well above the  euro  area 
average in 2023 but has decreased markedly. Unit labour costs increased strongly but the current 
account balance turned to a surplus. The government deficit has narrowed, and government debt is 
forecast  to  decrease  in  the  next  years,  supported  by  nominal  GDP  growth.  House  prices  have 
remained dynamic but are estimated to be only slightly overvalued.  

Real GDP growth reached 2.1% in 2023 and is forecast at 1.4% in 2024 and 2.5% in 2025. Both 
headline and core inflation decreased markedly in 2023, while being above the euro area averages, 
at 7.2% and 6.7%, respectively. They  have continued to decline in 2024 and headline inflation is 
forecast to decrease to 2.1% in 2024. The unemployment rate decreased slightly to 3.7% in 2023. 
It is expected to remain stable in 2024 and 2025.    

The  scoreboard  reading  for  Slovenia  shows  that  two  indicators  were  beyond  their  indicative 
thresholds in 2023, namely unit labour costs, and government debt. Relevant developments worth 
highlighting: 

•  External sustainability  improved  further in 2023 as the current account turned positive.  In 
2023, the current account balance significantly increased from a deficit of  1.1% of GDP to a 
surplus  of  4.5%.  The  change  was  primarily  driven  by  the  increase  in  both  energy  and  non-
energy goods balances. The net international investment position (NIIP) turned positive for the 
first time in 2023. The NIIP net of non-defaultable instruments remains positive.   

•  Cost competitiveness indicators showed some deterioration in 2023. In 2023, both average 
headline  and  core  inflation  rates  were  noticeably  above  the  euro  area,  but  they  reduced 
considerably  by  mid-2024.  Last  year,  the  REER  appreciated  by  close  to  3%,  as  both  nominal 
euro gains and unfavourable inflation differentials contributed, while remaining stable by mid-
2024.  2023  ULCs  increased  markedly,  by  more  than  8%,  as  nominal  wage  increases  were 
robust and more than offset the strong productivity per hour gains. The 3-year increase in ULC 
has been above the scoreboard threshold since 2020.  

• 

In 2023, the corporate debt-to-GDP ratio declined further, reaching with 35% its lowest value 
in over two decades. This decrease was predominantly driven by a fall in debt securities relative 
to  GDP  and  reductions  in total  debt  excluding  FDI to  GDP.  Credit  growth  turned  negative  and 
was  among  the  lowest  across  the  EU.  Despite  an  increase  in  interest  expenses,  the  interest 
coverage ratio remained comparatively high. However, high borrowing costs and a large share 
of loans with interest rate resets in 2024 will likely further increase the interest burden.  

•  Household  debt  is  low  and  continued  to  decline  on  the  back  of  passive  deleveraging.  The 

household debt-to-GDP ratio reached 24% in 2023.  

•  The housing market continues to be characterised by strong house price growth. House prices 
increased  by  7.2%  in  2023  and  6.7%  year-on-year  in  2024-Q2.  In  2021  and  2022,  house 
prices  grew  11.5%  and  14.8%,  respectively.  Since  2015,  house  price  growth  exceeds 
households’ income growth by around 15 pps. but are estimated to be only slightly overvalued. 
Mortgage rates increased from 1.8% in 2021 to 4.0% in 2023, causing the growth of mortgage 
credit to decline to only 0.7% in 2023. The adjustment to the higher interest rate environment 
is expressed by the lower number of transactions which declined by 7.6% and 20.0% in 2022 
and  2023,  respectively.  Building  permits  remain  at  a  high  level  when  compared  with  2015, 
while  reduced  by  3.9%  in  2023.  In  terms  of  financial  stability,  in  February  2024,  the  ESRB 

139 

4. Country sections 

concluded that the residential real estate market in Slovenia was subject to medium risks and 
that  the  macroprudential  policy  mix  was  appropriate  and  sufficient  to  mitigate  the 
situation (127). 

•  Government debt remains contained and is declining. Government debt decreased to 68.4% 
of GDP in 2023, and it is forecast to continue decreasing in 2024 and 2025. The government 
deficit narrowed further to 2.6% of GDP in 2023 and it is forecast to recede further in 2024 
and 2025. Gross financing needs are below the euro area average. Since late 2022, yields on 
Slovenian sovereign bonds have been slightly narrowing in comparison with the best rated euro 
area sovereign debt.  

•  The  sound  financial  sector  reflects  an  increase  of  banking  sector  capitalisation  and 
profitability  in  2023,  which  are  close  to  the  EU  average.  The  non-performing  loans  ratio 
remained stable in 2023, and at 1.6% (as of second quarter of 2024) is also close to the EU 
average. After a strong decline in late 2022, credit growth remained very muted in 2023, and 
there  are  some  signs  of  recovery  in  2024.  The  increase  in  house  prices  in  recent  years  that 
represents a source of risk seems to have some to an end in 2024. 

Graph 4.24: Selected graphs: Slovenia 

Source: Eurostat and European Commission forecasts and calculations. 

(127) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

140 

-10-5051015131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27-15-10-505101520253005010015020025006081012141618202224Rate of change y-o-y (%)2015 = 100b) Nominal house priceNominal House Price Index (2015=100), right axisNominal House Price (y-o-y growth rate), right axis       
 
 
Table 4.24:  Key economic and financial indicators, Slovenia 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

141 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)4.42.11.42.5GDP deflator (1 year % change)1.910.13.03.7Harmonised index of consumer prices (1 year % change)1.77.22.13.2External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%6.12.4 2.1 3.5 Current account balance, balance of payments (% of GDP)0.5 (1)0.2 (2)6.64.5 3.0 2.9 Net international investment position (% of GDP)-35%-65.2 (3)5.8 (4)-20.02.3 4.3 4.9 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-3.318.2 Net lending-borrowing (% of GDP)6.04.5 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)5.615.2 21.2 18.4 Nominal unit labour cost index per hour worked (1 year % change)2.58.2 5.7 3.6 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)0.41.1 -0.1 0.7 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.42.9 -0.5 0.9 Export performance against advanced economies (3y % change)-3%12.30.2 -1.9 0.8 Export performance against advanced economies (1 year % change)3.71.3 0.3 1.0 Core inflation(5) differential vis-à-vis the euro area (pps.)0.21.7 0.0 0.7 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%58.1 (6)54.3 (7)44.034.7 33.3 31.5 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%-2.6-2.1 -4.2 0.5 Cost of borrowing for corporations2.14.95.3Households and housing marketHousehold debt, consolidated (% of GDP)+55%41.5 (6)35.1 (7)27.123.9 24.3 24.5 Household debt, consolidated (% of Households' GDI)38.433.2 33.8 35.3 Household credit flow, consolidated (% debt stock t-1)+14%6.13.9 6.1 7.1 House price index, nominal (1 year % change)+9%7.97.2 7.2 5.0 House prices over/undervaluation gap (8)-4.63.9Building permits (m2 per 1000 inh)348.5466.9 Cost of borrowing for households for house purchase2.44.13.7GovernmentGeneral government gross debt (% of GDP)60%70.668.4 67.1 64.4 General government balance (% of GDP)0.5-2.6-2.4-2.1Banking sectorReturn on equity of banks (%)10.016.8 pTier-1 capital ratio banking sector (% risk-weighted assets)17.718.0 pGross non-performing loans, domestic and foreign entities (% gross loans)6.21.5 p1.6 Labour marketUnemployment rate (% labour force Y15-74)+10%5.2 (9)5.43.7 3.5 3.6 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp3.31.4 0.4 0.0  
          
 
4. Country sections 

SLOVAKIA 

Concerns  related  to  cost  competitiveness,  the  housing  market,  and  government  debt  have 
increased.  Inflation  rates  were  among  the  highest  in  the  euro  area  in  2023,  and  core  inflation 
remains persistent. Unit labour costs have increased strongly and a further increase in real wages 
is  expected.  The  government  deficit  has  increased  and  is  growing  further,  contributing  to  an 
increase in government debt despite supportive GDP growth. House prices have decreased but still 
show signs of overvaluation.  

Real  GDP  growth  reached  1.4%  in  2023  and  is  forecast  at  2.2%  in  2024  and  2.3%  in  2025. 
Headline and core inflation were among the highest in the euro area and EU in 2023, at 11% and 
9.5%, respectively. They have declined markedly since their peaks, but core inflation has remained 
persistent  and  above  the  euro  area  average  in  2024.  Headline  is  forecast  at  3.1%  in  2024  and 
5.1%  in  2025.  The  unemployment  rate  decreased  to  5.8%  in  2023  and  is  expected  to  decrease 
further over 2024-2025.  

The  scoreboard  reading  for  Slovakia  shows  that  five  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the current account balance, the net international investment position, 
the  real  effective  exchange  rate,  the  export  performance  against  advanced  economies,  and  unit 
labour costs. Relevant developments worth highlighting: 

•  External  sustainability  concerns  remain  but  displayed  some  improvement.  In  2023,  the 
current account balance increased significantly from its large deficit in late 2022, from -9.6% 
of  GDP  to  -1.7%,  in  part  due  to  cyclical  effects.  The  current  account  balance  is  forecast  to 
remain  around  its  pre-pandemic  levels  of  around  -3%  in  the  coming  years.  Strong  nominal 
growth  and  valuation  effects  contributed  to  the  net  international  investment  position  rising 
to -55% of GDP in 2023. The NENDI, which accounts for instruments that are subject to lower 
default risks, also experienced a slight increase, reaching  almost -15%. The marked reduction 
in the large negative NIIP is unlikely to continue, owing mainly to slowing nominal growth and 
persistent current account deficits.  

•  Cost competitiveness concerns persist. In 2023, core inflation was 4.5 pps. above euro area 
value,  but  the  differential  vis-à-vis  the  euro  area  decreased  to  1.6  pps.  in  September  2024. 
Last  year,  the  HICP-based  REER  appreciated  by  6.2%  compared  to  2022,  as  a  result  of  both 
nominal  exchange  rate  appreciations  and  high  inflation  rate  differentials.  By  mid-2024,  it 
remained  stable,  as  nominal  euro  gains  were  offset  by  favourable  inflation  differentials.  In 
2023,  nominal  wage  increases  were  strong  and  pushed  ULC  to  increase  by  more  than  9%, 
despite the solid productivity growth. The ULC is expected to decelerate in 2024 and 2025 and 
significant  growth  in  real  wages  is  further  expected  over  the  forecast  horizon.  The  3-year 
increase in ULC has been above the scoreboard threshold since 2018. 

•  Passive  deleveraging  helped  to  reduce  corporate  debt  as  a  share  of  GDP.  As  a  result,  the 
corporate debt-to-GDP ratio fell from 46% in 2022 to 41% in 2023, reaching its lowest level 
since  2005.  This  decrease  was mainly  driven by  a  fall  in  debt  securities  relative to GDP,  and 
strongly  supported  by  reductions  in  FDI  debt-to-GDP.  Credit  growth  declined  as  well  but 
remained above the EU average. 

•  Household  debt  remains  moderate,  with  strong  nominal  growth  keeping  it  stable.  The 
household debt-to-GDP ratio stands at 44% in 2023, which is below 2021 and 2022 levels. At 
the  same  time, it is  above  that  of  regional  peers.  Slovakia  is  one  of  the  only  Member  States 
where the debt ratio remains above pre-pandemic levels, although that is expected to change 
as  household  debt  is  forecast  to  further  decrease  in  2024.  Passive  deleveraging  has  been 

142 

4. Country sections 

significant in 2023, as a result of high inflation. Net credit flows contracted strongly in 2023 
and  are  expected  to  decline  further  in  2024.  The  gross  household  savings  rate  is  modest,  at 
almost 7% in 2023, but is expected to pick up somewhat in 2024, helped by buoyant growth in 
real wages.  

•  The housing market has started growing again, following a small reduction in house prices in 
2023.  On  average,  house  prices  decreased  by  0.2%  in  2023  but  more  recent  quarterly  data 
shows an increase by 4.0% in 2024-Q2 year-on-year. The recent moderation follows years of 
noticeable growth and is driven by the adjustment to the higher interest rate environment, as 
mortgage rates increased from 1.0% in 2021 to 3.8% in 2023. Nonetheless, house prices are 
estimated to be overvalued by 10-15%. Since 2015, house prices grew slightly above the pace 
of  households’  income.  As  a  result,  housing  affordability  concerns  are  becoming  significant. 
Building  permits  reduced  by  3.9%  in  2023  after  reducing  by  16.2%  in  2022.  In  terms  of 
financial stability, in February 2024, the ESRB concluded that the residential real estate market 
in  Slovakia  was  subject  to  medium  risks  and  the macroprudential  policy  mix  was  appropriate 
and sufficient to mitigate the situation (128). 

•  Government debt remains moderate but is increasing and deficits are high. While government 
debt decreased to 56.1% of GDP in 2023, it is some 8 pps. above its 2019 pre-COVID-19 level 
and moreover debt is forecast  to increase in 2024 and 2025 to just below 60% of GDP. The 
government  deficit  worsened  significantly  to  5.2%  of  GDP  in  2023  and  is  forecast  to  widen 
further  in  2024  before  decreasing  in  2025. Gross  financing  needs  have  been below  the  euro 
area average but increased markedly in 2023 and are not expected to fall amid high deficits. 
Yields on Slovak sovereign bonds rose in 2022 to become one of the highest in the euro area, 
widening in relation to the best rated euro area sovereign debt and did not decline in the course 
of 2023 or 2024. An excessive deficit procedure has been opened for Slovakia this July. Fiscal 
sustainability risks are high both in the medium and the long term (129).  

•  The financial sector resilience improved as banking sector capitalisation increased in 2023, to 
a level close to the EU average. Profitability increased but less than elsewhere in the EU and 
remained  below  the  EU  average  in  2023.  The  non-performing  loans  ratio,  which  has  been 
steadily decreasing as of 2026, slightly increased in 2023 and 2024 and now stands at 2.0% 
(as of second quarter of 2024). Credit growth has been slowing down since its peak in the first 
half of 2022. The high growth of house prices until 2022 was followed by a correction in 2023 
and early 2024, which led to a reduction in potential risks on the financial sector. 

(128) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(129) Estimated based on the Commission’s 2024 spring forecast. 

143 

 
Graph 4.25: Selected graphs: Slovakia 

4. Country sections 

Source: Eurostat and European Commission forecasts and calculations. 

Table 4.25:  Key economic and financial indicators, Slovakia 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

144 

-40-2002040600406081012141618202224% deviation of current priceb) Overvaluation gapModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap-1001020131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)3.11.42.22.3GDP deflator (1 year % change)1.910.14.43.8Harmonised index of consumer prices (1 year % change)2.211.03.15.1External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%-1.9-5.4 -4.7 -2.6 Current account balance, balance of payments (% of GDP)-0.3 (1)-0.8 (2)-2.3-1.7 -2.8 -3.5 Net international investment position (% of GDP)-35%-50.1 (3)-6.3 (4)-67.5-54.9 -48.1 -47.4 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-15.2-14.8 Net lending-borrowing (% of GDP)-1.7-0.4 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)11.517.8 22.7 18.0 Nominal unit labour cost index per hour worked (1 year % change)4.79.2 4.5 3.5 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)1.17.5 6.6 6.8 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.96.2 0.4 2.7 Export performance against advanced economies (3y % change)-3%2.4-3.1 2.4 10.8 Export performance against advanced economies (1 year % change)-0.24.7 7.5 3.9 Core inflation(5) differential vis-à-vis the euro area (pps.)0.84.5 1.4 1.8 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%70.7 (6)45.1 (7)48.441.4 38.7 37.8 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%0.72.5 2.1 3.8 Cost of borrowing for corporations2.25.35.9Households and housing marketHousehold debt, consolidated (% of GDP)+55%47.6 (6)29.3 (7)42.144.0 42.1 41.0 Household debt, consolidated (% of Households' GDI)60.761.1 Household credit flow, consolidated (% debt stock t-1)+14%9.84.6 2.2 3.5 House price index, nominal (1 year % change)+9%7.5-0.2 2.0 2.0 House prices over/undervaluation gap (8)-0.913.4Building permits (m2 per 1000 inh)429.1372.0 Cost of borrowing for households for house purchase1.63.84.1GovernmentGeneral government gross debt (% of GDP)60%49.656.1 58.9 59.8 General government balance (% of GDP)-1.1-5.2-5.8-4.7Banking sectorReturn on equity of banks (%)9.011.5 pTier-1 capital ratio banking sector (% risk-weighted assets)16.418.6 pGross non-performing loans, domestic and foreign entities (% gross loans)3.31.8 p1.9 Labour marketUnemployment rate (% labour force Y15-74)+10%5.9 (9)6.85.8 5.5 5.3 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp1.42.0 2.0 1.0           
 
 
          
 
4. Country sections 

FINLAND 

In  Finland,  corporate  and  household  debt-to-GDP  ratios  have  decreased.  Cost  competitiveness 
pressures  are  limited  due  to  relatively  low  inflation  amid  persistently  weak  economic  activity. 
Household debt has decreased due to a contraction in credit flows, but it remains elevated  while 
higher borrowing costs have led to a significant increase in debt servicing costs. Government debt 
has increased and is forecast to increase further in the next years due to higher deficits and low 
nominal GDP growth. 

Real GDP contracted by 1.2% in 2023 and is forecast to contract by 0.3% in 2024 before growing 
by 1.5% in 2025.  Both headline  and core inflation  decreased strongly in 2023 and were close to 
4%,  below  euro  area  averages.  Inflation  has  reached  low  levels  in  2024,  with  headline  inflation 
forecast to stand at 1.0% in 2024 while core inflation has been below 2% in the past months. The 
unemployment rate increased slightly to 7.2% in 2023. It is expected to increase to  around 8% in 
2024-2025.  

The  scoreboard  reading  for  Finland  shows  that  four  indicators  were  beyond  their  indicative 
thresholds in 2023, namely the export performance against advanced economies, unit labour costs, 
household debt, and government debt. Relevant developments worth highlighting: 

•  External  sustainability  is  marked  by  modest  current  account  deficits  and  a  positive  net 
international investment position. Despite a considerable increase, the current account balance 
remained  negative  in  2023,  at  -0.4%  of  GDP.  The  net  international  investment  position  was 
positive in 2023, at 12.6% of GDP. 

•  Cost competitiveness developments were contained due to lower headline and core inflation 
rates than in the euro area. Last year, the REER appreciated by 3%, as the nominal appreciation 
was not fully offset by favourable inflation differentials, but it depreciated by mid-2024. 2023 
ULC  growth  was  more  than  5%,  as  both  nominal  wage  growth  and  a  drop  in  productivity 
contributed. 

•  Corporate  deleveraging  has  continued  in  2023,  while  corporate  debt  servicing  costs 
increased.  In  2023,  the  corporate  debt-to-GDP  ratio  declined  to  76%  from  80%  in  2022, 
reaching  its  lowest  level  since  2007.  The  interest  coverage  ratio  has  fallen  strongly  over  the 
last  quarters  and  was  among  the  lowest in  the  euro  area,  driven  by  a  strong  increase in  the 
interest  burden.  Borrowing  costs  remain  high  and  a  large  share  of  corporate  loans  will  have 
their interest  rates  reset  in  2024,  suggesting  that  the  Finnish interest  coverage  ratio  will  not 
improve significantly in the near term. Despite a deterioration in debt service capacity, overall 
financial vulnerabilities of the corporate sector remain contained. Unit profit growth fell during 
2023 but picked up in the beginning of 2024. Real investment growth has been weak and saw 
a marked fall from 2022 to 2023, mainly driven by a sharp drop in construction investment. 

•  Household debt has been declining in recent years but remains high. The household debt-to-
GDP  ratio  decreased  to  64%  in  2023.  It  is  expected  to  decrease  further  in  2024,  while 
remaining above the MIP threshold of 55%. Net credit flows contracted strongly in 2022 and 
2023 and are expected to remain around 0 in 2024. In Finland, virtually all loans that are being 
given out for house purchase have flexible interest rates with a fixation period of one year or 
less.  As  a  result,  the  sudden  surge  in  borrowing  costs  as  of  mid-2022  has  given  rise  to  a 
significant  increase  in  debt  servicing  costs:  net  interests  paid  by  households  increased  from 
0.8% in 2021 to 2.4% of (adjusted) gross disposable income in 2023. Household gross savings 
remained stable in 2023, below their pre-pandemic levels. They are expected to remain there in 
the next two years, in spite of positive real wage developments. 

145 

4. Country sections 

•  House prices continue to fall. House prices are estimated not to be overvalued and decreased 
by 5.7% in 2023 and 4.8% year-on-year in 2024-Q2. The increase of interest rates from 0.7% 
in  2021  to  3.9%  in  2023  is  also  being  reflected  in  lower  house  transactions,  -16.6% 
and -24.5%, and building permits, -18.0% and -43.4% in 2022 and 2023, respectively. In terms 
of  financial  stability,  in  February  2024,  the  ESRB  concluded  that  the  residential  real  estate 
market  in  Finland  is  subject  to  medium  risks  and  the  macroprudential  policy  mix  was 
appropriate and sufficient to mitigate the situation (130). 

•  Government  debt  is  moderate  but  is  increasing.  The  debt  ratio  increased  slightly  further  to 
77.1%  of  GDP  in  2023.  It  is  some  12  percentage points  above  its  2019  pre-COVID-19  level, 
and debt is forecast to rise further in 2024 and 2025 and to reach almost 85% of GDP in the 
latter. The government deficit widened to 3% of GDP in 2023 and is forecast to exceed 3% in 
2024  but  to  decline  in  2025.  Gross  financing  needs  have  increased  in  recent  years  and  are 
estimated to have been marginally in excess of the euro area average this year; yields on long-
term Finnish sovereign bonds have been broadly stable compared with the best rated euro area 
sovereign debt. Government guarantees, and the related implicit liabilities for the public sector, 
are  the  largest  in  the  EU.  The  fiscal  sustainability  risks  are  high  in  the  medium  term  and 
medium in the long term (131). 

•  Despite some specific challenges related to interest rate dynamics, the financial sector faces 
limited  risks.  The  capitalisation  and  profitability  of  the  banking  sector  increased  in  2023  and 
remained  close to the  EU average.  The  non-performing  loans  ratio increased  slightly  to  1.2% 
(as of second quarter of 2024) but still remained one of the lowest in the EU. The high share of 
mortgage debt with variable interest rates represents a risk. 

Graph 4.26: Selected graphs: Finland 

Source: Eurostat and European Commission forecasts and calculations. 

(130) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 
(131) Estimated based on the Commission’s 2024 spring forecast. 

146 

0501001502002501011121314151617181920212223% of GDPb) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sector-50510131415161718192021222324f25f26fContributions to ULC Y-o-Y change (pps.)a) Decomposition of rate of change of ULC Inflation (HICP)Real Compensation/hr.Productivity/hr. (neg. contrib.)ULCULC in EU27          
 
 
Table 4.26:  Key economic and financial indicators, Finland 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

147 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)1.9-1.2-0.31.5GDP deflator (1 year % change)1.43.91.42.1Harmonised index of consumer prices (1 year % change)1.04.31.02.0External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%-1.1-0.8 -1.1 -0.6 Current account balance, balance of payments (% of GDP)-1.2 (1)-0.2 (2)-0.8-0.4 -0.6 -0.9 Net international investment position (% of GDP)-35%-79.4 (3)3.9 (4)-1.512.6 16.9 15.7 NENDI - NIIP excluding non-defaultable instruments (% of GDP)3.66.7 Net lending-borrowing (% of GDP)-0.7-0.5 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)-1.414.0 10.3 7.5 Nominal unit labour cost index per hour worked (1 year % change)0.45.2 0.3 1.8 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)0.3-1.9 -4.2 -2.9 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)0.13.1 -1.7 -0.2 Export performance against advanced economies (3y % change)-3%5.2-6.0 -8.1 -7.2 Export performance against advanced economies (1 year % change)3.1-2.9 -1.9 -0.5 Core inflation(5) differential vis-à-vis the euro area (pps.)-0.5-0.9 -0.7 0.2 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%67.3 (6)86.5 (7)81.376.3 75.7 75.4 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%4.62.6 -1.2 3.3 Cost of borrowing for corporations1.54.95.2Households and housing marketHousehold debt, consolidated (% of GDP)+55%51.9 (6)61.7 (7)65.563.9 63.2 62.8 Household debt, consolidated (% of Households' GDI)89.485.1 84.4 86.9 Household credit flow, consolidated (% debt stock t-1)+14%4.1-0.4 0.1 3.0 House price index, nominal (1 year % change)+9%0.8-5.7 -3.0 0.0 House prices over/undervaluation gap (8)-2.1-10.3Building permits (m2 per 1000 inh)675.7355.0 Cost of borrowing for households for house purchase0.93.94.1GovernmentGeneral government gross debt (% of GDP)60%65.877.1 82.6 84.7 General government balance (% of GDP)-0.8-3.0-3.7-3.0Banking sectorReturn on equity of banks (%)7.313.5 pTier-1 capital ratio banking sector (% risk-weighted assets)19.819.7 pGross non-performing loans, domestic and foreign entities (% gross loans)1.41.1 p1.2 Labour marketUnemployment rate (% labour force Y15-74)+10%6.7 (9)7.77.2 8.2 7.9 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp1.92.6 0.7 -0.4  
          
 
4. Country sections 

SWEDEN 

Concerns  related  to  house  prices,  household  debt,  and  corporate  debt  remain.  The  corporate  and 
household debt-to-GDP ratios have decreased due to high inflation, but they remain high, and the 
interest  rate  coverage  ratio  of  Swedish  corporates  is  low  compared  to  other  EU  Member  States. 
Household debt has  declined  as a percentage of nominal GDP but remains among the highest in 
the EU. The prevalence of variable interest rates weighed on households’ balance sheets during the 
monetary  policy  tightening  cycle  and  contributed  to  a  reduction  in  private  consumption.  House 
prices corrected in 2023 but remain overvalued, while the banking sector’s exposure to real estate 
represents a risk.   

Real GDP declined by 0.3% in 2023 and is forecast to grow by 0.3% in 2024 and by 1.8% in 2025. 
Both headline  and core inflation have declined markedly in 2023 and 2024 in a context of weak 
economic  activity  and  declining  energy  prices.  Headline  inflation  stood  at  5.9%  in  2023  and  is 
forecast to decrease to 1.9% in 2024, with core inflation easing to close to the euro area average 
in the past months. The unemployment rate stood at 7.7% in 2023 and is expected to increase to 
above 8% in 2024 and 2025.  

The  scoreboard  reading  for  Sweden  shows  that  three  indicators  were  beyond  their  indicative 
thresholds in 2023, namely  the current account balance, household debt, and NFC debt. Relevant 
developments worth highlighting: 

•  The  external  sector  is  marked  by  an  increased  current  account  balance  and  positive  net 
international  investment  position  compared  to  2022.  In  2023,  the  current  account  balance 
reached 6.5% of GDP, and it is forecast to slightly increase. The net international  investment 
position  (NIIP)  continued  increasing  to  36.1%  of  GDP  in  2023,  mainly  due  to  the  current 
account surplus. A further increase of the NIIP is expected in 2024. 

•  Cost  competitiveness  developments  remain  contained.  Last  year,  the  REER  depreciated  by 
more than 3% as the Swedish krona lost value, while inflation kept pace with trade partners. 
The  REER  continued  to  marginally  depreciate  by  mid-2024  on  account  of  a  broadly  stable 
nominal  exchange  rate  and  favourable  inflation  differentials.  ULC  growth  was  7%  in  2023 
driven mainly by falling labour productivity coupled with a pick-up in nominal wage growth. 

•  Corporate debt concerns remain. In 2023, the corporate debt-to-GDP ratio declined to 117% 
but remained above its pre-pandemic level. This decrease was driven by a fall in debt securities 
relative  to  nominal  GDP,  and  reductions  in  FDI  debt-to-GDP.  The  interest  coverage  ratio  of 
Swedish  NFCs  has  been  low  compared  to  other  EU  countries  and  fell  further  as  interest 
expenses surged. Borrowing costs have started to descend but remain high. Bankruptcies picked 
up markedly during 2023, while new business registrations fell. Overall financial vulnerabilities 
increased  mostly  due  to  a  deterioration  in  the  debt  service  capacity,  but  also  increased 
leveraging and weak activity.  

•  Household debt concerns remain. Despite a decline, Sweden’s household debt ratio is among 
the highest in the EU, both as a share of GDP (85% in 2023) and as a share of household GDI 
(124% in 2023). It declined over the last three years on the back of high headline inflation and 
is expected to fall further in 2024 due to muted credit flows. The rise in borrowing costs and 
the large (and recently increasing)  share of loans with an interest rate fixation period of less 
than  a  year  led  to  higher  interest  payments  in  2023.  They  were  overall  partially  offset  by 
increased interest receipts, reflecting Sweden’s high (aggregate) gross savings rate. As a result, 
net interest payments by the household sector only rose by around one third in 2023. As savers 
do  not  necessarily  coincide  with  borrowers,  the  increased  interest  burden  could  still  cause 

148 

4. Country sections 

distress for pockets of vulnerable households, but the expected monetary easing is set to bring 
the interest burden down again.  

•  Concerns  related  to  the  housing  market  persist.  After  years  of  high  increases,  house  prices 
started to correct in 2022 due to higher interest rates, with mortgage interest rates increasing 
from 1.4% in 2021 to 4.3% in 2023. The prevalence of long mortgage maturities, short interest 
fixation  periods,  and  limited  mortgage  amortisation  requirements  increases  the  sensitivity  of 
households’  borrowing  capacity  to  changes  in  interest  rates.  In  2023,  nominal  house  prices 
declined by 5.3%. They  were estimated to be  overvalued  by 15-20%, which is roughly  5 pps. 
less than the year before. House prices continued to decrease in 2024, albeit at a slower pace 
(-0.8%  year-on-year  in  2024-Q2).  At  the  same  time,  a  continued  house  price  moderation 
seems  unlikely  as  supply  constraints  remain,  incomes  are  growing  and  borrowing  costs  are 
declining while the regulated rental market is hardly an alternative for housing acquisition. The 
impact of the ongoing adjustment was also significant for the construction sector, with a fall in 
obtained building permits by 21.6% and 55.1% in 2022 and 2023, respectively. The evolution 
of  house  prices  exceeded  household’  incomes,  with  house  price-to-income  ratio  standing 
around  13%  above  the  long-term  average,  with  possible  structural  implications  for  the 
domestic economy. In terms of financial  stability,  in February  2024, the ESRB concluded that 
the residential real estate market in Sweden was subject to high risks and the macroprudential 
policy mix was appropriate and partially sufficient to mitigate the situation (132).  

•  Government  debt  remains  limited.  It  declined  to  31.5%  of  GDP  in  2023  and  is  forecast  to 
increase in 2024 but to remain limited. The government deficit was below 1% of GDP in 2023 
and  is  expected  to  increase  in  2024  but  to  remain  contained.  Yields  on  Swedish  sovereign 
bonds have been the lowest in the EU.  

•  The financial sector is stable, but characterized by high exposure to real estate, both directly 
and indirectly. The still ongoing correction of real estate prices represents a challenge for the 
financial  sector as well as for households that are highly indebted, although mortgages have 
very  long  maturities  and  delinquencies  are  very  low.  The  Common  Equity  Tier  1  capital  ratio 
and profitability remained close to the EU average in 2023, with an increase in both. The non-
performing loans ratio mildly increased in 2023, but at 1% (as of the second quarter of 2024) 
is among the lowest in the EU. Credit provision to both corporates and households at a peak in 
the first half of 2022 kept declining until the end of 2023. Exposure to CRE is a source of risk.  

(132) ESRB (2024): “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries, February 2024”. 

149 

 
Graph 4.27: Selected graphs, Sweden 

4. Country sections 

Source: Eurostat, ECB and European Commission calculations. 

Table 4.27:  Key economic and financial indicators, Sweden 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

150 

123456-10-5051015201415161718192021222324%%a) Housing marketHouse price (y-o-y growth rate, lhs)Loans for house purchase (y-o-y growth rate, lhs)Interest rate (rhs)0501001502002503001011121314151617181920212223% of GDPb) Decomposition of debt by sectorGovernmentHouseholds (+NPISH)Non-financial corporationsPrivate sectoraverage           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)2.1-0.30.31.8GDP deflator (1 year % change)2.46.12.31.4Harmonised index of consumer prices (1 year % change)1.95.91.91.5External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%2.56.1 6.1 6.7 Current account balance, balance of payments (% of GDP)0.2 (1)1.4 (2)3.26.5 6.9 6.7 Net international investment position (% of GDP)-35%-86.7 (3)8.6 (4)7.136.1 53.4 58.4 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-11.7-7.0 Net lending-borrowing (% of GDP)3.36.5 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)6.911.3 15.7 13.1 Nominal unit labour cost index per hour worked (1 year % change)2.57.0 3.8 1.9 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)-5.9-7.5 -12.6 -8.1 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)-2.8-3.3 -0.1 -0.6 Export performance against advanced economies (3y % change)-3%-3.0-2.9 -6.7 -0.8 Export performance against advanced economies (1 year % change)-0.42.0 -0.8 -0.3 Core inflation(5) differential vis-à-vis the euro area (pps.)0.21.6 0.3 -0.7 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%65.6 (6)64.2 (7)110.9117.2 114.4 112.0 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%7.10.8 -2.0 1.1 Cost of borrowing for corporations1.15.15.1Households and housing marketHousehold debt, consolidated (% of GDP)+55%54.2 (6)71.3 (7)88.584.6 83.4 83.4 Household debt, consolidated (% of Households' GDI)126.4123.6 124.3 126.1 Household credit flow, consolidated (% debt stock t-1)+14%5.70.6 1.2 3.2 House price index, nominal (1 year % change)+9%2.7-5.3 1.0 4.0 House prices over/undervaluation gap (8)24.818.4Building permits (m2 per 1000 inh)712.4329.5 Cost of borrowing for households for house purchase1.54.34.4GovernmentGeneral government gross debt (% of GDP)60%39.031.5 32.8 32.7 General government balance (% of GDP)0.8-0.6-1.9-1.4Banking sectorReturn on equity of banks (%)11.313.1 pTier-1 capital ratio banking sector (% risk-weighted assets)20.420.4 pGross non-performing loans, domestic and foreign entities (% gross loans)1.11.0 p1.0 Labour marketUnemployment rate (% labour force Y15-74)+10%6.8 (9)6.77.7 8.5 8.4 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.91.9 1.6 1.0         
 
 
          
 
4. Country sections 

EURO AREA 

While the euro area current account balance returned to a surplus in 2023, the inflationary episode 
has put pressures on cost competitiveness, with strong REER appreciation and high unit labour cost 
growth.  Lasting  differentials  in  cost  and  price  developments  among  euro  area  Member  States 
remain a challenge.  

Real  GDP  growth  reached  0.4%  in  2023  and  is  forecast  at  0.8%  in  2024  and  1.3%  in  2025. 
Headline  inflation  stood  at  5.4%  in  2023  and  has  continued  to  decrease  in  2024,  where  it  is 
forecast to stand at 2.4%. Core inflation has decreased very gradually over the past months. The 
unemployment  rate  was  stable  in  2023  and  stood  at  6.6%.  It  is  forecast  to  remain  almost 
unchanged over 2024-2025.  

The scoreboard reading for the euro area shows that three indicators were beyond their indicative 
thresholds in 2023, namely the export performance against advanced economies, unit labour costs, 
and government debt. Relevant developments worth highlighting: 

•  External  sector  developments  remain  contained.  In  2023,  the  current  account  surplus 
increased  to  1.7%,  mainly  due  to  terms-of-trade  normalisation  increasing  the  trade  balance, 
but it remained below pre-pandemic levels. The current account surplus is forecast to remain 
stable. The net international investment position (NIIP) increased to around 3% of GDP in 2023. 
The  NIIP  excluding  non-defaultable  instruments  (NENDI)  remained  stable  at  around  -24%  of 
GDP in 2023.  

•  Cost competitiveness risks are increasing. In 2023 average headline and core inflation rates 
remained high after the 2022 shock, at 5.4% and 5%, respectively. By September 2024, annual 
inflation  rates  came  down  markedly,  but  they  are  still  not  at  target  level.  In  2023,  REER 
appreciated by close to 5%, due to nominal euro gains, and it continued to appreciate by mid-
2024, albeit at lower magnitudes, as favourable inflation differentials arose. 2023 ULC surged 
markedly,  by  more  than  6%,  as  productivity  dropped  on  account  of  the  subdued  economic 
activity, and nominal wage increases were robust to catch up with the high past inflation.  

•  Corporate  debt  dynamics  slowed  and  deleveraging  continued  while  costs  of  debt  servicing 
increased. In 2023 NFC debt-to-GDP stood at 75% down from 80% in 2022. Deleveraging was 
loan driven and supported by a strong reduction in FDI relative to GDP. The  interest coverage 
ratio  fell  across  the  region  as  interest  expenses  continued  to  rise.  Borrowing  costs  have 
plateaued but remained  high. Weak activity  and  a deterioration in debt service capacity have 
contributed to a rise in corporate financial  vulnerabilities, but overall  corporate financial  risks 
remain  contained.  Real  investment  growth  has  been  falling  and  turned  negative  in  the  first 
quarter of 2024.  

•  Household debt in the euro area has been receding. The household debt-to-GDP ratio in the 
euro  area  declined to  53%  in  2023, dipping  below  the MIP  threshold  of  55%.  The  household 
debt-to-gross disposable income dropped to 71%, its lowest level since 2004. Net credit flows 
contracted abruptly in 2023 to around zero. The cost of borrowing for loans for house purchase 
peaked at around 4% by the end of 2023 and has since come down mildly. The gross savings 
rate picked up mildly in 2023 and stands above its pre-pandemic level. 

•  Housing  market  concerns  in  the  euro  area  are  moderate.  House  prices  decreased  1.2%  in 
2023  after  increasing  by 7.1%  in  2022.  In  real  terms  growth in  2022  was  only  0.2%  and  in 
2023 the decrease was 6.9%. Across euro area countries, the recent evolution of house prices 
is heterogeneous, with recent data showing an acceleration of growth rates overall, including in 

151 

4. Country sections 

countries where house prices had recently decreased. Mortgage rates have started to gradually 
decrease,  and  credit  shows  some  signs  of  recovering,  while  housing  transactions  remain  low. 
The price-to-income ratio had improved in 2023, but recent data suggests this improvement to 
have ended. For buyers needing credit, borrowing capacity remains low but is expected to start 
to  recover  as  interest  rates  decrease.  Rents  have  grown  more  slowly  than  incomes  when 
measured  with  rental  indices,  but  for  new  contracts,  the  increase  in  the  last  decade  is 
significant,  particularly  in  major  cities.  The  slowdown  in  new  building  permits  granted  since 
2022 suggests that supply is likely to remain constrained. Dwelling completions have declined 
in the past two years from already low levels. 

•  Concerns related to government debt have decreased, but the pace of improvement faltered 
somewhat recently. Government debt decreased further to around 89% of GDP in the euro area 
and  82%  in  the  EU  in  2023  (133).  While  it  is  almost  10  percentage  points  below  the  picks 
recorded in 2020, it is still above the 2019 pre-COVID-19 levels. Government debt for the EU 
and euro area is forecast to edge up marginally in 2024 and even more in 2025. In 2023, the 
average government deficits were largely unchanged at 3.6% and 3.5% in the euro area and 
the  EU,  respectively,  amid  a  weakening  of  the  economic  momentum,  which  meant  an 
interruption of the improvements of the budgetary balances recorded in 2021 and 2022. The 
average deficit is forecast to hover 3% in both the  euro area and the EU in 2024 and 2025. 
After  having  increased  in  2022  and  2023,  yields  on  government  bonds  bottomed  out  in  late 
2023, but often edged up again in the course of 2024 until late spring, including for the best 
rated  issuers.  They  then  declined  amid  some  flight  to  safety  in  financial  markets,  lower 
inflation  readings,  and  the  subsequent  firming  of  expectations  of  monetary  easing,  but 
increased again in October. 

•  The  euro  area  financial  sector  on  aggregate  remains  sound.  The  Common  Equity  Tier  1 
capital ratio of banking sector mildly increased, whereas profitability increased significantly in 
2023 amid still significant net interest rate margins. The non-performing loans ratio started to 
increase as well. Stage 2 loan ratio remained rather stable but high. Credit dynamics remained 
very muted in 2023 amid still tight financial conditions. The resilience of the banking sector has 
continued into 2024, with a persisting profitability in the first half of the year and a stability of 
capital ratios. Financing conditions for the private sector show some signs of easing, and credit 
growth starts to recover in some Member States. 

(133) Data  for  euro  area  and  EU  aggregates  for  government  debt  presented  here,  and  in  the  table  below,  are  on  a  non-
consolidated  basis  (i.e.  not  corrected  for  intergovernmental  loans,  including  those  made  through  the  European  Financial 
Stability Facility). 

152 

 
 
Table 4.28:  Key economic and financial indicators, Euro Area 

4. Country sections 

Notes: See Annex 1. 
Source: Eurostat and ECB; European Commission for forecast figures (Autumn forecast 2024). 

153 

average           forecastThresholdsBench. IBench. II2017-2019202320242025Output and PricesReal GDP (1 year % change)2.00.40.81.3GDP deflator (1 year % change)1.45.92.92.2Harmonised index of consumer prices (1 year % change)1.55.42.42.1External positionCurrent account balance, balance of payments (% GDP, 3y average)-4%/6%3.11.4 1.2 1.9 Current account balance, balance of payments (% of GDP)2.91.7 1.9 1.9 Net international investment position (% of GDP)-35%-12.62.7 NENDI - NIIP excluding non-defaultable instruments (% of GDP)-29.6-24.3 Net lending-borrowing (% of GDP)2.72.0 CompetitivenessNominal unit labour cost index per hour worked (3y % change)9% (EA) 12% (Non-EA)3.110.0 14.8 13.7 Nominal unit labour cost index per hour worked (1 year % change)1.56.3 4.5 2.4 Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)±3% (EA) ±10% (Non-EA)2.71.4 -4.9 -4.4 Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)1.14.8 -0.9 -0.5 Export performance against advanced economies (3y % change)-3%1.9-4.3 Export performance against advanced economies (1 year % change)0.31.7 Core inflation(5) differential vis-à-vis the euro area (pps.)0.00.0 0.0 0.0 CorporationsNon-financial corporate (NFCs) debt, consolidated (% of GDP)+85%81.075.1 p68.1 67.1 NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) +13%1.51.2 f0.7 2.0 Cost of borrowing for corporations1.74.75.1Households and housing marketHousehold debt, consolidated (% of GDP)+55%57.252.9 pHousehold debt, consolidated (% of Households' GDI)77.571.0 Household credit flow, consolidated (% debt stock t-1)+14%3.20.6 pHouse price index, nominal (1 year % change)+9%4.5-1.2 0.7 1.7 House prices over/undervaluation gap (8)Building permits (m2 per 1000 inh)437.1346.6 Cost of borrowing for households for house purchase1.83.73.8GovernmentGeneral government gross debt (% of GDP)60%87.488.9 89.1 89.6 General government balance (% of GDP)-0.7-3.6-3.0-2.9Banking sectorReturn on equity of banks (%)5.58.6 pTier-1 capital ratio banking sector (% risk-weighted assets)15.917.3 pGross non-performing loans, domestic and foreign entities (% gross loans)3.81.9 pLabour marketUnemployment rate (% labour force Y15-74)+10%6.8 (9)8.36.6 6.5 6.3 Labour force participation rate - % pop. aged 15-64 (3y change in pp)-0.2 pp0.82.5 1.8 1.3  
          
 
ANNEX 1: NOTES TO THE TABLES OF THE COUNTRY SECTION 

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

Source: European Commission 

154 

(4)Fundamentals-explainedNIIPbenchmark(NIIPnorm):NIIPachievedifacountryhadrunacurrentaccountbalanceinlinewithfundamentalssince1994.ItthusrepresentsthepartoftheNIIPthatcanbeexplainedbyfundamentals.TurriniandZeugner(2019),“Benchmarks for Net International Investment Positions”, European Economy, Discussion Paper 97, DG ECFIN, European Commission.(9) Non-accelerating wage rate of unemploymentFigures highlighted are the ones at or beyond the threshold. Flags: b: Break in series. d: Definition differs. e: Estimated. p: Provisional. (1)Currentaccountsinlinewithfundamentals(currentaccountnorms):derivedfromreducedformregressionscapturingthemaindeterminantofthesaving-investmentbalance,includingfundamentaldeterminants,policyfactorsandglobalfinancialconditions.SeeCoutinho,Turrini,andZeugner(2018),“MethodologiesfortheAssessmentofCurrentAccountBenchmarks”,EuropeanEconomy,Discussion Paper 86, DG ECFIN, European Commission. (2)CurrentaccountrequiredtostabilisetheNIIPabove-35%ofGDPover20years:calculationsmakeuseofCommission’sT+10projections.SeeCoutinho,Turrini,andZeugner(2018),“MethodologiesfortheAssessmentofCurrentAccountBenchmarks”,EuropeanEconomy, Discussion Paper 86, DG ECFIN, European Commission. (3)PrudentialNIIP/NENDIbenchmark:theprudentialthresholdforNIIPisthecountry-specificlevelbeyondwhichestimatessuggestthatabalanceofpaymentscrisisismorelikely.TurriniandZeugner(2019),“BenchmarksforNetInternationalInvestmentPositions”,European Economy, Discussion Paper 97, DG ECFIN, European Commission. (5) HICP inflation excluding energy, food, alcohol and tobacco.(6)Prudentialthresholdfornon-financialcorporateandhouseholddebt-to-GDPratio:correspondstothelevelabovewhichbankingcrisesbecomemorelikely.Itisderivedfromregressionsminimisingtheprobabilityofmissedcrisesandthatoffalsealerts.Bricongneetal. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1-42.(7)Fundamentals-basedbenchmarksfornon-financialcorporateandhouseholddebt-to-GDPratios:assessesprivatedebtfromregressionscapturingthemaindeterminantsofcreditgrowthandtakingintoaccountagiveninitialstockofdebt.Bricongneetal.(2019), “Is Private Debt Excessive?”, Open Economies Review, 1-42.(8)Housepricesover/undervaluationgap:isthesimpleaverageoftheprice-to-income,price-to-rentandmodelvaluationgaps.Themodelvaluationgapisestimatedinacointegrationframeworkusingasystemoffivefundamentalvariables:totalpopulation,realhousingstock,realdisposableincomepercapita,reallong-terminterestrateandpricedeflatoroffinalconsumptionexpenditure.BasedonPhiliponnetandTurrini(2017),“AssessingHousePriceDevelopmentsintheEU”,EuropeanEconomy,DiscussionPapers48,DGECFIN,European Commission. 
 
 
     
 
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Table 1.1: MIP Scoreboard 2023    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 performance against advanced economies (3 year % change)Nominal unit labour cost index (per hour worked)(3 year % change)General government gross debt (% of GDP)Household (incl. NPISH) debt, consolidated (% of GDP)NFC debt, consolidated (% of GDP)Household (incl. NPISH) credit flow, consolidated(% debt stock t-1)NFC (excl. FDI) credit flow, consolidated(% debt stock t-1 excl. FDI)House price index, nominal (1 year % change) Unemployment rate (% labour force Y15-74)Labour force participation rate (3 year change in pps)(% pop Y15-64)Thresholds-4%/+6%-35%±3% (EA)±10% (Non-EA)-3% 9% (EA)  12% (Non-EA)60% 55% 85% 14% 13% 9%10%-0.2 %EU1.6 0.9e3.4 -4.0 10.7 80.8 51.8p73.5p0.7p1.5 -0.3 6.1 2.6 EA1.4 2.7 1.4 -4.3 10.0 87.4 52.9p75.1p0.6p1.2 -1.2 6.6 2.5 BE-0.1 51.5 0.0 -6.0 15.8p103.1 57.1p96.4p2.3 3.2 2.3 5.5 2.1 BG-0.9 -6.8 8.5 15.4 26.9 22.9 23.5 48.3 16.3 8.5 9.9 4.3 1.3 CZ-2.1 -13.4 24.2 0.8 17.2 42.4 31.0 41.8 4.9 0.6 -1.7 2.6 0.7 DK10.1 51.3 -1.0 2.5 5.7 33.6 88.3 108.6 0.4 4.7 -4.2 5.1b1.8bDE5.8 70.8 1.9 -7.8 11.0p62.9 51.0p59.6p0.7 2.7 -8.5 3.1 2.4bEE-3.1 -21.1 15.7 7.7 32.5 20.2 36.8 54.5 6.3 3.8 5.9 6.4 2.0 IE9.7 -101.4 -1.2 -9.2 11.9 43.3 28.9 109.7 3.7 39.5 3.1 4.3 6.7 EL-7.7 -139.3 -1.2 32.1 -1.8p163.9 40.9p52.4p-1.0 4.6 13.8ep11.1 4.2 ES1.3 -51.7 -0.8 14.0 10.0p105.1 46.1p65.9p-1.9 -3.1 4.0 12.2d2.3dFR-0.6 -28.1 -1.8 2.1 9.5p109.9 62.6p91.9p1.3p3.1 -0.4 7.3d1.9dHR-0.6 -26.0 4.3 36.6 17.1p61.8 30.1p42.8p9.5 7.7 11.9 6.1 2.9 IT0.1 7.4 0.7 3.1 5.0 134.8 37.2 58.1 -0.5 -1.9 1.3 7.7 3.2 CY-6.7 -92.7 0.3 17.4 3.7p73.6 64.3p130.2p1.0 0.4 2.9 5.8b4.2bLV-4.5 -26.0 10.8 -1.7 25.8 45.0 18.6 35.8 5.2 1.8 3.7 6.5 -1.4 LT-1.2 -4.6 12.8 6.6 37.3 37.3 21.2 29.9 6.6 12.1 9.8 6.9 0.3 LU7.9 33.1 -1.5 -14.4 20.9 25.5 67.9 273.1 1.0 -25.7 -9.1 5.2 1.9 HU-3.9 -36.8 10.2 1.2 35.4p73.4 16.9p55.5p3.4 8.0 7.1p4.1 2.9 MT5.0 92.9 -0.5 -10.7 0.4 47.4 49.1 69.6 6.8 18.1 6.2p3.5 4.7 NL8.8 52.9 2.4 -2.0 9.2p45.1 94.5p114.3p1.1p-1.4 -1.9 3.6 2.1 AT0.7 16.6 1.8 -1.4 10.3 78.6 45.0 71.4 -1.6 1.3 -2.9 5.1 1.8 PL-0.6 -32.6 9.2 7.7 23.9p49.7 23.7 32.2 -0.2 4.0 8.8 2.8 4.3 PT-0.7 -72.3 -1.4 16.2 11.0e97.9 55.0e70.8e0.1 -0.6 8.2 6.5 4.0 RO-7.8 -39.5 6.7 6.8 27.5p48.9 12.5p28.2p2.8 9.6 3.3 5.6 2.7 SI2.4 2.3 1.1 0.2 15.2 68.4 23.9 34.7 3.9 -2.1 7.2 3.7 1.4 SK-5.4 -54.9 7.5 -3.1 17.8 56.1 44.0 41.4 4.6 2.5 -0.2 5.8 2.0 FI-0.8 12.6 -1.9 -6.0 14.0 77.1 63.9 76.3 -0.4 2.6 -5.7 7.2 2.6 SE6.1 36.1 -7.5 -2.9 11.3 31.5 84.6 117.2 0.6 0.8 -5.3 7.7 1.9 2023External imbalances and competitivenessInternal imbalancesEmployment indicators¹Figures highlighted are the ones at or beyond the threshold. Flags:b:Break in series. d:Definition differs. e:Estimated. p:Provisional. 1) For employment indicators, see page 2 of the AMR 2016. 2) House price index: e = estimate by NCB for EL. 3) Unemployment rate and labour force participation rate: b = extension of of the data collection period from two weeks to four weeks since Q4 2023 for DK; census revision of the population counts for CY. d = ES and FR 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. 4) Labour force participation rate: b = for DE, the flag is referring to a break in its t-3 counterpart as part of the three-year difference calculation.Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for real effective exchange rate), and OECD. 
 
 
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Table 2.1: Auxiliary indicators, 2023      2023 Net international investment position (excl. Non-defaultable instruments) Current plus capital account (Net lending-borrowing) Net trade balance of energy products Real GDP per capita Gross fixed capital formation  Gross domestic expenditure on R&D Export market share(% world exports) Labour productivity (per hour worked) Core inflation differential vis-à-vis  the euro area  (% of GDP)  (% of GDP)  (% of GDP) (2015 EUR) (% of GDP)  (% of GDP)  (3 year % change)  (1 year % change)  (pps) EU-19.6e1.8 -2.3 31030.0 22.0 na-5.0 -0.5 0.7 EA-24.3 2.0 -2.4 34110.0 21.9 na-5.0 -0.9 0.0 BE31.3 -0.5 -3.0p40370.0p24.4p3.3p-6.4 0.3p1.0 BG46.0 2.4 -2.2 8850.0 18.7 0.8p15.0 -1.6 4.0 CZ28.6 1.5 -2.7 18230.0 27.3 1.8p0.4 -0.8 4.4 DK37.1 9.5 -0.6 55280.0 22.6 na2.1 1.5 -0.4 DE53.1 5.3 -2.1p39380.0p21.5p3.3p-8.2 -0.6p0.2 EE30.5 -0.5 -1.8 18200.0 27.9 na7.3 -6.3 3.8 IE-279.2 6.4 -1.8 82780.0 23.2 na-9.5 -7.1 -0.5 EL-110.7 -5.0 -2.8p18800.0p15.2p1.5p31.5 0.5p0.4 ES-23.8 3.7 -2.1p25730.0p19.7pna13.5 0.6p-0.8 FR-29.4 -0.7 -2.4p35260.0p23.1pna1.7 0.2p-1.0 HR20.5 3.5 -4.8p14970.0p22.5p1.4 36.1 0.5p3.9 IT5.1 0.7 -2.9 30720.0 22.5 1.3p2.7 -1.7 -0.4 CY-133.8 -9.6 -4.4p29150.0p21.2pna16.9 1.0p-1.1 LV20.6 -2.0 -3.4 15020.0 24.9 0.8 -2.1 1.9 3.5 LT26.7 2.7 -3.8 16840.0 23.7 1.1p6.2 -2.0 4.6 LU-3867.0 5.6 -3.9 95660.0 18.1 na-14.7 -2.8 -1.1 HU-6.7 1.7 -4.7p14740.0p26.0p1.4d0.8 0.7p9.1 MT142.5 7.6 -5.2 29700.0 18.6p0.6 -11.1 1.3 0.0 NL13.8 9.6 -1.2 46240.0p20.1 na-2.3 -1.3p1.4 AT-5.6 1.8 -2.3 41770.0 24.9 3.3p-1.8 -1.9 2.4 PL5.2 1.9 -2.6 15280.0 17.7 1.6p7.2 1.1p4.3 PT-19.4 1.9 -2.7e20090.0e20.1e1.7p15.7 0.5e0.4 RO-4.8 -4.9 -1.6p11170.0p27.0p0.5p6.4 2.6p4.7 SI18.2 4.5 -3.0 23170.0 21.3 2.1p-0.2 1.9 1.7 SK-14.8 -0.4 -3.2 17240.0 22.3 1.0 -3.5 0.4 4.5 FI6.7 -0.5 -1.4 41140.0 23.2 3.1 -6.3 -1.4 -0.9 SE-7.0 6.5 -1.0 48840.0 25.0 3.6p-3.3 -1.2 1.6 Flags:d:Definition differs. e:Estimated. p:Provisional. 1) Gross domestic expenditure on R&D: For EU, EA, DK, EE, IE, ES, FR, CY, LU and NL the data were not available on 31 October 2024.Source: European Commission, Eurostat, and International Monetary Fund (World Economic Outlook, for world exports of goods and services).  
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Table 2.1 (continued): Auxiliary indicators, 2023      2023 Household (incl. NPISH) debt, consolidated Gross non-performing loans, domestic and foreign entitiesTier-1 capital ratio banking sectorReturn on equity of banks Standardised house price-to-income ratio Building permitsLong-term unemployment rate -  % labour force Y15-74Youth unemployment rate - % labour force Y15-24Employment rate% pop Y20-64Young people neither in employment nor in education or training-  % pop Y15-29  People at risk of poverty or social exclusion -% of total population   People at risk of poverty after social transfers -% of total population Severely materially and socially deprived people -% of total population People living in households with very low work intensity - % pop Y0-64  (% of GDI)  (% gross loan)  (% risk-weighted assets) (%)  (ratio vs the average, since 2000)  (m² per 1000 inh)  (%)   (%)   (%)   (%)   (%)   %  %  % EU70.5 1.9p17.5p9.0p100.9 372.9 2.1 14.5 75.3 11.2 21.3 16.2 6.8 8.0 EA71.0 1.9p17.3p8.6p100.0 346.6 2.4 14.5 74.7 11.3 21.6 16.4 6.4 8.8 BE76.3 1.6p17.9p11.4p102.9 670.3p2.2 16.1 72.1 9.6 18.6 12.3 6.1 10.5 BGna2.9p20.9p16.3p58.3d833.0 2.3 12.1 76.2 13.8 30.0 20.6 18.0 7.0 CZ44.3 1.2p19.5p13.7p115.1 339.2 0.8 8.3 81.7 10.1 12.0 9.8 2.7 5.1 DK139.6 1.3p21.0p11.7p105.1 420.3p0.5b11.5b79.8b8.6b17.9 11.8 4.9 9.8 DE66.1 1.3p17.7p5.7p103.3 297.8p1.0 5.9 81.1 8.8 21.3 14.4 6.9 9.9 EE54.9 1.1p21.5p18.5p105.3 402.7 1.3 17.3 82.1 9.6 24.2 22.5 2.5 5.9 IE72.4 1.3p21.8p7.6p95.2 864.8 1.1 10.7 79.1 8.5 19.2 12.0 6.0 9.1 EL53.1 5.0p16.2p12.0p103.3ep260.7p6.2 26.7 67.4 15.9 26.1 18.9 13.5 8.3 ES61.6 2.7p14.7p11.8p96.6 299.7ps4.3d28.7d70.5d12.3d26.5 20.2 9.0 8.4 FR77.4 1.9p17.3p5.9p103.2 430.4p1.8d17.2d74.4d12.3d20.4 15.4 6.6 9.2 HR42.2 2.5p21.7p15.7p93.3 520.0 2.1 18.9 70.8 11.8 20.7b19.3b2.8 5.5 IT49.4 2.7p16.9p12.7p85.1 80.2 4.2 22.7 66.3 16.1 22.8 18.9 4.7 8.9 CY83.7 3.7p23.4p21.8p71.1 2103.3 1.8b16.6b79.5b13.9b16.7 13.9 2.4 4.4 LV26.4 1.3p20.6p20.3p87.4 345.5 1.8 12.3 77.5 10.0 25.6 22.5 6.2 7.0 LT30.1 0.8p18.6p21.2p90.4 445.7 2.3 13.8 78.5 13.5 24.3 20.6 6.1 8.0 LU134.5 1.3p18.5p8.3p132.5 913.5p1.7 18.8 74.8 8.5 21.4 18.8 2.5 3.9 HU24.1 2.5p17.0p21.8p102.6p259.6p1.4 12.8 80.7 10.9 19.7 13.1 10.4 4.9 MT80.0 2.0p22.1p10.7p100.1p2221.9 0.8 9.2 81.3 7.6 19.8 16.6 4.1 3.6 NL143.8 1.3p18.6p11.1p106.8 464.3p0.5 8.2 83.5 4.7 15.8 13.0 2.7 8.2 AT60.7 2.1p18.1p12.8p125.6 467.7e1.1 10.4 77.2 9.4 17.7 14.9 3.7 5.7 PL34.3 4.1p18.1p11.6p87.9 540.5 0.8 11.4 77.9 9.1 16.3 14.0 3.0 3.9 PT71.4 2.7p17.9p13.8p127.8 628.7ep2.5 20.5 78.0 8.9 20.1 17.0 4.9 6.3 RO20.0 2.5p19.9p16.8p58.7 456.9p2.2 21.8 68.7 19.3 32.0 21.1 19.8 5.2 SI33.2 1.5p18.0p16.8p103.8 466.9 1.4 9.9 77.5 7.8 13.7 12.7 2.0 3.8 SK61.1 1.8p18.6p11.5p97.2 372.0 3.8 19.8 77.5 11.2 17.6 14.3 7.0 4.6 FI85.1 1.1p19.7p13.5p83.5 355.0 1.6 16.2 78.2 9.2 15.8 12.2 2.8 8.7 SE123.6 1.0p20.4p13.1p112.9 329.5 1.6 22.1 82.6 5.7 18.4 16.1 2.5 8.0 Flags:b:Break in series. d:Definition differs. e:Estimated. p:Provisional. s:Eurostat estimate. 1)Household(incl.NPISH)debt:Grossadjusteddisposableincomedatawerenotavailableon31October2024forBG.2)Standardisedhouseprice-to-incomeratio:d=duetomissingadjustedgrossdisposableincome,compensationofemployeesusedinsteadforBG;e=sourceNCBforhousepricesforEL.3)LabourForceSurveyindicators:b=DKextendedthedatacollectionperiodfromtwoweekstofourweekssinceQ42023,CYmadecensusrevisionsofthepopulationcounts;d=ESandFRhaveassessedtheattachmenttothejobandincludedinemploymentthosewhohadanunknowndurationofabsencefromwork,butareexpectedtoreturntothesame job. 4) People at risk of poverty or social exclusion & people at risk of poverty after social tranfers: b = for HR, administrative sources used for part of income data: employee cash or near cash income, wages and salaries, social benefits, old age, survivor's and disability pensions.Source: European Commission, Eurostat, and European Central Bank (for gross non-performing loans - domestic and foreign entities, tier-1 capital banking sector and return on equity of banks).