The economic report comprises two parts:a macroeconomic report and a special topic on the issue ofeconomic policy interest. According to the first part, in2012 the EU11 economies have outperformed the rest of theEuropean Union (EU). In the middle of a recession in theEuro area, the EU11 region is set to expand by about 1percent in 2012. However, the recession in the Euro areacontinues to dampen the EU11 economic performance. With anuncertain economic outlook in the medium term, the EU11 needto pursue decisive economic policies on two fronts tosafeguard and accelerate their growth momentum. First, aprudent macro-policy stance should continue to shore up theconfidence of financial markets. Second, the medium-termeconomic growth potential of the EU11 can only be realizedif structural barriers to economic activity are removed.Second, the current and projected low fertility levels forEurope imply that the region will go through anunprecedented process of population aging, causing dramaticchanges in the age structure of European societies. Thesechanges in the age structure can have significant effects oneconomic growth. This paper analyzes the quantitative impactof the projected demographic changes on economic growththrough their effect on the factors of production, as wellas the role that these will play in shaping incomeconvergence in the region in the decades to come. Theempirical results indicate that EU11 is likely to experiencea sizable reduction in income per capita growth and thus inthe speed of income convergence to the rest of the EU due tothe expected demographic developments in the region.However, increasing labor force participation as well asimproving the skill level of the labor force in the EU11appears to be a powerful instrument for fostering economicgrowth and further convergence in the EU in the context ofaging societies.
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