This package is based on the autumn forecast I presented two weeks ago. It was a picture of strong growth, fuelled by domestic demand, but with a number of increasing headwinds that require us to remain vigilant, to avoid seeing our recovery blown off course.
The first of these headwinds concerns is the continued rise in COVID infections and the reintroduction of restrictions in a growing number of Member States. We have seen in November an increase in the Oxford stringency index as well as a reduction of mobility. These developments will have a certain impact on our economies, especially on contact-intensive services. To be clear, we do not expect them to have anything like the same impact on economic activity as the lockdowns of last winter.
The second headwind is related to inflation, which is likely to rise further over the coming months although at a different pace in different countries before starting to fade next year.
And the third headwind is the persistence of supply chain bottlenecks, which are weighing on numerous sectors - like automotive production, which was still 47.5% below its pre-pandemic level in the third quarter in the euro area.
So, strong recovery and high uncertainty.
Against that backdrop our priorities are twofold. First, pursuing policies that effectively underpin the recovery. This means gradually shifting support towards measures that lay the foundations for a successful green and digital transition and for more inclusive growth and stronger public investment. And second, delivering on all four dimensions of what we call competitive sustainability. That means environmental sustainability, productivity, fairness, and macroeconomic stability.
Our coordinated economic policy response to the pandemic over the past two years has been both strong and I think successful. Now we must navigate a new, altogether more complex phase, hopefully with the same coordination and success.
Today's Annual Sustainable Growth Survey sets out a comprehensive macroeconomic vision and strategy for transitioning to a new growth model, a vision fully in line with the UN's Sustainable Development Goals and giving much greater prominence to the social and environmental dimensions.
You could call it a 'Beyond GDP' agenda.
The euro area recommendation very much reflects these messages:
-The euro area should maintain a moderately supportive fiscal stance in 2022, taking into account also the funding provided by the RRF. Moderately supportive doesn't mean tightening: it means targeting.
-Governments should gradually pivot fiscal measures towards investments and pay attention to the quality of those measures.
-They should keep fiscal policy agile in order to react if pandemic risks re-emerge, for example.
-Policies should be differentiated across the euro area to take into account the state of the recovery and fiscal sustainability.
-Governments should support job transitions and tackle skills shortages.
-And support packages for companies should focusing on the solvency of viable firms that have come under stress during the pandemic.
Ensuring the resilience of the EU economy means addressing both pre-crisis imbalances and emerging risks. While we were seeing a gradual correction of imbalances before the pandemic, the subsequent economic shock has exacerbated pre-existing issues:
-Public and private debts have increased both as a result of the shock and the essential measures we have collectively taken to counter that shock.
-After a period of downward adjustment - which contributed to the reduction of global imbalances - the euro area current account surplus is forecast to return to the pre-pandemic level of 3% of GDP this year and widen to 3.2% next year. This shows that there is room to sustain the recovery at the euro area level.
-And finally, house price growth has increased further, which raises concerns, particularly where household debt is high or rising fast.
I will conclude with a few words on the fiscal part of this package.
The aggregate budget deficit in the euro area should decline markedly from 7.1% of GDP this year to 3.9% in 2022 and 2.4% in 2023. At the same time, public debt is projected to peak at 100% in the euro area in 2021 and to decline quite slowly to 97% by 2023.
Reducing debt in a growth-friendly manner is not necessarily an oxymoron, but it is a challenge. In fact, transforming this aim into reality will be a challenge for our fiscal policies and our fiscal rules in the years to come.
With the general escape clause still activated, the fiscal recommendations issued in June were qualitative, with no specific fiscal targets set for next year. So today's Opinions on euro area Member States' draft budgetary plans are therefore also qualitative in nature. To summarise these Opinions, we see several positive results:
-All Member States preserve nationally financed investment.
-All high-debt Member States use the RRF to finance additional investment to support the recovery.
-And nearly all Member States with low or medium levels of debt pursue a supportive fiscal stance, including the impulse provided by the RRF.
-Alongside these welcome developments, we also underline that in some cases the growth of nationally financed current expenditure is planned to provide a sizeable contribution to the overall supportive fiscal stance. So we are calling for a prudent execution of the budget in these countries in order to limit this growth, especially when as in Italy it is combined with a high level of the public debt.
Overall, the euro area fiscal stance is projected to be expansionary over 2020-2022. And crucially, the public investment-to-GDP ratio in 2022 is projected to be higher than pre-crisis. This contrasts with a seven-year declining trend of this ratio in the wake of the Great Financial Crisis.
This good news reflects not only the combined effect of higher nationally financed investment, but also investments financed by RRF grants, of which around 40% of the total amount allocated is planned to be spent in 2022, assuming of course the successful fulfilment of the relevant milestones and targets. Making a success of this will be perhaps the most significant challenge - and opportunity - that we must collectively address over the coming year.