Press Release 26/02/2016
See Full Report HERE Alert Mechanism Report 2016
IMBALANCES, RISKS AND ADJUSTMENT: COUNTRY-SPECIFIC COMMENTARIES
This section provides a succinct economic reading of the scoreboard and auxiliary variables in each Member State. Together with the discussion of cross-country issues, it helps to identify the Member States for which in-depth reviews (IDRs) should be prepared.
As explained above, it will be on the basis of the IDRs that the Commission will conclude whether imbalances or excessive imbalances exist. The MIP does not apply to Member States benefiting from financial assistance in support of their macroeconomic adjustment programmes38, currently Greece and Cyprus. However, the commentaries below also concern Cyprus.
The situation of Cyprus in the context of the MIP, including the preparation of an in-depth review, will be considered at the end of the current financial assistance. Please refer to the Statistical Annex for the full set of statistics on the basis of which this economic reading and the full report has been prepared.
Cyprus: Since March 2013, Cyprus has been implementing a macroeconomic adjustment programme with financial assistance. Therefore, the surveillance of imbalances has taken place in the context of the programme, and not under the MIP. Under the programme, Cyprus has implemented a number of important measures aimed at correcting its excessive imbalances and the economy is now recovering and the banking system is in the process of stabilising. Nevertheless, in the updated scoreboard, a number of indicators remain beyond the indicative thresholds, namely, the current account deficit, the net international investment position (NIIP), losses in export market shares, private sector debt, government debt, unemployment as well as the increase in long-term and youth unemployment. 30 The current account deficit remains high despite some adjustment, and insufficient to stabilise the large stock of net external liabilities. Furthermore, the current account adjustment has taken place mostly through a contraction of imports, while accumulated losses in export market shares are substantial even if there has been a limited gain on an annual basis in 2014. There have been gains in cost competitiveness, as reflected in the significant reduction in unit labour costs and decline in the HICP-based real effective exchange rate. Private sector debt remains very high and the deleveraging progress is proving slow both for households and for corporations and despite important reforms helping to address the excessively high ratio of non-performing loans in the banking system. House prices continue to decline, in response to the on-going adjustment in the housing market, but the pace of decline has decelerated. Government debt is very high and risks to fiscal sustainability present. The unemployment rate increased significantly as a consequence of the adverse economic developments including long term and youth unemployment.
Germany: In February 2015, the Commission concluded that Germany was experiencing macroeconomic imbalances which require decisive action and monitoring, in particular involving increasing risks stemming from the persistence of insufficient private and public investment, which negatively affects growth and contributes to the very high current account surplus. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the current account surplus, losses in export market shares and government debt. The current account surplus has continued to increase, further boosted also by lower oil prices and favourable exchange rate developments, and the surplus is expected to remain high in coming years. In 2014, the relative importance of the euro area and the rest of the world for the external surplus have stayed largely stable. The net international investment position is very large and growing rapidly. Gross fixed capital formation has remained broadly at the same level since 2011. The indicator for export market share losses improved on the back again of small gains in 2014 but remains above the threshold in cumulated terms. Unit labour costs increase above the euro area average but in accumulated terms negative gaps to euro area partners remains. Private sector deleveraging continued while private sector credit flows were positive but low. Although deflated house prices have been rising during the last years – with strong regional disparities – the indicator remains within the threshold but there is a need for close monitoring. The public debt ratio in Germany is above the threshold, although it continued to decrease in 2014. Very low and declining unemployment rates reflect the robust labour market in Germany.
Spain: In February 2015, the Commission concluded that Spain was experiencing macroeconomic imbalances which require decisive action and specific monitoring, in particular involving risks related to the high levels of private, public and external indebtedness in context of very high unemployment. In the updated scoreboard, a number of indicators are above the indicative threshold, namely the net international investment position (NIIP), losses in export market shares, both private and government debt, unemployment as well as the increase in longterm and youth unemployment. External rebalancing has continued and the current account balance is expected to remain in moderate surplus over the medium term. However the NIIP has not yet improved significantly, mainly due to negative valuation effects. The cumulated loss of export market shares remains beyond the threshold but the indicator improves on the 27 back of annual gains in the past two years. The improvement in export performance is in part attributable to restored cost competitiveness, visible in negative nominal unit labour cost growth and real effective exchange rate depreciation. Private sector deleveraging continued throughout 2014 on the back of negative credit growth. More recent data indicate a slowdown as credit has started flowing again, especially to the corporate sector. By contrast, government debt has kept increasing, reflecting a significant yet improving public deficit. Deflated house prices seem to have bottomed out. Although unemployment has been declining rapidly, it remains very high, especially among the youth, and the long term unemployed. Besides, the improvement in the labour market has not yet translated in a reduction of poverty indicators, which remain among the highest in the EU.
France: In February 2015, the Commission concluded that France experienced excessive macroeconomic imbalances, which require decisive policy action and specific monitoring, in particular involving risks related to a deterioration of competitiveness and the high level of public indebtedness. In the updated scoreboard, a number of indicators remain above their indicative thresholds, namely losses in export market shares, private debt, government debt, unemployment as well as the increase in long-term unemployment. The current account balance has remained stable showing a moderate deficit while the net international investment position has remained negative and further deteriorated in 2014. Accumulated losses in export market shares remain well above the threshold despite limited annual gains in 2014 laying the ground for improved indicator values in coming years. Labour costs remain high and continue to weigh on the cost-competitiveness of firms. Private debt is above the threshold but deleveraging pressures are limited in a context of mildly positive credit growth. The very high general government sector indebtedness further increased in 2014 and risks from public debt dynamics in a context of low growth and inflation remain. Real house prices are slowly correcting. Adjustment in the labour market is an issue where unemployment has been increasing, and is now beyond the threshold, accompanied by increases in long-term and youth unemployment.
United Kingdom: In February 2015, the Commission concluded that the United Kingdom was experiencing macroeconomic imbalances, which require policy action and monitoring, in particular involving risks related to the high level of household indebtedness, also linked to structural characteristics of the housing market. In the updated scoreboard, a number of Graph A26: Households' debt and House Price Index Source: Eurostat 60 70 80 90 100 110 120 130 140 150 160 0 10 20 30 40 50 60 70 80 90 06 07 08 09 10 11 12 13 14 2005=100 % of GDP Sweden Households debt Deflated House Price Index (rhs) 40 indicators are beyond the indicative threshold, namely the current account deficit, losses in export market shares, house prices, private sector debt and government debt. The current account deficit continued to increase in 2014, driven by a widening primary income deficit, and the three-year indicator is now beyond the threshold. The net international investment position is negative and has deteriorated relatively rapidly in the last few years but is still well within the threshold level. The accumulated losses of market shares was reduced in 2014 on the back of an annual gain but remains above the threshold. While unit labour cost growth has been moderate and stable the real effective exchange rate has appreciated, in particular in 2014. Private sector debt-toGDP is gradually declining, driven by nominal growth, but remains overall high. House prices continue to increase and the growth rate was beyond the threshold in 2014. Nevertheless, a notable feature of the past two years is that rising house prices have not been reflected in rises in household indebtedness. High general government debt remains a concern. Employment continues to grow at healthy rates and youth unemployment and the NEET rate have decreased.
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