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Summer 2021 Economic Forecast: Reopening fuels recovery

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The European economy is forecast to rebound faster than previously expected, as activity in the first quarter of the year exceeded expectations and the improved health situation prompted a swifter easing of pandemic control restrictions in the second quarter, Related documents

Faster economic growth as economies reopen and sentiment indicators brighten

According to the Summer 2021 interim Economic Forecast, the economy in the EU and the euro area is set to expand by 4.8% this year and 4.5% in 2022. Compared to the previous forecast in the spring, the growth rate for 2021 is significantly higher in the EU (+0.6 pps.) and the euro area (+0.5 pps.), while for 2022 it is slightly higher in both areas (+0.1 pp.). Real GDP is projected to return to its pre‑crisis level in the last quarter of 2021 in both the EU and the euro area. For the euro area, this is one quarter earlier than expected in the Spring Forecast.

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Growth is expected to strengthen due to several factors. First, activity in the first quarter of the year exceeded expectations. Second, an effective virus containment strategy and progress with vaccinations led to falling numbers of new infections and hospitalisations, which in turn allowed EU member states to reopen their economies in subsequent quarter. This reopening benefited service sector businesses in particular. Upbeat survey results among consumers and businesses as well as data tracking mobility suggest that a strong rebound in private consumption is already underway. In addition, there is evidence of a revival in intra-EU tourist activity, which should further benefit from the entry into application of the new EU Digital COVID Certificate as of 1 July. Together, these factors are expected to outweigh the adverse impact of the temporary input shortages and rising costs hitting parts of the manufacturing sector.

Private consumption and investment are expected to be the main drivers of growth, supported by employment that is expected to move in tandem with economic activity. Strong growth in the EU's main trading partners should benefit EU goods exports, whereas service exports are set to suffer from remaining constraints to international tourism.

The Recovery and Resilience Facility (RRF) is expected to make a significant growth contribution. The total wealth generated by the RRF over the forecast horizon is expected to be approximately 1.2% of the EU's 2019 real GDP. The expected size of its growth impulse remains roughly unchanged from the previous forecast, as information from the Recovery and Resilience Plans officially submitted in recent months broadly confirms the assessment made in the spring.

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Inflation rates slightly higher, but moderating in 2022

The forecast for inflation this year and next has also been revised higher. Rising energy and commodity prices, production bottlenecks due to capacity constraints and the shortage of some input components and raw materials, as well as strong demand both at home and abroad are expected to put upward pressure on consumer prices this year. In 2022, these pressures should moderate gradually as production constraints are resolved and supply and demand converge.

Accordingly, inflation in the EU is now forecast to average 2.2% this year (+0.3 pps. compared to the Spring Forecast) and 1.6% in 2022 (+0.1 pps). In the euro area, inflation is forecast to average 1.9% in 2021 (+ 0.2 pps.) and 1.4% in 2022 (+0.1 pps.). 

Substantial risks

Uncertainty and risks surrounding the growth outlook are high, but remain overall balanced.

The risks posed by the emergence and spread of COVID-19 virus variants underscore the importance of further picking up the pace up of vaccination campaigns. Economic risks relate in particular to the response of households and firms to changes in restrictions.

Inflation may turn out higher than forecast, if supply constraints are more persistent and price pressures are passed on to consumer prices more strongly.

Members of the College said:

An Economy that Works for People Executive Vice-President Valdis Dombrovskis said: “The European economy is making a strong comeback with all the right pieces falling into place. Our economies have been able to reopen faster than expected thanks to an effective containment strategy and progress with vaccinations. Trade has held up well, and households and businesses have also proven to be more adaptable to life under COVID-19 than expected. After many months of restrictions, consumer confidence and tourism are both on the up, though the threat of new variant will have to be carefully managed to make travel safe. This encouraging forecast is also thanks to the right policy choices having been made at the right time, and it factors in the major boost that the Recovery and Resilience Facility will deliver to our economies over the coming months. We will have to keep a close eye on rising inflation, which is due not least to stronger domestic and foreign demand. And, as always, we need to be mindful of disparities: some member states will see their economic output return to their pre-crisis levels already by the third quarter of 2021 – a real success – but others will have to wait longer. Supportive policies must continue as long as needed and countries should gradually move to more differentiated fiscal approaches. In the meantime, there must be no let-up in the race to get Europeans vaccinated so we can keep variants at bay.”

Economy Commissioner Paolo Gentiloni said: “The EU economy is set to see its fastest growth in decades this year, fuelled by strong demand both at home and globally and a swifter-than-expected reopening of services sectors since the spring. Thanks also to restrictions in the first months of the year having hit economic activity less than projected, we are upgrading our 2021 growth forecast by 0.6 percentage points. That is the highest upward revision we have made in more than 10 years and is in line with firms' confidence reaching a record high in recent months. With the Recovery and Resilience Facility taking off, Europe has a unique opportunity to open a new chapter of stronger, fairer and more sustainable growth. To keep the recovery on track, it is essential to maintain policy support as long as needed. Crucially, we must redouble our vaccination efforts, building on the impressive progress made in recent months: the spread of the Delta variant is a stark reminder that we have not yet emerged from the shadow of the pandemic.”

Background

This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 26 June. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 28 June. Unless new policies are credibly announced and specified in adequate detail, the projections assume no policy changes.

The European Commission publishes two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all Member States, as well as EU and euro area aggregates.

The European Commission's next economic forecast will be the Autumn 2021 Economic Forecast which is scheduled to be published in November 2021.

More information

Full document: Summer 2021 Economic Forecast

Follow Vice-President Dombrovskis on Twitter: @VDombrovskis

Follow Commissioner Gentiloni on Twitter: @PaoloGentiloni

Follow DG ECFIN on Twitter: @ecfin

Summer 2021 Economic Forecast: Reopening fuels recoveryEnglish (50.824 kB - PDF) Download (50.824 kB - PDF)

EU budget

EU's anti-fraud office finds 20% less fraud in 2020 than 2019

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The financial impact of detected fraud against the EU budget continued to decline in 2020, according to the annual report on the protection of the European Union’s financial interests (PIF report) adopted by the European Commission today (20 September). The 1,056 fraudulent irregularities reported in 2020 had a combined financial impact of €371 million, around 20% less than in 2019 and continuing the steady decrease of the last five years. The number of non-fraudulent irregularities remained stable, but declined in value by 6%, according to the report.

Budget and Administration Commissioner Johannes Hahn said: “The EU’s unprecedented response to the pandemic makes more than €2 trillion available to help member states recover from the impact of the coronavirus. Working together at the EU and member state levels to keep this money safe from fraud has never been more important. Working hand-in-hand, all the different components of the EU’s anti-fraud architecture provide our defence against the fraudsters:  the investigative and analytical work of the European Anti-Fraud Office (OLAF), the prosecutorial powers of the European Public Prosecutor’s Office (EPPO), the coordinating role of Eurojust, the operational capacity of Europol, and close cooperation with and between national authorities.”

Today's positive news comes as Brussels-based EU Observer reported that the European Commission has blocked the European Public Prosecutor's Office (EPPO) from using their budget to hire the specialized personnel they need in the areas of finance and IT. The anonymous claims appear to be confirmed by Monica Hohlmeier MEP (EPP, DE), who is chairwoman of the European Parliament's Committee on Budgetary Control.

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Highlights of progress made in 2020 and in the first half of 2021 include:

•     The start of operations of the European Public Prosecutor’s Office

•     A revised regulation for OLAF, ensuring effective cooperation with the EPPO and strengthened investigative powers

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•     Tougher rules on the conditionality of EU budget allocations in cases where  breaches of the principles of the rule of law affect the protection of the EU’s financial interests

•     Good progress on implementing the Commission’s Anti-Fraud Strategy, with two thirds of the planned actions implemented and the remaining third ongoing

The PIF report also offers a reflection on the new risks and challenges to the EU’s financial interests emerging from the COVID-19 crisis, and the tools to counter them. The Commission and Member States should not lower their guard against these risks, the report concludes, and continue to work hard on improving both fraud prevention and detection.

The 32nd Annual Report on the Protection of the EU's financial interests published today is available on the OLAF website.

The EPPO has already registered 1,700 crime reports and has opened 300 investigations, with the ongoing losses to the EU budget checking it at almost €4.5 billion.

Background:

The EU and Member States share responsibility for protecting the EU’s financial interests and fighting fraud. Member State authorities manage approximately three quarters of EU expenditure and collect the EU’s traditional own resources. The Commission oversees both of these areas, sets standards and verifies compliance.

Under the Treaty on the Functioning of the European Union (Art 325(5)), the Commission is required to produce an Annual Report on the Protection of the EU’s Financial Interests (known as the PIF Report), detailing the measures taken at European and national level to counter fraud affecting the EU budget. The report is based on information reported by the Member States, including data on detected irregularities and fraud. The analysis of this information allows assessing which areas are most at risk, thereby to better target action at both EU and national level.

OLAF mission, mandate and competences

OLAF’s mission is to detect, investigate and stop fraud with EU funds.

OLAF fulfils its mission by:

·                carrying out independent investigations into fraud and corruption involving EU funds, so as to ensure that all EU taxpayers’ money reaches projects that can create jobs and growth in Europe;

·                contributing to strengthening citizens’ trust in the EU Institutions by investigating serious misconduct by EU staff and members of the EU Institutions;

·                 developing a sound EU anti-fraud policy.

In its independent investigative function, OLAF can investigate matters relating to fraud, corruption and other offences affecting the EU financial interests concerning:

·                all EU expenditure: the main spending categories are Structural Funds, agricultural policy and rural

development funds, direct expenditure and external aid;

·                 some areas of EU revenue, mainly customs duties;

·                 suspicions of serious misconduct by EU staff and members of the EU institutions.

Once OLAF has completed its investigation, it is for the competent EU and national authorities to examine and decide on the follow-up of OLAF’s recommendations. All persons concerned are presumed to be innocent until proven guilty in a competent national or EU court of law.

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EU

NextGenerationEU: €93 million recovery and resilience plan in line for Luxembourg

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The European Commission has today (18 June) adopted a positive assessment of Luxembourg's recovery and resilience plan. This is an important step towards the EU disbursing €93 million in grants under the Recovery and Resilience Facility (RRF). This financing will support the implementation of the investment and reform measures outlined in Luxembourg's recovery and resilience plan. It will support Luxembourg's efforts to emerge stronger from the COVID-19 pandemic.

The RRF – at the heart of NextGenerationEU – will provide up to €672.5 billion (in current prices) to support investments and reforms across the EU. The Luxembourgish plan forms part of an unprecedented coordinated EU response to the COVID-19 crisis, to address common European challenges by embracing the green and digital transitions, to strengthen economic and social resilience and the cohesion of the Single Market.

Commission President Ursula von der Leyen said: “Today, the European Commission has decided to give its green light to Luxembourg's recovery and resilience plan. The plan places a strong emphasis on measures that will help secure the green transition, demonstrating Luxembourg's commitment to creating a more sustainable future. I am proud that NextGenerationEU will play an important role in supporting these efforts.”

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The Commission assessed Luxembourg's plan based on the criteria set out in the RRF Regulation. The Commission's assessment considered in particular whether the investments and reforms set out in Luxembourg's plan support the green and digital transitions; contribute to effectively addressing challenges identified in the European Semester; and strengthen its growth potential, job creation and economic and social resilience.

Securing Luxembourg's green and digital transition  

The Commission's assessment finds that Luxembourg's plan allocates 61% of total expenditure to measures that support climate objectives. This includes measures to supply renewable energy to a housing district project in Neischmelz, a support scheme for the deployment of charging points for electric vehicles, and the “Naturpakt” scheme encouraging municipalities to protect the natural environment and biodiversity.

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The Commission finds that Luxembourg's plan devotes 32% of total expenditure to measures that support the digital transition. This includes investments in the digitalisation of public services and procedures; digitalisation of projects for healthcare, such as an online solution for remote healthcare checks; and the establishment of a laboratory for testing ultra-secure communication connections based on quantum technology. In addition, investments in targeted training programmes will provide job seekers and workers on short-time work schemes with digital skills.

Reinforcing Luxembourg's economic and social resilience

The Commission considers that Luxembourg's plan is expected to contribute to effectively addressing all or a significant subset of challenges identified in the relevant country-specific recommendations (CSRs). Specifically, it contributes to addressing CSRs on  labour market policies through addressing skills mismatches and enhancing the employability of older workers. It also contributes to increasing the resilience of the healthcare system, increasing available housing, the green and digital transitions, and the enforcement of the anti-money laundering framework.

The plan represents a comprehensive and adequately balanced response to Luxembourg's economic and social situation, thereby contributing appropriately to all six pillars of the RRF Regulation.

Supporting flagship investment and reform projects

Luxembourg's plan proposes projects in five European flagship areas. These are specific investment projects dealing with issues that are common to all Member States in areas that create jobs and growth and are needed for the green and digital transitions. For instance, Luxembourg has proposed measures aimed at increasing the effectiveness and efficiency of public administration service through enhanced digitalization.

An Economy that Works for People Executive Vice President Valdis Dombrovskis said: “Congratulations to Luxembourg for designing a recovery plan whose focus on the green and digital transitions goes way beyond the minimum requirements. This will make a significant contribution to Luxembourg's recovery from the crisis, promising a brighter future for its young people by investing in digital skills programmes, training for jobseekers and the unemployed, as well as increasing the supply of affordable and sustainable housing. These investments will make Luxembourg's economy fit for the next generation. It is also good to see Luxembourg's plans to invest in renewable energy and further digitalize its public services – both areas with potential for solid economic growth.”

The assessment also finds that none of the measures included in the plan significantly harm the environment, in line with the requirements laid out in the RRF Regulation.

The control systems put in place by Luxembourg are considered adequate to protect the financial interests of the Union. The plan provides sufficient details on how national authorities will prevent, detect and correct instances of conflict of interest, corruption and fraud relating to the use of funds.

Economy Commissioner Paolo Gentiloni said: “Although its financial contribution is relatively limited in size, Luxembourg's recovery and resilience plan is set to deliver real improvements in a number of areas. Particularly positive is the strong focus on supporting the Grand Duchy's climate transition, with important measures to encourage the take-up of electric vehicles and increase energy efficiency in buildings. Citizens will also benefit from the drive to boost digital public services and provide more affordable housing. Lastly, I welcome the fact that the plan includes significant steps to further reinforce the anti-money laundering framework and its enforcement."

Next steps

The Commission has today adopted a proposal for a Council Implementing Decision to provide €93m in grants to Luxembourg under the RRF. The Council will now have, as a rule, four weeks to adopt the Commission's proposal.

The Council's approval of the plan would allow for the disbursement of €12m to Luxembourg in pre-financing. This represents 13% of the total allocated amount for Luxembourg.

The Commission will authorize further disbursements based on the satisfactory fulfilment of the milestones and targets outlined in the Council Implementing Decision, reflecting progress on the implementation of the investments and reforms. 

More information

Questions and Answers: European Commission endorses Luxembourg's €93m recovery and resilience plan

Recovery and Resilience Facility: Questions and Answers

Factsheet on Luxembourg's recovery and resilience plan

Proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Luxembourg

Annex to the Proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Luxembourg

Staff-working document accompanying the proposal for a Council Implementing Decision

Recovery and Resilience Facility

Recovery and Resilience Facility Regulation

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Denmark

NextGenerationEU: European Commission endorses Denmark's €1.5 billion recovery and resilience plan

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The European Commission has today (17 June) adopted a positive assessment of Denmark's recovery and resilience plan. This is an important step paving the way for the EU to disburse €1.5 billion in grants under the Recovery and Resilience Facility (RRF) over the period 2021-2026. This financing will support the implementation of the crucial investment and reform measures outlined in Denmark's recovery and resilience plan. It will play an important role in enabling Denmark emerge stronger from the COVID-19 pandemic. The RRF – at the heart of NextGenerationEU – will provide up to €672.5 billion (in current prices) to support investments and reforms across the EU. The Danish plan forms part of an unprecedented coordinated EU response to the COVID-19 crisis, to address common European challenges by embracing the green and digital transitions, to strengthen economic and social resilience and the cohesion of the Single Market.

The Commission assessed Denmark's plan based on the criteria set out in the RRF Regulation. The Commission's analysis considered, in particular, whether the investments and reforms set out in Denmark's plan support the green and digital transitions; contribute to effectively addressing challenges identified in the European Semester; and strengthen its growth potential, job creation and economic and social resilience. Securing Denmark's green and digital transitions The Commission's assessment of Denmark's plan finds that it devotes 59% of total expenditure on measures that support climate objectives. These measures include tax reforms, energy efficiency, sustainable transport and agricultural sector initiatives. They all aim at modernising the Danish economy, creating jobs and lowering greenhouse gas emissions as well as strengthening environmental protection and protecting biodiversity.

An Economy that Works for People Executive Vice President Valdis Dombrovskis (pictured) said: “The Danish recovery plan provides a complete road map to an upgraded recovery, with a strong focus on the green transition. Over half of the total funding is dedicated to green objectives, such as clean transport and a green tax reform helping reduce greenhouse gas emissions. We welcome the ambition to future-proof the economy by supporting the roll-out of high speed internet to rural areas, and digitalising the public administration, businesses big and small as well as the healthcare sector. The implementation of the reforms and investments included in the plan will help accelerate Denmark's transition to a next-generation economy.”

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The Commission's assessment of Denmark's plan finds that it devotes 25% of total expenditure on the digital transition. Measures to support Denmark's digital transition include the development of a new national digital strategy, increased use of telemedicine, rollout of broadband in less populated parts of the country and fostering digital business investments. Reinforcing Denmark's economic and social resilience The Commission's assessment considers that Denmark's plan includes an extensive set of mutually reinforcing reforms and investments that contribute to effectively addressing all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Denmark by the Council in the European Semester in 2019 and in 2020. It includes measures to frontload private investments, support the twin (green and the digital) transition and foster research and development.

The plan represents a comprehensive and adequately balanced response to Denmark's economic and social situation, thereby contributing appropriately to all six pillars of the RRF Regulation. Supporting flagship investment and reform projects Denmark's plan proposes projects in several European flagship areas. These are specific investment projects which address issues that are common to all member states in areas that create jobs and growth and are needed for the twin transition. For example, Denmark will provide €143 million to foster energy efficiency for households and industry as well as through energy renovations of public buildings. The assessment also finds that none of the measures included in the plan significantly harm the environment, in line with the requirements laid out in the RRF Regulation. The controls systems put in place by Denmark are considered adequate to protect the financialinterests of the Union.

The plan provides sufficient details on how national authorities will prevent, detect and correct instances of conflict of interest, corruption and fraud relating to the use of funds. Commission President Ursula von der Leyen said: “Today, the European Commission has decided to give its green light to Denmark's €1.5bn recovery and resilience plan. Denmark is already a front-runner in the green and digital transitions. In focusing on reforms and investments that will further accelerate the green transition, Denmark is setting a powerful example. Your plan demonstrates that Denmark is looking to the future with ambition and confidence.”

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Economy Commissioner Paolo Gentiloni said: “Denmark's recovery and resilience plan will provide European support to advance its ambitious green transition, an area in which the country is already a pioneer. This is the right priority for Denmark. Considering also the plan's numerous measures to advance the digital transition, I am very confident that NextGenerationEU will deliver real benefits to the Danish people over the coming years.”

Next steps

The Commission has today adopted a proposal for a Council Implementing Decision to provide €1.5bn in grants to Denmark under the RRF. The Council will now have, as a rule, four weeks to adopt the Commission's proposal. The Council's approval of the plan would allow for the disbursement of €200m to Denmark in pre-financing. This represents 13% of the total allocated amount for Denmark. The Commission will authorise further disbursements based on the satisfactory fulfilment of the milestones and targets outlined in the Council Implementing Decision, reflecting progress on the implementation of the investments and reforms.

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