Regional Economic Outlook, Europe, October 2024: A Recovery Short of Europe’s Full Potential

Author: International Monetary Fund. European Dept.

Europe’s economy is recovering, benefiting from a strong response to crises. Yet, the recovery is falling short. Uncertainty about the persistence of core inflation, policy directions, and geopolitical conflicts is dampening domestic demand and weighing on potential growth.

Publication date: October 2024

ISBN: 9798400287312

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Topics covered in this book

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Inflation , Economics- Macroeconomics , International - Economics , Growth , inflation , outlook , potential growth , uncertainty , risk , macroeconomic policy , monetary policy , fiscal policy , financial sector policy , structural policy , EU climate , productivity slump , EU financing , governance framework , EU funds , EU country , competitiveness reform , value chain , inflation expectation , EU level , EU budget , CESEE region , Productivity , Purchasing power parity , Fiscal consolidation , Europe , Global

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Summary

Europe’s economy is recovering, benefiting from a strong crises’ response. Yet, the recovery is falling short of its full potential. Uncertainty about persistent core inflation, policy directions, and geopolitical conflicts is dampening the near-term outlook. In the longer term, perennially weak productivity growth—a result of limited scale and business dynamism–-amid new headwinds from fragmentation and climate change are holding back growth potential. Steady macro policies are needed to navigate an uncertain environment. This requires transitioning to a neutral monetary policy stance and reducing fiscal deficits without jeopardizing the recovery. Policymakers also need to tackle barriers to higher potential growth. A larger and more integrated single market for goods, services, and capital will incentivize investment, innovation, and generate scale benefits. Deepening European integration will also strengthen economic resilience by insulating businesses and labor markets from global fragmentation pressures. These are formidable policy challenges, but now is the time to bring Europe to its full potential.