Brussels, 17 January 2023
As Paschal said, we began our meeting by celebrating Croatia’s entry into the euro area. This is a historic milestone for the country and for the euro area. We should always remember that some thirty years ago Croatia was a country at war. In 2013 they entered the Union and, since 1 January, they share our same currency and are part of the Schengen area. So that’s great news for Croatia and for the EU as a whole.
Concerning the economic outlook, we continue to expect a challenging year ahead, as the effects of Russia’s war of aggression continue to reverberate across our economy. This said, there have been some encouraging recent developments:
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- Growth in the third quarter of 2022 was better than expected.
- Gas and oil prices have fallen below pre-war levels.
- The inflation rate declined markedly in December, with headline inflation appearing to have peaked, though this is not yet the case for core inflation.
- Labour markets continue to show strength.
- And economic sentiment has begun to recover.
Taken together, these developments may herald a shallower contraction this winter than expected at the time of our Autumn Forecast.
At the same time, the expectation remains one of subdued growth for the rest of the year. The war in Ukraine of course continues to cloud the outlook. And while high storage levels and lower demand have helped to bring energy prices down, the crisis is certainly not over.
Interesting to note that the exchange we had today with the IMF also showed that there is a broad convergence of views on the economic outlook.
It is crystal clear, in my view, that this economic outlook is also policy-dependent. It does not always depend on our decisions, but a lot does. So a well-coordinated and ambitious response can make all the difference.
Firstly, that means shifting to more targeted and efficient fiscal support measures to deal with the impact of the energy shock – and phasing them out gradually as soon as possible. Not easy, as we all know. But essential if we are to avoid the risk of further fuelling inflation and further complicating the already difficult task faced by the ECB in bringing inflation under control. And I think there is a window of opportunity, now, in the coming weeks, because energy prices are down and because in several countries many measures are due to expire at the end of the first quarter of this year – remaining very attentive of course to the social consequences of the decisions that we take.
Secondly, it means pursuing reforms and investments through the RRF/NextGenerationEU, and especially reducing our dependence on imported fossil fuels through REPowerEU.
Thirdly, it means achieving a swift agreement on the reform of our economic governance. Today, as Paschal said, we had another discussion on the euro area aspects of this reform, which of course concerns the EU as a whole and will be taken forward primarily in the ECOFIN.
Not only markets and investors, but also our citizens that expect us to deliver on this commitment. And I am confident that we will do so.
And lastly, it means taking decisive steps to safeguard European competitiveness, streamlining our state aid rules while avoiding fragmentation in our Single Market, including through the establishment of a European Sovereignty Fund, as called for by President von der Leyen.
Finally, as the President of the Eurogroup said, we discussed the digital euro, as you saw in our statement.
Let me recall that the Commission intends to present a legislative proposal on the digital euro in the second quarter of this year. In the meantime, our services will continue to work closely with the ECB to support its work in this investigation phase.
Thank you.