Economic and Financial Affairs

The Summer 2022 (interim) Economic Forecast issued on 14 July projects that the EU economy will grow by 2.7% in 2022 and 1.5% in 2023. Growth in the euro area is expected at 2.6% in 2022, moderating to 1.4% in 2023. Annual average inflation is projected to peak at historical highs in 2022, at 7.6% in the euro area and 8.3% in the EU, before easing in 2023 to 4.0% and 4.6%, respectively. Many of the negative risks surrounding the Spring 2022 Forecast have materialised. Russia's invasion of Ukraine has put additional upward pressures on energy and food commodity prices. These are feeding global inflationary pressures, eroding the purchasing power of households and triggering a faster monetary policy response than previously assumed. Ongoing deceleration of growth in the US is adding to the negative economic impact of China's strict zero-COVID policy. Momentum gathered with the rebound of last year and a somewhat stronger than previously estimated first quarter is set to prop up the annual growth rate for 2022. Still, economic activity in the remainder of the year is expected to be subdued, notwithstanding a promising summer tourism season. In 2023, quarterly economic growth is expected to gather momentum, on the back of a resilient labour market, moderating inflation, support from the Recovery and Resilience Facility and the still large amount of excess savings. Overall, the EU economy is set to continue expanding, but at a significantly slower pace than expected in the Spring 2022 Forecast.

One of the legal acts sets the conversion rate between the euro and the Croatian kuna at 7.53450 kuna per 1 euro. Euro area economy and finance ministers had discussed the proposal the preceding day in preparation for the decision by the Council. They also discussed macro-economic developments and policy challenges in the euro area in the current global context and the budgetary situation in the euro area, reaching a common view on fiscal policy orientations for 2023, as well as the potential impacts of a digital euro on the financial system and the use of cash. At their meeting on 12 July, in addition to Croatian euro adoption, EU economy and finance ministers decided to urgently provide €1 billion of additional macro-financial assistance to Ukraine. They also exchanged views on the implementation of the Recovery and Resilience Facility, current legislative proposals in the field of financial services, and the Czech Presidency’s work programme. The Council approved conclusions on the 2022 in-depth reviews under the macroeconomic imbalance procedure and the EU terms of reference for the G20 meeting of finance ministers and central bank governors. It also adopted conclusions in response to the Commission’s 2021 fiscal sustainability report as well as a decision addressing the current food security crisis and economic shock in African, Caribbean and Pacific (ACP) countries.

Eurogroup, 11 July 2022

The plan sets out the reforms and public investment projects that the Netherlands plans to implement with the support of the Recovery and Resilience Facility (RRF). The RRF is at the heart of NextGenerationEU which will provide €800 billion (in current prices) to support investments and reforms across the EU. It will play a crucial role in helping Europe to emerge stronger from the crisis and secure the green and digital transitions. The Netherlands is entitled to a total of €4.7 billion in grants under the RRF. The Dutch plan is structured around six pillars: promoting green transition; accelerating the digital transformation; improving the housing market with a focus on building renovation; strengthening the labour market, pensions and future-oriented education; strengthening the public health sector and pandemic preparedness; tackling aggressive tax planning and money laundering. Projects in the plan cover the entire lifetime of the RRF until 2026 and all seven European flagship areas. The Commission will now assess the Netherlands' plan based on the eleven criteria set out in the Regulation and translate their contents into legally binding acts. The Council will have, as a rule, four weeks to adopt the Commission proposal for a Council Implementing Decision.

Under the proposal, MFA funds will be made available to Ukraine in the form of long-term loans on favourable terms. The proposal is part of the extraordinary effort by the EU, alongside the international community, to help Ukraine to address its immediate financial needs following the unprovoked and unjustified aggression by Russia. It will complement the support already provided by the EU, including a €1.2 billion emergency MFA loan paid out in the first half of the year. Taken together, the two strands of the programme would bring the total MFA support to Ukraine since the beginning of the war to €2.2 billion and could reach up to €10 billion once the full package of exceptional MFA to Ukraine becomes operational. As soon as the European Parliament and the Council approve the proposal and the corresponding Memorandum of Understanding and Loan Agreement with the Ukrainian authorities are signed, the Commission will swiftly make available the amount of €1 billion to Ukraine.

Europe has vowed to cut its reliance on Russian fossil fuels by 2027 by scaling up renewable energy. This transition away from oil and gas was already a key goal before the war in Ukraine as the EU seeks to become climate neutral by 2050. Energy dependency currently costs European taxpayers nearly €100 billion per year. REPower EU is the European Commission’s action plan to end dependency by 2027. This includes scaling and speeding up the implementation of renewable energy. It’s estimated that it will cost 210 billion euros and require major investment. This is where InvestEU, the EU’s flagship investment programme comes in. Working in partnership with the European Investment Bank and with a guarantee of 26 billion euros from the EU, InvestEU is expected to bring in more than 370 billion euros in public and private financing. Its investments focus on four areas: sustainable investment, innovation, social inclusion and job creation, and at least 30% of these must contribute to making Europe carbon neutral.

In November 2014 the European Commission inaugurated the ambitious Investment Plan for Europe. Now, the European Commission is launching a public consultation to assess its impact. Let us know what you think by filling out this survey!

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Registration has opened for the OECD Global Forum on Productivity (GFP) which will take place on 7 and 8 July 2022. The GFP aims to foster international co-operation between public bodies with responsibility for promoting productivity-enhancing policies.

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Don’t miss the upcoming conference ‘Towards a legislative framework enabling a digital euro for citizens and businesses’ which will take place on Monday 7 November in Brussels. Save the date – more details coming soon!

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