European 2022-Spring economic forecast: negative expectations

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The EU economy is going presently through a challenging period due to effects of the 4th Industrial Revolution, climate change measures, post-pandemic recovery and Russia-Ukraine military conflict. Spring-22 regional forecast shows that most negative for economy, businesses and households are such factors as the surge in energy prices, record high inflation and disruption of global/regional supply chains. While growth will continue in the years to come, uncertainty and risks will remain high. 

The Commission’s spring-22-forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices by the end of April 2022. Unless new policies are announced and specified in adequate detail, the projections assume no policy changes. The European Commission publishes each year two comprehensive forecasts, in spring and autumn, and two interim forecasts in winter and summer. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all EU states. The Union’s Summer-2022 economic forecast with updated GDP and inflation projections will be presented in July 2022.

Main findings…
Real GDP growth in both the EU and the euro area is now expected at 2.7% in 2022 and 2.3% in 2023, down from expected 4.0% and 2.8% (2.7% in the euro area), respectively, in the Winter 2022 interim forecast. The downgrade for 2022 must be read, warned the Commission, against the background of the growth momentum gathered by the economy in spring and summer last year, which adds around 2 percentage points to the annual growth rate for this year.
Output growth within the year has been reduced from 2.1% to 0.8%; inflation has been picking up momentum since early 2021; from 4.6% year-on-year in the last quarter of 2021 it went up to 6.1% in the first quarter of 2022. Headline inflation in the euro area surged to 7.5% in April, the highest rate in the history of the EU monetary union.
Under all existing EU’s development scenarios, this year growth would be negative, concluded the forecast; besides, Russia’s military invasion in Ukraine is causing not only human suffering and social-economic destruction for both states involved in conflict; it is also weighing on Europe’s economic recovery. Hence the impact of this war will be having huge economic and social consequence for the EU’s growth in years to come.
Therefore, the Commission’s forecast shows high uncertainty and risks; thus any developmental projections would include lower possible growth indications and higher than previously inflation. In any case, concludes the spring forecast, the “European economy is still far from a normal situation”.
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EU’s budget aspects in growth
The EU financial regulation sets out key rules for budget management: i.e. EU funding for beneficiaries, and the EU institutions’ managing available budget and finances. Thus, the regulation sets out rules on the EU institutions’ procurement, supplies and services, awarding grants and prizes, and make use of financial instruments or budgetary guarantees.
In 2018, the EU financial rules went through a major revision, to bring them in line with the previous long-term budget 2014-2020 and to prepare for the 2021-2027 Multiannual Financial Framework (i.e. multi-year EU budget). The 2018 Financial Regulation incorporated the previous Rules of Application into a “single rule book” allowing all general financial rules to be included in the financial regulation.
Amendments seek to ensure that EU budget fully supports the implementation of the European Green Deal. To this end, an explicit reference to the “do-no-significant-harm” principle is made, in line with the Commission’s commitment to sustainable financing and the green transition.
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However, following the adoption of the 2021-2027 Multiannual Financial Framework and Union spending programs, a further amendment was deemed necessary. To that end, a public consultation was carried out in July-October 2021 and its feedback was carefully considered.
Most of this feedback is reflected in Commission appraisal:

Russia-Ukraine conflict: effect on growth strategies
Post-covid period, as well as environmental, biodiversity crises and numerous geopolitical challenges including the two states’ military conflict provides grounds for massive disruption of European and global energy markets. This disruption affects all EU states both directly and profoundly because of EU-27 deep dependence on Russian fossil fuels, i.e. oil and gas as well as grain and fertilizers, to name a few.
However, other European challenges, e.g. green and digital transition, climate change, etc. are being important too; on the contrary, it is more urgent than ever that the EU takes adequate measures to foster growth and Europe’s socio-economic model, increases its resilience and sovereignty and continue active measures in tackling climate crisis.
Modern REPowerEU plan is aimed at saving member states’ energy problems, while providing assistance in the clean energy production and diversifying energy supplies. The EU institutions will take short- and medium-term measures to be completed before 2027; these measures have three vital elements for the states’ energy development sectors:
– First, the EU will help the states in adopting “better policies” for saving energy;
– Secondly, the states have to diversify energy supply: i.e. both the EU and the states have to enter strategic partnerships with countries across the world on LNG and pipeline gas, on the future of hydrogen-type economy;
– Third, the states need to speed up transition to renewable energy resourcing through, for example using huge potentials for rooftop solar energy, as well as on- and off-shore wind power generators and increasing biomethane production.
However, first of all the member states have to reduce imports of Russian gas to one third already this year, and then working towards 2027 reduce the European dependency to zero.
For example, in renewables, the states’ political economy shall follow the following guidelines: by 2030, the share of wind and solar energy in power production capacities should double, from current 33% to 67%. By then, solar energy would also be the largest electricity source in the EU-27, with more than half coming from roof-tops, and wind energy would represent 31% of the energy’s installed capacity in 2030.
From the EU side, the Commission proposed to amend the Renewable Energy Directive: a) to make clear that the production of renewable energy is an overriding public interest; b) to apply simplified rules to all stages of the administrative process, from notification to connection and to the grid; and c) to introduce ‘go-to’ areas, where permitting procedures will be done much faster and suitable for areas with lower environmental risks; in all these ‘go-to’ areas it shouldn’t take more than a year.
For example, some EU states, e.g. Denmark, Germany, the Netherlands and Belgium are going to announce a new phase of cooperation in wind energy and other ambitious strategies for renewables and hydrogen. Thus, the EU-27 aims to double solar photovoltaic capacity by 2025 and reach 600 GW by 2030.
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