The macroeconomic imbalances in the economies of the European Union member states are improving slowly but surely. The survey on imbalances conducted by the European Commission assesses risks of another crisis.
After the experiences of the last decade, and in particular, the global financial crisis, followed by the European debt crisis, in 2011, the European Commission (EC) introduced the macroeconomic imbalance procedure consisting in assessing the extent to which individual member states meet the jointly adopted criteria.
The EC has set thresholds for each of indicators for the early detection of imminent crises. If the thresholds are exceeded, this may mean the build-up of excessive imbalances in a given economy. In order to obtain a more complete assessment of the risk of the build-up of imbalances in the individual member states, the EC additionally examines nearly 30 macroeconomic variables. Based on the findings of the analysis, the EC indicates the member states that should be subjected to an in-depth review. On the basis of that analysis, the EC also assesses the existence and scale of the imbalances and, if necessary, may issue appropriate recommendations for the given member state.
The Eurostat has published a scoreboard of the achieved results, which enables us to independently assess how the EU countries are coping in their efforts to restore macroeconomic balance. They are doing increasingly well, although the changes are occurring at a rather slow pace.
Poland belongs to a small group of countries — along with Sweden, Estonia, Romania and Malta — that meet almost all the criteria of macroeconomic balance. The only criterion of the macroeconomic imbalance procedure where Poland faces a problem is the net international investment position, i.e. the difference between foreign assets and liabilities of domestic entities. Poland is not alone in this regard — almost half of the EU countries have too many liabilities to the rest of the world in relation to their assets. These are either the countries particularly strongly affected by the financial crisis, and thus still heavily indebted, or — like Poland — they are converging economies that import capital from abroad.
The structure of imported capital is important for assessing macroeconomic balance. In the case of Poland, about half of this capital comes from direct investors, and therefore is relatively stable. In other words, Poland is not likely to face a sudden outflow of a significant portion of the foreign capital. The high level of foreign exchange reserves provides an additional protection against such a scenario. Nevertheless, as the Eurostat’s summary indicates, last year Poland’s international investment position deteriorated slightly, from -60.7 per cent in 2016 to -61.2 per cent of GDP in 2017. The threshold adopted by the European Commission is -35 per cent of GDP. This threshold was reached by Estonia and Slovenia in the previous year.
Among the six indicators of internal imbalances, the EU countries have the most difficulty with maintaining the level of the general government debt below the threshold of 60 per cent in relation to the size of their gross domestic product. In most EU countries (except France and Luxembourg), the general government debt has decreased compared to 2016 (the biggest decrease, reaching as much as 11.0 percentage points, was recorded in Cyprus), but 15 countries still do not meet the EU requirements. In Poland, that debt, measured in accordance with the European Union’s ESA 2010 standard, decreased by 3.5 percentage points, from 54.1 to 50.6 per cent.
Most EU countries (except countries such as Cyprus and Latvia) also saw a decrease in the unemployment rate. This situation has improved even in the countries where the unemployment rate is traditionally high, and where it grew even more during the crisis, such as in Greece and Spain. The latter recorded the biggest change — by 2.5 percentage points — and its unemployment rate had already dropped below 20 per cent. Since 2017, the EU criterion (a rate of unemployment at a maximum level of 10 per cent) has been met by Slovakia, where the unemployment rate decreased from 11.5 to 9.8 per cent. In Poland the unemployment rate dropped from 7.6 to 6.2 per cent.
According to the EC, the significant factors indicating a possible increase in internal imbalances also include a sudden increase in housing prices. Heightened sensitivity to such changes is understandable, as the last global financial crisis began with the overheating of the real estate market. For this reason, the significant increase in housing prices in Sweden has been a source of concern in the recent years. This trend slowed down in 2017. Taking the 2015 prices as the base value of 100, the average annual growth rate of housing prices decreased (after taking into account the inflation rate) from 7.6 to 4.6 per cent. In Hungary, where the real estate prices had previously been growing very fast, this growth rate decreased from 13.6 per cent in 2016 to 3.3 per cent in 2017.
The highest rates of increase in housing prices in Europe are currently recorded in Ireland (9.5 per cent in 2017), the Czech Republic (9.1 per cent in 2017) and Portugal (7.9 per cent). In comparison with the previous year, the real estate prices declined in Greece (by 2.2 per cent) and in Italy (by 2.0 per cent). According to the Eurostat’s summary, in Poland the average rate of growth in housing prices slowed down from 2.5 per cent in 2016 to 1.7 per cent in 2017.
The last, third group of indicators characterizes in greater detail the long-term condition of the labor markets in the EU member states. These indicators relate to changes in the level of long-term unemployment, as well as the level of unemployment among young people up to 24 years of age, and the number of professionally active people in relation to the total population. In view of the general improvement of the situation on the European labor market, those criteria have clearly lost some of their importance – almost all EU member states are now able to successfully fulfil them. Poland also easily meets all these criteria.