|
|
EXECUTIVE SUMMARY
1. MONITORING DEBT SUSTAINABILITY RISKS REMAINS ESSENTIAL
After a severe recession in 2020 prompted by an unprecedented pandemic,
the EU economy strongly rebounded in 2021, with a GDP growth rate of 5%,
higher than expected in earlier Commission forecast. (1) This vigorous
rebound was largely driven by the successful vaccination campaigns in many
EU countries, allowing a progressive easing of restrictions since last spring.
In early November, economic activity in the EU was projected to expand
solidly in 2022, notably supported by the full deployment of the Recovery
and Resilience Facility (RRF). In 2023, real GDP growth was expected to
remain robust at 2½%. Thanks to the strong and well-coordinated EU crisis
response, the damage to the EU economy so far appears considerably less
than initially feared. This report is based on the Commission Autumn
forecast. Since then, the invasion of Ukraine by Russia has been a watershed
moment, increasing risks surrounding the economic outlook. Specifically, the
strength of the recovery remains dependent on future developments related to
the COVID-19 and, importantly, to the geopolitical situation. Amid high
uncertainty, economic risks notably relate to the aggravating and protracted
supply constraints and bottlenecks, as well as surging energy and food prices
constraining growth and fuelling inflationary pressures.
In 2020, the sharp economic downturn and forceful fiscal policy response led
to an unprecedented increase in headline deficit and debt ratios in the EU. In
particular, the EU aggregate government deficit increased from a historically
low of around 0.5% of GDP in 2019 to around 7% in 2020. It is forecast to
have narrowed marginally in 2021, notwithstanding continued discretionary
fiscal measures to shelter households, workers and firms from the impact of
the COVID-19. On the basis of the Commission Autumn forecast, the
aggregate budget deficit in the EU is forecast to halve in 2022, and on an
unchanged policy basis, further decrease to 2.2% in 2023. The aggregate
government debt-to-GDP ratio of the EU rose by over 13 pps. in 2020,
reaching around 92%, mirroring the spike in deficits, as well as temporary
unfavourable interest-growth rate differential (snowball) effect. The EU
aggregate debt ratio in the EU is expected to only slightly decline by 2023,
but it should remain (well) above 100% of GDP in six Member States
(Belgium, Greece, Spain, France, Italy, and Portugal). The invasion of
Ukraine by Russia significantly increased risks surrounding this outlook, with
an expected increase of defence spending and necessary accompanying
measures to cushion the impact of the crisis (e.g. heightened energy prices)
and support energy diversification.
NextGenerationEU (NGEU) allows supporting all Member States, in
particular those hardest hit by the COVID-19, with a €806.9 billion fund. (2)
Its centre piece, the Recovery and Resilience Facility (RRF), which entered
into force in February 2021, provides financing support to reforms and
investments in Member States until end 2026. In particular, the RRF aims at
making European economies and societies more sustainable, resilient and
better prepared for the challenges and opportunities of the green and digital
transitions. This joint, coordinated action at the European level, benefits all...
more at Commission