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Regional outlook Europe

Economic Report

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Economic and political review of the continent

This regional study on Europe focuses on the economic outlook and risks for the entire region, but also on the differences between countries within the area. The purpose of the study is to both benchmark European countries on economic developments and fundamentals and to create a comprehensive view on where Europe’s economies are heading. This is done by covering the topics macroeconomic developments, political developments, population trends, (public) debt challenges and institutional quality.

While the results show trends that apply to the broad region, like ageing and increased euroscepticism,  they also provide some useful insights on differences, for example in the growth outlook, debt sustainability and institutional quality. One of the main takeaways is that the Baltics and some of the CEE countries have the potential to outperform countries in Southern Europe and in the SEE region. Another is that whilst Southern, Eastern and South-Eastern countries are sensitive to risks of affordability and financing of sovereign debt, the sustainability of sovereign debt is a predominantly Southern and Western European challenge.

Macroeconomic developments in Europe
We expect growth in Europe to accelerate gradually, although the economy has far from fully recovered from the Global Financial Crisis. Substantial deterioration in the Greek situation and/or the geopolitical conflicts remain downside risks.

Politics - European trends, national consequences
European countries face a number of internal destabilising political trends while externally they continue to face threats, particularly from Russia. Meanwhile, TTIP and the Juncker administration may add some geopolitical clout to the EU.

Population ageing in Europe: risks for growth and fiscal position
Europe will continue to face population ageing, which will impact economic growth and public costs of pensions and health care. Some of these effects may be mitigated through reform of pension systems and encouraging immigration.

Europe’s (public) debt challenge
Private and public sector debt is high in many European countries. Public debt challenges seem to be the greatest in Southern European countries, Croatia and Hungary; and lowest in the Nordics and Baltics. Some Western European countries face quite substantial public debt sustainability challenges.

Institutional quality in Europe: diverging trends in challenging economic times
Institutional quality in Europe is high from a global perspective, but varies across the continent and over time. As an important catalyst for economic growth, institutional slippage in some countries may undermine long-term economic potential.

Annex 1: Data tables (economic indicators, data on population trends, debt and institutions) (PDF)

Infographics:
Macroeconomic developments in Europe (PDF)
Politics - European trends, national consequences (PDF)
Institutional quality in Europe (PDF)
Population ageing in Europe (PDF)
Public debt challenges in Europe (PDF)

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