Alfred Kammer’s Opening Remarks at the Press Conference for the Regional Economic Outlook for Europe
Spring Meetings 2024
April 19, 2024
As prepared for delivery
Good morning in DC, and good afternoon in Europe. Welcome to our press conference on the European economic outlook.
Europe has done remarkably well against a turbulent backdrop.
After years of crises and their fallouts, a soft landing for the continent’s economies is within reach.
To be sure, within reach does not mean it is a done deal. A number of things need to go right in the coming months. This includes economic policies.
Labor markets need to cool just enough to help disinflation while also supporting the recovery in real incomes. Rising consumption has to galvanize private investment. And as demand strengthens, durable disinflation will require that labor productivity rebounds and profit margins return to pre-crises levels.
In this context, getting the macroeconomic policy mix just right will be critical.
In advanced Europe, monetary policy easing needs to match unfolding conditions—loosening neither too fast nor too slowly. For many CESEE economies, on the other hand, central banks will need to maintain a tight stance for longer to fully rein in inflation.
Across Europe, the pace of fiscal adjustment needs to also pick up. With unemployment expected to remain low, countries should begin to rebuild buffers. For many, this means faster and less back-loaded fiscal consolidation than currently envisaged.
Securing the soft landing will be difficult, yet what comes next is even tougher. Europe needs to raise growth potential to catch up to the global income frontier.
Unfortunately, declining productivity growth, an aging population, and underinvestment are formidable headwinds. In short, the gap to the frontier is not only large, but will not close over the forecast horizon without a change in policies.
Our message on this front is clear. Trying to fix competitiveness problems by engaging in a subsidy race with trading partners will do Europe more harm than good.
Rather than resorting to measures that will fray the single market, efforts to deepen it should begin now. There are very large untapped productivity gains from further European integration—within the EU and beyond.
A stronger, deeper single market is also the right response to build resilience against downside risks from further global fragmentation.
Combined with complementary measures at the domestic level, all these reforms would go to show once again how Europe can overcome even the most severe obstacles when acting decisively and together.