EFM June 2021

As vaccines are rolled out and restrictions relaxed, European economies are recovering from the Covid-19 pandemic. Nevertheless, most recent projections for 2021 are less optimistic than earlier estimates, given the further intense disruption caused by Covid-19 early this year. Both the projected real GDP growth and public balances were revised downwards by on average 1 percentage point.

All countries are expected to record positive economic growth in 2021 – the anticipated average real GDP growth is 3%. The pace of economic recovery in Europe appears to be uneven, though, as some countries are set to reach their pre-pandemic levels of GDP in 2021, while others expect to reach this level only in 2022 or 2023.

The fiscal stance in most countries remains expansionary, as governments are shifting from first aid to supporting economic recovery. In the 27 countries covered by this European Fiscal Monitor (EFM), policy measures cost on average about 5% of GDP in 2020 and 4% of GDP in 2021. The costs for the Covid-related measures might further increase if new measures are adopted.

Over recent months the EU Recovery and Resilience Facility (RRF) Regulation has been adopted and nearly all countries have prepared and submitted their Recovery and Resilience Plans (RRPs). The RRF amounts to €673 billion and will be distributed through grants and loans in the next seven years, but most will be distributed in 2021 and 2022. The European Commission (2021) estimates that the RRF will have an accumulative contribution of around 1.2% of 2019 EU GDP to economic growth over 2021-22.

This EFM gives an overview of the activities of 32 national IFIs, and the fiscal measures adopted in response to Covid-19 in 26 EU member states and the UK. The monitor is based on a survey of EU IFIs conducted in May and June 2021, and is largely based on information linked to spring 2021 stability and convergence programmes (SCPs). The information depends on the mandate of the national IFI, and is obtained from these or from the national governments.

IFIs are independently mandated by national governments to: i) monitor compliance with national and EU fiscal rules, ii) produce or endorse macroeconomic and in several cases budgetary forecasts, and/or iii) advise national governments on fiscal policies. This puts them in a good position to assess public finances at national level.

The results of the Survey of Network's Members on fiscal measures adopted in response to Covid-19 are available here.