Transcript Spring 2004 Forecast Presentation UK

Preliminary assessment of progress
in implementing the EERP
Alexandr Hobza,
Directorate General for Economic and Financial Affairs
European Commission
Brussels, 17 June 2009
1
Part 1. Economic situation and
challenges
2
Economic situation
• The deepest and most widespread recession in
the post-war era. GDP is forecast to contract by
4% in the EU.
• all EU Member States share the recession
experience, but it plays out differently across
Member States
• The differential impact is strongly linked to
weaknesses that pre-date the onset of the crisis.
3
The EU forecast – an overview
(Real annual % change
unless otherwise stated)
euro area
EU27
GDP
Consumption
Total investment
2008 2009
0.8
-4.0
0.5
-0.9
0.0 -10.4
2010
-0.1
-0.3
-2.7
2008 2009
0.9
-4.0
0.9
-1.5
0.1 -10.5
2010
-0.1
-0.4
-2.9
Employment
Unemployment rate *
Inflation
0.7
7.5
3.3
-2.6
9.9
0.4
-1.5
11.5
1.2
0.7
7.0
3.7
-2.6
9.4
0.9
-1.4
10.9
1.3
-1.9
69.3
-0.7
-5.3
77.7
-1.2
-6.5
83.8
-1.3
-2.3
61.5
-1.5
-6.0
72.6
-1.9
-7.3
79.4
-2.0
Gov't balance (% GDP)
Gov't debt (% GDP)
Current account bal. (% GDP)
* % of the labour force
4
Part 2. EU response to the
slowdown
5
Europe’s response to the crisis
• Around 5% of EU GDP of overall support over
2009-10: national Recovery plans (1.8%) plus
automatic stabilisers (2.7%) plus extra budgetary
measures (0.5%)
• ECB key rate cut by 300 basis points to 1.25% in half
a year
• Bank rescue plans in 19 countries (around €300 bn
in recapitalisation operations and €3 tln in bank
guarantees)
6
Macro-economic and fiscal policy
• Coordinated fiscal stimulus based on the
principles for effective budgetary impulse – timely,
targeted and temporary
• Flexibility in applying the SGP rules
• EU sources providing €30 billion, including the
EIB support to SMEs and automotive sector
• Lower interest rates and provision of liquidity by
the ECB
• Balance of payment support – HU, LV, RO
7
Structural policy measures
• Measures compatible with long-term Lisbon
objectives but also relevant in the short term –
toolbox of measures in the EERP
• State aid rules for sectoral aid (e.g. automotive
sector)
• Guidelines for structural measures in the 4
March Communication – ensure functioning of
the internal market
• Guidelines for the design of labour market
measures (do’s and don’ts)
• Monitoring and follow-up to ensure effective
coordination
8
Part 3. Policy responses to support
the real economy
9
Overview of recovery measures
Measures by policy type
Measures by status
22%
29%
24%
Industry businesses and
companies
Implementation of
medium term
agenda
Good functioning of
labour markets
Frontloading/
upgrading of
medium term
agenda
Investment activity
12%
Household purchasing
power
26%
64%
New action
22%
European Commission
10
Overview of policy responses to the economic crisis in:
Fiscal
policy
Labour Market
Investment
Discretion
ary
stimulus
Supporting
Supporting
(aggregat
Encouraging
Retraining
employment
households Energy
e over
flexible
and
by cutting
purchasing Efficiency
2009-10)
working time
activation
labour costs
power
Business support
Sectoral support
Physical
investment
% GDP
BE
BG
CZ
DK
DE
EE
IE
EL
ES
FR
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
1.8
0.0
2.3
1.6
3.5
0.5
1.3
0.3
4.1
1.1
1.2
1.5
0.8
0.0
n.a.
0.0
2.2
1.9
3.1
3.9
1.4
1.1
1.8
1.0
3.7
2.9
2.3
Easing
access to
finance
R&D &
innovation
automotive
P
P
PP
P
P
P
PP
P
P
PP
P
PP
PP
PP
P
P
PP
P
P
PP
P
PP
PP
PP
P
P
P
P
P
PP
PP
PP
P
P
P
PP
PP
P
P
tourism
construction
P
P
PP
P
PP
P
P
P
P
PP
PP
PP
P
P
P
P
P
PP
PP
P
P
P
PP
PP
P
P
P
P
P
PP
P
PP
PP
P
P
P
PP
P
P
P
P
P
PP
P
PP
PP
P
PP
PP = highly significant measures taken
P
P
PP
P
P
P
PP
P
PP
P
P
P
P
P
PP
P
PP
P
PP
P
P
P
PP
PP
P
PP
P
P
P
P
P
P
P
P
P
P
P
P
P
P
P
P
P
P
P
European Commission
P
P
= somewhat significant measures taken
PP
PP
P
PP
PP
PP
PP
P
P
11PP
BE
BG
CZ
DK
DE
EE
IE
EL
ES
FR
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
Policy responses on labour market
• Labour market policies have been rather
effective at stopping unemployment from
shooting up.
• Large variation in composition of MS responses
and large scope for policy learning between
them.
• Few measures that might be difficult to reverse
or undesirable in the short run.
• However, on current trends, policies would need
to be intensified to avoid a very sharp rise in
unemployment over 2009-2010.
12
Policy responses to support investment and
R&D
• Most stimulus packages are considering
traditional types of physical public investment.
• Significant packages to stimulate investment and
energy efficiency but need to improve the skills
of the workforce as an accompanying measure.
• More emphasis on “smart” investment, incl. high
speed internet.
• Best performing MS are taking the most actions
in R&D Widening of gap between leaders and
followers could be expected. Importance of
implementing the ERA agenda.
13
Policy responses to support the business
environment and sectors
• Sectoral support schemes are consistent with
internal market and state aid rules; however
they could have important impact on the
internal market through their differential effects
on corporations.
• Need for more coordination at EU level if MS
maintain sectoral support in the future.
• Design of measures to improve access to finance
seems largely appropriate
14
Part 3. Policy conclusions
15
Future policy directions: devising exit
strategies
• Exit strategies are now needed for fiscal policy (towards
sustainable paths), monetary policy (discontinuation of
unconventional policy ad anchoring inflation expectations) and
structural reforms (temporary working time reductions, sectoral
support)
• Reform priorities have shifted. More focus on financial market
regulation. Avoiding hysteresis in labour markets and tackling
insider-outside problems. Support for R&D and innovation to tackle
the EU’s productivity
• Background conditions for reforms have worsened – need to
undertake difficult fiscal consolidation. Effects of ageing population
start to take hold. Political economy of requires a new narrative for
a sceptical public.
European Commission
16
The impact of the crisis on potential growth
• Different scenarios are possible
i.e. a full return to earlier path,
a permanent loss in level terms
only or a permanent loss on
growth rates
Case n°1: full return to earlier path
Years
Case n°2: Permanent loss in GDP level
• Critical challenges for the EU
are to prevent hysteresis
effects on the labour market
and to avoid permanent
damage to R&D, innovation
and risk taking
Potential output level
Years
Case n°3: Permanent loss on growth rates
• Past crises (e.g. SE and FI)
show that policy responses
matter
Potential output level
Years
European Commission
17