European economy is slowly recovering but new challenges are emerging, says OECD

European economy is slowly recovering but new challenges are emerging, says OECD

The European economy is gradually recovering but further policy action will be required to address unresolved legacies of the global economic crisis that are weighing on growth and major new concerns that have emerged, according to two new OECD reports

The latest OECD Economic Surveys of the European Union and of the Euro Area, presented on June 10, 2016 in Paris, France by OECD Secretary-General Angel Gurría, underline the challenges facing European policymakers. Although growth has gradually strengthened, unemployment in many countries is still high, investment remains below pre-crisis levels in most European countries, and credit growth is still sluggish.

The Surveys project EU GDP will grow by 1.8 % this year and 1.9 % in 2017, while GDP in the Euro Area will grow by 1.6 % this year and 1.7 % in 2017.

“Europe has put the worst of the crisis behind it, but there is still much more to do to support a full robust recovery that benefits all Europeans,” Mr Gurría said. “Most of the recommendations in these two Economic Surveys have one thing in common: they call for collective action by European countries. Cooperative solutions have enabled Europe to leave the worst of the crisis behind it. But continued cooperation is still needed to implement effective solutions to common problems. The alternative to collective action is not the status quo, but something worse: the risk that Europe will move backwards. This would jeopardise what has been achieved to date by the Single Market and the rest of the EU acquis, decreasing growth and destroying jobs across Europe.”


The Surveys say that countries with fiscal space should use budgetary spending to boost growth. Given the deep cuts in public investment since the global financial crisis, the reports recommend increasing public support for key investment projects. Enacting broad reforms to tax structures and public spending would also favour growth.

Easing financial constraints would bring benefits across the economy, notably to private sector firms considering future investment plans. This will require addressing one of the legacies of the crisis – the resolution of non-performing loans in many countries, which threaten financial stability and act as a drag on bank credit. Waivers could be applied to the new Bank Recovery and Resolution Directive rules to help put in place government-supported schemes when non-performing loans are a serious economic disturbance, the Surveys said.

The Surveys discuss the need for additional steps to deepen the single European market, notably with regard to labour mobility, which can be a key tool to reduce unemployment and boost productivity. Reducing administrative and regulatory barriers in the services sector and speeding up the recognition of professional qualifications from one country to another would encourage internal mobility, the Surveys said.

Prioritising Trans-European solutions for fragmented transport and energy networks, boosting competition in network industries and enhancing R&D policy and the Digital Single Market would also offer a strong boost to GDP.

The OECD addresses a number of downside risks facing the European economy, most immediately that posed by a possible United Kingdom vote to leave the EU. Brexit would lead to economic uncertainty and hinder trade and foreign direct investment flows both of the UK and the EU, hurting growth.

An Overview of the Economic Surveys, with the main conclusions, is freely accessible here

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