COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2026 prepared in accordance with Article 3 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances
Date: 2025-11-25
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, 25.11.2025  COM(2025) 956 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Alert Mechanism Report 2026      prepared in accordance with Article 3 of Regulation (EU) No 1176/2011    on the prevention and correction of macroeconomic imbalances    {SWD(2025) 900 final} - {SWD(2025) 956 final}  
 
 
ALERT MECHANISM REPORT COMMUNICATION 

The  Alert  Mechanism  Report  (AMR)  identifies  Member  States  that  the  Commission 
considers may be affected by, or may be at risk of being affected by imbalances, based 
on  an  economic  reading  of  the  Macroeconomic  Imbalance  Procedure  (MIP)  scoreboard. 
The economic reading of the scoreboard  is based  on  the outturn data for 2024 (Graph 1). These 
data  are  interpreted  in  a  forward-looking  manner,  taking  in-year  (2025)  economic  developments 
and  forecasts  for  2025,  2026  and  2027  from  the  Commission  2025  autumn  forecast  into 
consideration, where relevant (Graph 2). This communication presents the economic reading of the 
scoreboard,  and  its  annexes  contain  a  further  presentation  of  relevant  data  developments  1.  In 
parallel, the  European Macroeconomic  Report  2 – published this year for the first time  – gives an 
analysis of the wider developments in the vulnerabilities and imbalances in the economies of the 
EU  and  its  Member  States,  putting  the  country  developments  surveyed  under  the  MIP  in  a  wider 
context. 

The global economy is facing structural changes and higher levels of policy uncertainty, 
making  the  EU  external  environment  challenging.  In  recent  years,  trade  barriers  have 
increasingly  been  used  as  geopolitical  and  industrial  policy  tools,  with  the  US  significantly 
increasing  its  import  tariffs  over  the  last  year.  The  global  economy  is  undergoing  a  period  of 
adjustment  to  this  new  order,  affecting  trade  flows and  exchange  rates.  Moreover,  this  period  of 
uncertainty follows a series of turbulent economic events, which triggered inflation and left interest 
rates higher than in previous years. These geopolitical events have also increased the need for the 
EU to raise its defence spending over the coming years, to support the geostrategic independence 
of the Union.     

While  inflation  is  receding  in  the  EU  as  a  whole,  inflationary  pressures  remain  high  in 
some Member States, partly reflecting dynamic wage developments. Following its peak in 
2022-23,  inflation  has  fallen  across  the  EU.  Since  2024,  consumer  inflation  has  stabilised  at 
around  2.5%  in  the  EU.  The  GDP  deflator,  reflecting  domestic  cost  pressures,  has  also  declined, 
albeit more slowly. Despite the difficult economic conditions of recent years, the labour market has 
been  resilient,  with  historically  low  unemployment  and  high  rates  of  employment.  Wages  almost 
closed  the  gap  in  real  terms  with  their  2019  levels  on  average,  yet  with  marked  heterogeneity 
across Member States, with some recording marked real wage increases and others still some falls. 
In Member States where inflation remains high relative to historical averages and other EU or euro 
area (EA) Member States, the wage driver has often been particularly present. Recently, however, 

1 Commission staff working document, Alert Mechanism Report 2026, SWD(2025)  956; Commission staff working document, 
Statistical Annex accompanying the Alert Mechanism Report 2026, SWD(2025) 900 

2 The European Macroeconomic Report aims to inform strategic policy choices to strengthen the euro area and EU’s resilience in 
the face of a rapidly evolving global order and comprises an assessment of economic vulnerabilities in the EU. 2026 European 
Macroeconomic Report, SWD(2025) 957. 

1 

 
 
 
 
 
 
 
Executive summary 

labour  markets  have  displayed  signs  of  softening,  likely  supporting  a  gradual  ease  of  wage 
pressures.  

The  moderation  of  inflation  in  the  euro  area  has  allowed  a  significant  easing  of 
monetary policy, while government borrowing costs have often remained broadly stable. 
The monetary policy easing has led to more favourable financing conditions for the private sector. 
Bank  lending  rates  have  been  decreasing  since  2024  and  private  sector  borrowing  is  picking  up 
slowly. For the government sector, yields on long-term government bonds have little changed over 
2024 and 2025, contributing to an increase in the average cost of debt, also depending on the debt 
structure and on government deficit and debt levels across Member States. 

The outlook for imbalances 

The euro area and EU’s persistent external surplus reflects a chronic imbalance between 
savings and investment, which undermines the Union’s long-term growth potential. Over 
2024, the current account of the EA/EU rose, reflecting a reduction in investment alongside stable 
savings. The reduction in investment, given still high financing costs and economic uncertainty,  is 
impacting  the  EU’s  capacity  to  sustain  growth  and  finance  critical  areas  like  digital  and  climate 
transitions,  as  well  as  bolster  Europe’s  defence  readiness.  At  the  same  time,  the  EA/EU’s  current 
account  surplus  has  decreased  compared  to  its  pre-pandemic  level  while China’s  current  account 
surplus  has  increased  and  the  US  current  account  deficit  has  widened,  resulting  in  a  declining 
contribution to global imbalances by the EA/EU.  

At  Member  State  level,  there  are  both  current  account  surpluses  and  deficits,  each 
situation hiding specific risks. Some Member States’ substantial current account surpluses have 
grown further recently, fuelled by subdued demand. Many years of surpluses have resulted in the 
accumulation  of  substantial  net  assets,  exposing  these  Member  States  to  global  economic 
fluctuations such as currency, valuation risks and trade policy uncertainty. Concomitantly, external 
deficits  remain  substantial  in  a  number  of  Member  States.  While  they  have  been  able  to  reduce 
their  external  debt-to-GDP  ratio  in  recent  years  due  to  high  nominal  growth,  this  passive 
deleveraging  is  due  to  end  in  a  context  of  lower  inflationary  pressures.  Large  dependence  on 
external  financing  flows  is  a  vulnerability  in  the  event  of  an  increase  in  their  financiers’  risk 
perception.  

The divergent increase in price and cost levels over the last five years has led to cost 
competitiveness  deteriorations  for  some  Member  States,  with  economic  convergence 
stalling in some cases. In some Member States, growing prices and costs continue to sustain this 
divergence.  However,  there  are  no  indications  that  Member  States  that  have  experienced  the 
largest  cost  competitiveness  deteriorations  have  experienced  a  disproportionate  deterioration  of 
their export performance. While higher inflation differentials can arise as a by-product of economic 
convergence,  it  is  worth  noting  that  in  some  of  the  Member  States  with  the  highest  cost 
competitiveness  deteriorations  –  notably  Czechia  and  Estonia,  and  to  a  lesser  extent  Latvia  – 
economic convergence seems to have stalled. 

Households  have  recorded  rising  incomes  and  receding  debts,  whereas  corporate 
profitability and debt service capacity have fallen. Real disposable household income growth 
exceeded 2% in 2024, while financial liabilities have dropped by 7% in real terms since 2019. This 
erosion  of  debt  largely  results  from  the  recent  period  of  high  inflation,  which  has  now  ended. 
Although corporate indebtedness fell in 2024, corporate vulnerabilities increased as firms’ ability to 

2 

 
 
 
 
 
Executive summary 

service  their  debt  declined.  Firms  have  been  using  up  their  cash  reserves,  which  they  had 
accumulated  during  the  pandemic  and  the  immediate  high-profit  period,  and  their  buffers  have 
fallen.   

On  the  government  side,  high  deficits  have  left  debt  above  its  pre-pandemic  level 
overall, despite strong denominator effects associated to high nominal growth and with 
strong investment needs on the horizon. These denominator effects will weaken in the future, 
making  deleveraging  more  difficult  to  achieve.  Furthermore,  the  impact  of  higher  interest  rates 
relative to the pre-2022 period, is still to work its way through, with debt still being rolled over at 
higher rates, pushing interest payments up. These higher interest payments come on top of a need 
to  increase  certain  crucial  categories  of  spending,  such  as  on  defence  or  ageing-related 
expenditure, and to finance public investment, creating strong challenges for fiscal policies in many 
Member States.  

High  house  prices  are  a  rising  economic  concern  across  the  EU.  Following  a  pause  over 
2022-23,  strong  house  price  growth  is  back  as  demand  has  picked  up  and  supply  has  remained 
muted.  High  house  prices  are  an  economic  and  social  challenge  across  an  increasing  number  of 
Member  States,  and  in  some  cases  price  growth  has  been  very  strong  for  years.  While  limited 
mortgage  borrowing  and  construction  activity  reduce  the  risk  to  the  banking  sector  and  of  an 
abrupt correction in the sector, they can severely impact households’ housing affordability, reduce 
labour mobility and, overall,  weigh on regional  and national  competitiveness. Specifically, housing 
unaffordability  is  concentrated  in the  regions  with  the  highest  productivity,  such  as  capital  cities, 
and predominantly affects younger cohorts. It makes it more difficult for labour supply to adjust to 
demand,  and  lead  to  young  people  having  fewer  children,  exacerbating  long-term  demographic 
pressures. High house prices may also reduce consumption as higher shares of income is dedicated 
to housing costs.  

The banking sector is resilient, but the non-bank financial sector has been expanding in 
recent years and could be a source of vulnerability, and new risks are emerging. The EA 
and  EU  banking  sector  has  remained  resilient,  maintaining  high  profitability  and  strong  capital 
ratios.  Still,  the  exposure  to  real  estate  and  sovereigns  continues  to  represent  a  source  of 
vulnerability  and  the  commercial  real  estate  sector  remains  under  pressure.  In  parallel,  the  non-
bank financial intermediaries’ sector, which has expanded rapidly over the past years, is exposed to 
specific risks and its interconnectedness with the banking sector is a source of vulnerability. Finally, 
the EU financial sector is subject to new risks that are difficult to quantify. This includes cyber risks, 
as  well  as  the  increasing  importance  of  crypto  assets  and  their  interconnectedness  with  the 
financial sector. 

Country-specific conclusions and follow-up surveillance  

In 2026, in-depth reviews (IDRs) will be prepared for the seven Member States that were 
identified as experiencing imbalances or excessive imbalances in spring 2025. The annex 
to  this  communication  presents  an  overview  of  the  evolution  of  key  data  that  underlie  these 
imbalances.  An  economic  assessment  of  whether  these  imbalances  are  aggravating,  under 
correction,  or  corrected,  with  the  view  to  update  existing  assessments  and  assessing  possible 
remaining policy needs will be undertaken in the 2026 in-depth reviews, to be published over the 
first half of 2026. That will be case for Greece, Italy, Hungary, the Netherlands, Romania, Slovakia, 
and Sweden.  

For the remaining Member States, there is no need to carry out IDRs at this juncture.  

3 

 
 
 
 
 
Executive summary 

For a number of Member States, the economic reading of the scoreboard leads to the conclusion 
that  no  IDR  is  needed,  but  a  number  of  developments  merit  attention.  In  Bulgaria,  house prices 
have been increasing strongly in tandem with strong growth in household borrowing, and continued 
very strong rises in unit labour costs are a risk for price pressures. At the same time, the external 
position  remains  healthy  despite  a  slight  deterioration,  which  together  with  the  ongoing  nominal 
convergence process, mitigate risks. Estonia was subject to an IDR this spring and no imbalances 
were  found.  Nonetheless,  cost  competitiveness  losses  persist  and  inflation  differentials  vis-à-vis 
the  euro  area  have  unexpectedly  widened  in  2025,  alongside  a  pause  or  end  in  economic 
convergence.  House  prices  and  credit  growth  have  also  been  dynamic.  The  current  account  has 
recorded  only  moderate  deficits,  but  these  may  widen  when  demand  picks  up.  In  Croatia,  price 
pressures  and  cost  competitiveness  developments  are  an  issue.  Furthermore,  house  prices  have 
increased  noticeably  and  bank  lending  for  house  purchase  has  been  buoyant,  which  warrants 
monitoring. Latvia has recorded one of the largest cumulated price increases in the EU in recent 
years and unit labour cost growth remains high, even if decelerating. Price pressures are weighing 
on  cost  competitiveness,  which,  together  with  the  weak  external  environment,  may  have 
contributed to a fall in exports. 

4 

 
 
 
 
 
Graph 1:  AMR scoreboard indicators in 2024, by Member State 

Executive summary 

Source: Eurostat and European Commission. 

5 

Current accountNIIPREERExport performance-0.7%58.6%1.6%-13.9%-1.7%-4.4%7.3%6.3%-1.0%-7.1%14.4%1.3%Nominal ULCScoreboardHouse prices15.1%Belgium3.2%37.7%Bulgaria16.5%20.3%Czechia5.0%HH debtHH credit flowNFC debt56.3%2.4%94.8%25.6%21.1%45.9%30.6%3.7%47.2%NFC credit flowGovern-ment debtUnempl.Activity rate5.0%103.9%5.7%1.1%7.5%23.8%4.2%1.7%9.5%43.3%2.6%0.9%11.5%69.0%-0.9%8.9%5.0%79.7%1.6%-9.3%-1.9%-9.7%16.0%-4.3%10.7%-81.4%-1.8%5.2%11.6%Denmark3.5%17.9%Germany-1.5%40.4%Estonia6.1%20.6%Ireland8.5%85.8%0.6%115.5%49.7%0.6%58.9%38.1%8.0%58.3%23.8%1.8%90.9%5.8%30.5%6.2%2.8%1.4%62.2%3.4%1.5%9.2%23.5%7.6%3.1%-0.8%38.3%4.3%3.3%-8.2%-137.5%0.8%6.9%2.1%-41.0%-0.7%12.5%-0.8%-23.0%-1.1%0.2%-1.9%-29.6%5.4%17.5%7.6%Greece9.0%11.4%Spain8.5%11.4%France-3.7%31.8%Croatia10.4%39.0%0.2%55.5%43.7%1.3%63.4%60.5%0.2%90.7%30.2%10.9%41.8%10.4%154.2%10.1%3.2%2.3%101.6%11.4%0.9%1.5%113.2%7.4%1.5%5.3%57.4%5.0%2.9%-0.2%14.9%0.0%-0.8%-8.3%-84.1%1.0%15.0%-3.6%-19.7%9.6%-2.9%-0.6%-0.7%9.2%2.8%8.5%Italy3.2%13.7%Cyprus2.1%32.2%Latvia4.2%36.2%Lithuania9.7%36.0%0.6%56.0%57.4%2.1%116.0%19.4%8.3%36.0%21.9%10.5%30.5%-1.6%134.9%6.5%2.1%0.6%62.8%4.9%1.8%5.7%46.6%6.9%0.9%8.5%38.0%7.1%1.3%5.5%39.4%-2.4%-15.9%-2.5%-34.2%7.3%0.3%4.2%83.9%1.5%13.6%8.4%62.1%3.3%-4.6%24.2%Luxembourg-5.2%47.6%Hungary13.7%13.6%Malta6.7%18.3%The Netherlands8.2%61.6%1.2%271.6%17.1%9.9%56.3%46.8%8.1%61.0%93.2%3.8%108.6%-1.7%26.3%6.4%1.3%3.1%73.5%4.5%2.3%4.4%46.2%3.1%5.0%-1.4%43.7%3.7%1.8%0.6%23.9%2.4%-4.1%-0.1%-28.3%17.5%5.8%0.2%-58.3%0.6%17.3%-8.1%-41.3%9.7%2.0%19.6%Austria-0.4%30.7%Poland15.0%17.8%Portugal9.1%51.0%Romania5.0%42.8%-0.4%69.5%22.7%3.3%31.2%52.5%4.0%66.3%12.5%10.9%27.7%0.8%79.9%5.2%1.0%5.6%55.1%2.9%1.8%1.9%93.6%6.5%3.2%10.1%54.8%5.4%1.8%2.8%9.9%1.1%-0.4%-5.8%-55.0%8.3%-4.5%-1.3%24.7%-1.9%-7.5%5.2%67.4%-9.7%-4.8%20.4%Slovenia7.5%23.3%Slovakia3.8%10.7%Finland-3.1%15.6%Sweden0.1%24.2%6.8%32.3%43.3%4.3%39.2%63.9%-0.3%78.3%83.6%1.6%116.9%-2.7%66.6%3.7%0.9%-1.1%59.7%5.3%2.0%0.9%82.5%8.4%0.6%-1.6%34.0%8.4%1.2% 
 
 
 
 
 
Graph 2:  Number of Member States recording scoreboard variables beyond threshold 

Executive summary 

The number of Member States recording scoreboard variables beyond relevant thresholds in a  certain year 
reflects data as of the 2026 AMR cut-off date (31 October 2025). Possible ex-post data revisions may imply 
a difference in the number of values beyond thresholds computed using previous vintages for the scoreboard 
variables,  as  published  in  previous  AMR  editions.  *  Data  not  available  for  EA  and  EU  aggregates  over  the 
forecast period. 

Source: Eurostat and European Commission forecasts.  

6 

9989787202020212022202320242025f2026fCurrent account balance (% of GDP, 3y avg )111088776202020212022202320242025f2026fNIIP (% of GDP)314164743202020212022202320242025f2026fHouse price index, nominal (1y % change)1211121202020212022202320242025f2026fHousehold (+NPISH) credit flow -cons. (% of debt stock in t-1)1231000202020212022202320242025f2026fNFC credit flow -consolidated, excl. FDI (% of debt stock excl FDI in t-1)2222210202020212022202320242025f2026fUnemployment rate (% labour force Y15-74)7421033EA20202020212022202320242025f2026fParticipation rate (% pop Y15-64, 3y change in pp)**ExternalimbalancesInternal Imbalances (flows)Employment indicators63117898EA20202020212022202320242025f2026fREER -42 trading partners, HICP def (3y % change)6498934EA20EA20EA20EU27202020212022202320242025f2026fExport perf against advanced eco (3y % change)*19121720242420EA20EA20EA20EA20EU27EU27202020212022202320242025f2026fNominal ULC, per hour (3y % change)Competitiveness131198889EA20EA20EA20EU27EU27202020212022202320242025f2026fHousehold (+NPISH) debt, cons. (% of GDP)10988877EA20EA20202020212022202320242025f2026fNFC debt -consolidated (% of GDP)13141313121214EA20EA20EA20EA20EA20EA20EA20EU27EU27EU27EU27EU27EU27EU27202020212022202320242025f2026fGeneral government gross debt (% of GDP)Internal Imbalances (stock)* 
 
 
 
 
 
 
Executive summary 

Sector-specific thematic reading of economic developments in 2024 

•  In  2024,  current  accounts  increased  in  almost  all  Member  States.  Trade  balances 
returned to their pre-pandemic level, as energy prices fell further and demand remained weak. A 
reduction in primary balances has moderated the increase in the overall current account, and is 
concentrated in a small number of Member States, typically reflecting the operations of special 
purpose entities, with strong cross-border financial linkages but limited links to Member States’ 
domestic  economies.  Current  accounts  remain  below  their  pre-pandemic  levels  overall  at  the 
EA/EU level and for most Member States. This is especially the case of Romania and some large 
debtor  Member  States  such  as  Greece  and  Cyprus.  Conversely,  other  large  debtor  Member 
States  such  as  Portugal  and  Spain  now  have  current  accounts  that  are  both  stronger  than 
before the pandemic and are also in surplus. On the other hand, high surpluses have generally 
persisted,  and in some cases increased strongly. That is primarily the case for  Member States 
where the data reflect the exceptionally high relevance of multinational enterprises or of special 
purpose entities, or the role of those Member States as international financing centres. In 2025 
so  far,  a  gradual  improvement in  domestic  demand  is  leading to  small  reductions  in both the 
trade  balance  and  current  account,  despite  the  continued  improvement  in  terms  of  trade. 
Compared to prior to the pandemic, there has been a change in the lending and borrowing of the 
different sectors of the economy. Whereas governments have increased their net borrowing, the 
private  sector  has  increased  its  net  lending.  In  2024  alone,  the  largest  change  has  been  the 
increase in the net savings of the household sector, which are now at historically high levels.  

•  The  large  negative  net  external  stock  positions  narrowed  strongly  for  the  second  year 
running  in  2024.  This  improvement  is  the  result  of  both  the  overall  positive  current  accounts, 
along  with  a  denominator  effect  boosted  by  strong  inflation.  In  most  cases,  strong  valuation 
effects  led  to  further  reductions,  reflecting  exchange  rate  movements.  Large  positive  net 
external  positions  also  rose  sharply.  Although  the  denominator  effect  continued  to  support 
the reduction of the stock position, its effect was smaller than in recent years, and was not as 
substantial  as  the  increasing  impact  of  strongly  positive  current  accounts.  Overall,  there  has 
been  some  rebalancing  of  the  external  positions within the  euro  area,  despite the  strong 
increase  in  the  net  international  investment  positions  of  the  creditor  Member  States.  This  is 
primarily because Member States with a big tourism sector – which typically have large negative 
net international investment positions – have grown more quickly than manufacturing-intensive 
Member States, with favourable terms of trade also playing a role. However, the persistent gap 
in  current  account  balances  is  set  to  drive  the  stock  positions  further  apart,  as  nominal  GDP 
growth is expected to slow from 2025 on.  

•  Growth  in  unit  labour  costs  (ULCs)  remained  elevated  in  2024,  but  fell  relative  to  2023 
overall and for most Member States. In 2024, ULC growth was primarily driven by increases in 
wages, in excess of inflation, with productivity only providing a small offsetting effect, and not 
in  all  Member  States.  Substantial  differences  in  ULC  growth  across  Member States  remain.  In 
some Member States, declining productivity led to stronger ULC increases. In 2025, wages are 
finally  set  to  slightly  exceed  their  2019  levels  in  real  terms.  Some  signs  of  slack  appeared in 
some  EU  economies,  marking  the  start  of  more  moderate  wage  increases  for  the  future. 
However,  while  wage  increases  are  set  to  slow,  they  are  forecast  to  remain  high  in  nominal 
terms, particularly in Member States that already cumulated large increases in cost and prices 
over the 2019-2024 period.  

7 

 
 
 
 
 
Executive summary 

•  In 2024, the euro appreciated overall, as did all EU currencies except the Czech koruna and the 
Hungarian forint. As a result, the overall EU and EA real effective exchange rates (REERs) 
increased, despite relatively lower inflation than in the EU’s main trading partners. For Member 
States  such  as  Belgium,  Estonia,  and  Romania,  inflation  differentials  also  contributed  to  REER 
appreciations;  in  most  other  Member  States,  inflation  at  least  partly  tempered  the  REER 
appreciation.  More  substantial  intra-EU  differences  are  evident  when  looking  at  REERs 
benchmarked  by  unit  labour  costs.  In  some  Member  States  with  high  ULC  growth,  they 
appreciated by over 5%, despite marginally depreciating in the EU as a whole.  

•  The EU corporate debt-to-GDP ratio displayed its fourth year of reduction in 2024, although 
in one third of EU Member States the debt ratio rose – typically from low levels. The aggregate 
debt ratio reached its lowest value in nearly two decades. The pace of deleveraging slowed as 
inflation fell, reducing the denominator effect which nevertheless remained the main driver of 
the  reduction.  In  some  Member  States,  negative  net  credit  flows  also  contributed  to  the 
reduction in debt ratios. Overall, credit flows to NFCs remained muted, following a sharp fall in 
2023, but recent data indicate the first signs of recovery. Corporate investment fell in real terms 
in  2024.  Although  corporate  indebtedness  fell  in  2024,  corporate  vulnerabilities  increased  as 
firms’ abilities to service their debt declined. Corporate savings fell and firms’ interest coverage 
ratios continued to decline, due to a rise in interest burdens and to the fall in profits which took 
place  over  2023  and  2024.  Recently,  borrowing  costs  started  to  decrease  from  their  post-
pandemic peak, indicating an improvement in debt service capacity in the near future. In 2025, 
deleveraging is decelerating further, as credit flows slowly rise, accompanying a gradual  – but 
slow – recovery in corporate investment.  

•  House  prices  reaccelerated  in  most  European  Member  States,  after  a  retrenchment  that 
started  in  late  2022  with  the  rise  in  interest  rates.  In  some  Member  States,  however,  the 
slowdown in 2023 remained limited, and house prices have seen cumulative increases of over 
15% or even 20% over the last two years.  Member States where prices were estimated to be 
near  fair  value  or  undervalued  saw  the  strongest  price  growth  in  2024.  Conversely,  in  some 
Member States where prices were typically strongly overvalued, prices continued to fall in 2024. 
The overall return of price increases has been accompanied by a recovery in transactions. The 
lack of housing investment, which had overall been low over the last decade and has collapsed 
since  2022,  accompanied  by  a  sharp  fall  in  building  permits,  drives  the  very  muted  supply 
response to housing demand. As a result of the ongoing constrained supply, house prices can be 
expected to keep rising significantly.  

•  Household  debt  ratios  continued  their  reductions  of  recent  years  in  2024,  declining  in  the 
majority  of  Member  States  and  attaining  new  historical  lows.  In  2024,  the  rate  of  reduction 
slowed  compared  with  recent  years,  as  the  denominator  effect  declined,  while  credit  flows 
picked  up  somewhat,  following  their  sharp  contraction  in  2023,  although  in  some  Member 
States borrowing remained dynamic throughout  recent years.  Households have recorded rising 
incomes and an increase in financial assets, on top of receding debts, supporting their ability to 
service  higher  interest  rates,  which  remain  close  to  their  recent  peak  values  despite  some 
reductions. EU household balance sheets remain overall robust.  This is because the household 
sector on aggregate has a positive net position on interest-bearing instruments and so the rise 
in  interest  payments  occurs  alongside  an  even  stronger  increase  in  interest  receipts,  with  an 
overall  small  but  positive  contribution  to  disposable  income.  In  2024,  the  real  value  of 
households’  financial  assets  exceeded  its  pre-pandemic  level,  while  financial  liabilities  have 
dropped. 

8 

 
 
 
 
 
Executive summary 

•  Nominal  GDP  growth  supported  the  stabilisation  in  government  debt  ratios  in  2024  despite 
sizeable  government  deficits.  Despite  reductions  mostly  between  2021  and  2023,  the 
government  debt  ratio  remains  high  in  the  EU  and  EA,  and  is  overall  above  its  2019  level.  In 
2025 and 2026, debt ratios are forecast to rise again in most Member States, and for the EA 
and the EU as a whole. This is because the interest-growth rate differential is narrowing, or even 
turning positive, while deficits remain sizeable in several Member States. However, some – but 
not  all  – high  debt  Member  States have tightened  their  fiscal  policy  in  recent  years  and  have 
positive budget balances. For some Member States outside the euro area where relatively large 
shares  of  government  borrowing  and  debt  is  denominated  in  foreign  currencies,  variations  in 
exchange rates can add to the costs of borrowing and debt. 

•  Overall,  the  EA  and  EU  financial  sector  remained  resilient  in  2024,  maintaining  high 
profitability  and  strong  capital  ratios.  The  aggregate  return  on  equity  of  EA  and  EU  credit 
institutions  remained  high  in  2024,  as  higher  fees  and  commissions  compensated  for  lower 
interest margins,  and  the  common  equity  Tier-1  ratio  of  EA/EU  credit  institutions  stabilised  at 
high  levels.  The  asset  quality  of  EA/EU  banks  has  been  stable,  although  some  small 
deterioration may be underway. The aggregate non-performing loan (NPL) ratio of EA/EU credit 
institutions  increased  marginally  over  2024  but  remains  low  at  2%.  At  the  country  level,  NPL 
increases  were  concentrated  in  Member  States  with  low  levels  of  NPLs,  while  NPL  ratios 
decreased in  Member States with higher legacy NPLs. The share of stage 2 loans has slightly 
risen.  The  banking  system’s  exposure  to  real  estate  and  to  sovereigns  remains  a  source  of 
vulnerability,  with  these  two  segments  representing  over  half  of  banks’  assets.  The  high 
exposure of the banking sector to domestic sovereign debt increases risks of feedback loops in 
Member States that are highly indebted or rely on foreign currency funding. Outside the banking 
sector, the non-bank financial intermediaries’ sector (NBFI), which has expanded rapidly over the 
past years, is exposed to specific risks and its interconnectedness with the banking sector is a 
source  of  vulnerability.  Furthermore,  both  the  banking  sector  and  NBFIs  have  significant 
exposures to the commercial real estate sector, which remains under pressure. 

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