04 March 2021

ECON: Economic Dialogue with the European Commission on EU Fiscal Surveillance

VP Dombrovskis and Commissioner Gentiloni... Economic Dialogue on the fiscal part of European Semester autumn package.. including the Commission Opinions on euro area 2021 Draft Budgetary Plans, the fiscal policy recommendation for the euro area and some elements of the 2021 Alert Mechanism Report.

This briefing addresses the following subjects: (1) Economic situation; (2) Surveillance of national fiscal policies; (3) Surveillance of macroeconomic imbalances (fiscal aspects); (4) Activation of the Recovery and Resilience Facility; and (5) Review of the EU economic governance framework.

1. Economic background

Recent economic developments and estimations
On 11 February 2021, the European Commission published its Winter 2021 European Economic Forecast. While it is the most recent macro-economic forecast from the Commission, it is an interim forecast covering only GDP growth and inflation figures. It does not contain public finance forecasts; those were carried out in the Autumn 2020 European Economic Forecast and will be updated in Spring 2021. Therefore, this briefing still contains public finance data from Autumn 2020, which are the latest available.
According to the Winter 2021 Forecast, GDP is projected to grow by 3.7% in 2021 and 3.9% in 2022 in the EU, and by 3.8% in both years in the euro area. The EU is expected to reach the pre-crisis level of output in mid-2022, which is earlier than anticipated in the Autumn 2020 Forecast, largely because of the stronger momentum in the second half of 2021 and in 2022. While some Member States are expected to see economic output return to their pre-pandemic levels by the end of 2021 or early 2022, others are expected to take longer. Inflation in the euro area and the EU is expected to be slightly higher in 2021 compared to last Autumn Forecast figures, but to remain subdued despite a temporary boost from base effects.
The unemployment rate in the EU, as included in the Autumn 2020 Forecast, is projected to rise from 6.7% in 2019 to 7.7% in 2020 and 8.6% in 2021, before declining to 8.0% in 2022.
The Commission highlights that the current projections are subject to significant uncertainty and both elevated positive and negative risks, predominately linked to the evolution of the pandemic and the success of vaccination campaigns. It should also be noted that some policy decisions may also improve the situation

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