This report presents the updated reference scenario using the new version of the NEMESIS model. Three main elements distinguish this exercise with respect to the previous one (Deliverable D10.1): (i) the first is the update of the exogenous variable following the last economic outlook available; (ii) the second is the extension of the simulation period to 2050 (the previous one was limited to 2030); (iii) and the third difference relies on the use of the new version of the model including the last developments described in the deliverable D9.1, taking into account a broad definition of innovative activities and Information and Communication Technologies as General Purpose Technologies. The final objective of this exercise is to provide a coherent scenario for the European countries up to 2050. The consistency of this scenario is based, on the one hand, on a guideline coming from past trends and different forecasts at medium and long terms done by DG ECFIN (notably the Spring Economic forecast 2014 and the ageing report for the long run), FMI and OECD mainly. Other sources are also used to constrain different variables such as, for instance, International Energy Agency and PRIMES results for energy prices, or INTAN-INVEST for intangible investments. On the other hand, the coherence relies on the behavioural mechanisms of the model based on econometric works, and its detailed accounting framework. The main difficulties of the exercise come from the context pointing out strong uncertainties, and challenges for the economy. These challenges are of different natures over the simulation period. Indeed, the simulation period begins in the context of the crisis that started in 2008, which brings major adjustments because of the needs for the resorption of sovereign debts and the consequences on interest rates and economic growth, combined with the labour market disequilibrium. In addition, the European economy is subject to a strong decline of the labour force due to an important ageing of the population at the horizon of the scenario. A major determinant of the ability to fight against these two great problems is the labour productivity. In this regards, it is noteworthy that countries that were the most stricken with the crisis were also those with the lowest labour productivity gains before 2007. We will see that poor investments in intangibles assets and technological equipment, such as ICT, may be partly at the origin of such weakness. Naturally, labour productivity gains seem also very determining in the demographic transition in the long run. For these reasons, we will pay a particular attention to productivity in our analysis. The analysis will, at first, describe the results for Europe as a whole. This approach is useful both for the sake of clarity, in order to have a general overview of the European situation, and for being able to put the scenario in the perspective of the European 2020 objectives. Nevertheless, Europe is made of very heterogeneous countries. Therefore, the diagnosis must be completed by a more detailed approach. For that purpose, we will detail the analysis through four groups of countries, pointing out the most important heterogeneities: <ul style="text-align: justify;"> <li>Countries from Central Europe including Austria, Belgium, France, Germany, and the Netherlands;</li> <li>North-western countries including Denmark, Finland, Ireland, Sweden and the United Kingdom;</li> <li>The Southern countries composed by Cyprus, Greece, Italy, Malta, Portugal and Spain;</li> <li>And the Eastern countries are the remaining: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.</li> </ul> The two first groups are quite similar, with high productivity but with an advantage for most of the countries belonging to the second category. The Southern countries were severely hit by the crisis and the Eastern countries are characterized by a catching up process. Regarding finance, the level of the sovereign debt is a crucial issue in almost all countries, except for some Eastern European countries and for countries that have nowadays no default problems in spite of their indebtedness. The report is organized as follows. We first describe the exogenous variables that guide the scenario. In a second part, we describe the economic forecast for Europe as a whole and then, in the third part, we detail these results for the four groups of countries, given also individual results for several representative countries. Some main outputs for each European country are given in appendix
