Publication: A Path to Inclusive Growth in the EU amid Inflation and Fiscal Constraints (Part 1)
Loading...
Published
2024-12-19
ISSN
Date
2024-12-19
Author(s)
Editor(s)
Abstract
Following an unprecedented tightening cycle that avoided deep recession and widespread job losses, the EU economy appears poised for a "soft landing" with inflation nearing target levels. In 2023, EU growth slowed to an average of 0.4 percent amid a significant decline in trade, while employment showed signs of recovery in 2024, albeit with disparities across sectors and regions. Despite easing inflation, high prices continue to strain the poorest, exacerbating poverty and food insecurity, particularly in Bulgaria, Croatia, Poland, and Romania. Employment remains crucial for poverty alleviation, yet less skilled and blue-collar workers struggle to recover from recent shocks. The report highlights the need for targeted policies to support vulnerable groups and ensure broader economic inclusion. Fiscal consolidation is expected to gain momentum under the EU's revamped Economic Governance Framework, balancing fiscal sustainability with inclusive growth amidst geopolitical and social pressures.
Link to Data Set
Citation
“World Bank. 2024. A Path to Inclusive Growth in the EU amid Inflation and Fiscal Constraints (Part 1). EU Regular Economic Report; No.10. © World Bank. http://hdl.handle.net/10986/42567 License: CC BY-NC 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Related items
Showing items related by metadata.
Publication Albania Public Finance Review : Part 1. Toward a Sustainable Fiscal Policy for Growth(Washington, DC, 2014-01)Albania's rapid growth in the decade up to the 2008 global financial crisis propelled it to middle-income status and helped to reduce poverty. The global financial crisis in 2008 slammed the brakes on Albania's largely domestic-demand-driven growth. The government has accumulated sizable arrears in payments for public works and value-added tax (VAT) refunds. In a baseline scenario of no policy reforms, Albania's public debt-to-gross domestic product (GDP) ratio is projected to reach 73.5 percent in 2015 and stay above 72 percent over the medium term. Empirical evidence confirms that high public debt depresses economic activity and significantly increases the probability of default. This report examines closely the opportunities for fiscal consolidation on both the revenue and expenditure sides. Combined effect of structural reforms will reduce Albania's public debt to GDP ratio significantly over the medium term. It can in parallel rebalance its capital spending, particularly in transport, toward maintenance to support growth. Albania needs to strengthen its institutions to reinforce financial discipline and strengthen fiscal policy. Institutional reforms are particularly needed with regard to public financial management (PFM) and introducing a fiscal rule to anchor policy over the medium term.Publication Azerbaijan : Inclusive Growth in a Resource-Rich Economy(Washington, DC: World Bank, 2013)Azerbaijan experienced a 'golden age' in the last decade, during which the average growth rate reached record high levels and poverty decreased significantly. On average, the economy grew by 15.3 percent per year in real terms during this period, mainly driven by the oil sector (21.5 percent growth per year), but with a significant contribution from the non-oil sector (11.1 percent per year). As a result, poverty declined dramatically from 49.6 percent in 2001 to 15.8 percent in 2008 the latest year for which household survey data was available when this report was prepared. This report takes an inclusive growth approach to investigating the ways in which the country's high growth was translated into significant poverty reduction. First chapter summarizes the sources of growth in Azerbaijan with an emphasis on structural transformation and discusses highlights of the inclusive growth methodology. Second chapter explores how growth helped to reduce poverty. Third chapter analyzes the sustainability and inclusiveness of the recent growth. Finally, fourth chapter focuses on the structural obstacles that constrain further inclusive growth in Azerbaijan. The last chapter recommends some policies to overcome these obstacles. The main findings of this report call for a careful strategy in promoting further inclusive growth in Azerbaijan. The mechanisms that facilitated drastic reductions in poverty in the last decade a strong rise in fiscal transfers and in the real wage were made possible by the oil boom. However, these mechanisms also reduced the pace of structural transformation in the Azerbaijan economy. Distorted incentives in demand and supply sides of the labor market have seemed to weaken the correlation between productivity growth and employment shares. This report finds that the failure to follow a fiscal rule over the past decade has led to excessive domestic absorption with a resulting barriers against further development and diversification in the tradable sectors (principally agriculture and manufacturing) and against employment creation within those sectors, as well as leading to an unsustainable growth in public expenditures, and to inadequate long-term public savings in the Oil Fund. Thus, the reassertion of a fiscal rule that constrains domestic absorption and promotes economic diversification is a necessary condition for achieving sustained inclusive growth.Publication Pakistan : Finding the Path to Job-Enhancing Growth(Islamabad: World Bank, 2013-08)Pakistan's rebound from the global financial crisis has been slow and fragile, and unless the economy changes course swiftly, it could face its second balance of payments crisis in five years. Its recovery from the 2008-09 global financial crisis has been the weakest in South Asia, with a double dip pattern. This report identifies conditions for a sustainable job-enhancing growth agenda for Pakistan. Policy must target both goals as they are closely intertwined. Higher growth rates can be achieved through productivity improvements (technology, innovation, better economic governance), but also from higher output extracted from factors-physical capital, labor, human capital, and land. This report considers whether Pakistan should pursue historical growth of 4.3 percent a year, supported by piecemeal structural reforms leading to partial and unsatisfactory outcomes-or rapid growth of 7 percent, requiring comprehensive big-bang reforms. The report is organized around three major themes: (i) the stylized facts, what are the pluses and minuses of Pakistan's patterns of growth and job creation? (ii) the diagnostics, what is holding back Pakistan's growth? And (iii) the transformational agenda, what are the core ingredients of job-enhancing growth? And how can analysis of the political economy identify policy tradeoffs?Publication Montenegro : Beyond the Peak, Growth Policies and Fiscal Constraints, Public Expenditure and Institutional Review(Washington, DC, 2008-11)In 2007, Montenegro was one of the world's fastest growing non-oil economies. The country reaped the benefits from its comprehensive, pre-independence reform program. After the international recognition of statehood had removed the lingering uncertainty over Montenegro's political status, investors reassessed the country's relative attractiveness as a site for business, responding positively to (i) the implementation of the privatization and structural-reform agenda; (ii) the provision of a low-tax, pro-business environment; and (iii) a clearly defined European perspective. In response, investment surged. Capital inflows from foreign direct investment (FDI), largely absent during the first half of this decade, reached a level of 30 percent of Gross Domestic Product (GDP) in 2006 and 40 percent in 2007, fueling domestic demand and stimulating economic growth. Real GDP grew at double-digit rates in 2007, an outcome that stands in stark contrast to the period of economic anemia characterizing Montenegro's pre-independence years. In this buoyant environment, commercial banks supported private-sector activities with very large increases in credit to the economy. These helped to finance higher imports of goods and services, leading to a rapid widening in the current-account deficit from 8.5 percent of GDP in 2005 to 40 percent in 2007. The economic dynamism, exceeding all (published) projections, resulted in an unexpected abundance of fiscal revenues and with generally effective control over public expenditures in 2007, a very substantial overall surplus.Publication What are the Constraints to Inclusive Growth in Zambia?(Washington, DC, 2008-07)Despite positive, relatively broad-based and stable growth record in recent years and immense untapped potential in agriculture, mining and services, Zambia's poverty rates have not declined significantly and remain high. Income growth is limited by coordination failures such as poor access to domestic and international markets, inputs, extension services and information. High indirect costs - most of which attributable to infrastructure service-related inputs into production including energy, transport, telecom, water, but also insurance, marketing and professional service - undermine Zambia's competitiveness limit job creation and therefore serve as a major constraint to pro-poor growth. Continued real appreciation is another serious threat to the competitiveness of export-oriented and import-competing sectors and to job creation. For Zambia to stay competitive and sustain the growth momentum it will be critical to improve productivity - including the productivity of its labor force, and to lower indirect production costs related to basic services. Carefully crafted monetary and fiscal policies will also be critical in responding to the real appreciation pressures. Improving the quality and access to secondary and tertiary education is essential if the poor are to benefit from future growth of the non-farm economy. Weak governance and in particular poor government effectiveness, are factors behind the market coordination failures and the identified government failures, and are as such major obstacles to inclusive growth in Zambia.
Users also downloaded
Showing related downloaded files
Publication Clean Tech Value Chains(Washington, DC: World Bank, 2024-12-19)This report aims to provide an overview of potential opportunities to participate in clean tech value chains, using new and evolving analytical tools from the World Bank Group that may help inform national policymaking around the EU’s targets for clean-tech manufacturing. The focus is on four countries in Central and Eastern Europe (4CEEs): Poland, Romania, Bulgaria and Croatia. Given the strategic sectoral priorities set by EU policy, a central question concerns where within these sectors (and their EU value chains) the 4CEEs are already competitive or close to it, and have the potential to upgrade their prospects for growth and job creation as these value chains develop.Publication Ten Thousand Steps in Her Shoes(Washington, DC: World Bank, 2024-06-27)Women around the world face numerous mobility challenges. Public transport can provide many economic benefits that should be enjoyed equally by all users, regardless of gender or life circumstances. In the Middle East and North Africa (MENA) region, women have a higher university enrollment rate than men, yet their labor force participation rate remains low and stagnant. What is preventing them from translating their educational achievements into economic productivity? Is it a matter of personal preference or structural barriers, or is it both? Although public transport systems can play a significant role in women’s participation in the labor force globally, this topic has been little explored in the MENA region. “Ten Thousand Steps in Her Shoes: The Role of Public Transport in Women’s Economic Empowerment” examines the role of public transport in women’s access to economic opportunities in urban MENA. The book studies the links among mobility, gender, and access to economic opportunities and focuses on three metropolitan areas—Amman, Jordan; Beirut, Lebanon; and Cairo, the Arab Republic of Egypt. Chapters focus on the availability of public transport close to households and employment centers, accessibility to job opportunities, affordability, social and cultural norms, and safety from crime and harassment. Data collected in 2022 reveal that a significant percentage of non-working women in urban MENA lack affordable, comfortable, safe, time-efficient, and reliable transport options, thus preventing them from seeking work. Women can contribute significantly to the economy. Improving public transport and tailoring it to the needs of various communities can help women be economically active. In addition, providing flexible work arrangements that support balancing personal, family, and work lives; protecting women from gender-based discrimination; and offering high-quality childcare options near where people work or live are key. However, gender equity in transport use can be only partially accomplished through well-intentioned policy interventions. Public awareness and endorsement of the benefits of greater gender equality—within households, workplaces, and society at large—are also crucial to advancing women’s participation in the economy. The analysis and recommendations presented in this report will help policy makers in Jordan, Lebanon, and Egypt design concrete actions, improve women’s mobility through public transport, and create an enabling environment to increase female economic participation.Publication Europe and Central Asia Economic Update, Spring 2025: Accelerating Growth through Entrepreneurship, Technology Adoption, and Innovation(Washington, DC: World Bank, 2025-04-23)Business dynamism and economic growth in Europe and Central Asia have weakened since the late 2000s, with productivity growth driven largely by resource reallocation between firms and sectors rather than innovation. To move up the value chain, countries need to facilitate technology adoption, stronger domestic competition, and firm-level innovation to build a more dynamic private sector. Governments should move beyond broad support for small- and medium-sized enterprises and focus on enabling the most productive firms to expand and compete globally. Strengthening competition policies, reducing the presence of state-owned enterprises, and ensuring fair market access are crucial. Limited availability of long-term financing and risk capital hinders firm growth and innovation. Economic disruptions are a shock in the short term, but they provide an opportunity for implementing enterprise and structural reforms, all of which are essential for creating better-paying jobs and helping countries in the region to achieve high-income status.Publication Greater Heights(Washington, DC: World Bank, 2025-03-12)Twenty-seven countries have reached high-income status since 1990. Ten of these are in the Europe and Central Asia region and have joined the European Union. Another 20 in the region have become more prosperous since the 1990s. However, their transition to high-income status has been delayed. These middle-income countries have found that the prospects for growth to high-income status have become even more difficult since the 2007–09 global financial crisis. This reflects partly a slowdown in structural reforms at home and partly the challenges associated with a deterioration in the global environment. The concern has emerged that many countries in the region may be caught in the middle-income trap, a phase in development characterized by a recurring deceleration in growth and by per capita incomes that are systematically below the high-income threshold. To ensure that these countries overcome the obstacles to growth and achieve progress toward high-income status, policy makers need to make the transition from a strategy driven largely by investment to a strategy that is supported by the importation and diffusion of global capital, knowledge, and technology and then to a strategy that complements these with innovation. The report Greater Heights: Growing to High Income in Europe and Central Asia relies on the 3i strategy described in World Development Report 2024—investment, infusion, and innovation—to propose policy options to assist middle-income countries in Europe and Central Asia in the effort to reach high-income status. Drawing on comprehensive empirical analysis, the report offers actionable recommendations that will enable policy makers to advance stronger economic growth across the region. Such a transition will require continued and sustained foundational reform to maximize the drivers of economic growth while pivoting to new transformative reforms to promote the development of more complex economic structures and institutions. These involve the need to discipline incumbents, boost the role of the private sector, strengthen the competitive environment, and reward merit. The emphasis on a strategy driven by innovation is also critically important for those countries that have already attained high-income status.Publication Fixing the Foundation(Washington, DC: World Bank, 2023-09-20)Countries in middle-income East Asia and the Pacific were already experiencing serious learning deficits prior to the COVID-19 pandemic. COVID-related school disruptions have only made things worse. Learning poverty -- defined as the percentage of 10-year-olds who cannot read and understand an age-appropriate text -- is as high as 90 percent in several countries. Several large Southeast Asian countries consistently perform well below expectations on adolescent learning assessments. This report examines key factors affecting student learning in the region, with emphasis on the central role of teachers and teaching quality. It also analyzes the role education technologies, which came into widespread use during the pandemic, and examines the political economy of education reform. The report presents recommendations on how countries can strengthen teaching to improve learning and, in doing so, can enhance productivity, growth, and future development in the region.