Brussels, 16 January 2024
“Check against delivery”
Thank you, Paschal. Indeed, I think we had an interesting exchange of views with the IMF and as always there is a broad convergence of views between our institutions.
On the macroeconomic front, the euro area economy lost momentum in the second half of 2023 and recent data point to continued weakness through the winter.
At the same time, inflation continues to subside and we have good news, as you know, on the labour market. Both of these factors, inflation and the labour market, are expected to support a modest pick-up in growth this year.
Nevertheless, uncertainty remains very high and risks to growth are tilted to the downside. These risks stem primarily from the geopolitical context – Russia, Middle East. Spillovers from this conflict are now affecting shipping routes in the region.
Should these persist or worsen, so would the possible implications for energy prices and supply chain disruptions, which could once again fuel inflationary pressures. This is not the case now if we look to energy prices, futures, and data. But I think we should closely monitor this risk. We will come back to assess the potential adverse impact of these disruptions on EU GDP and inflation in the context of our forthcoming Winter forecast, which I will present on 15 February.
Against this backdrop, we need to maintain a strong coordination of national fiscal policies, this is as Paschal reminded us, part of the euro area recommendation that we will approve tomorrow in Ecofin.
And on the subject of fiscal policy, let me note that this week we will move to the next phase in the economic governance review, after the agreement on 20 December, with the vote on the European Parliament’s position next Wednesday and the first trilogue expected to start next Wednesday also. After the intensive negotiations in the Council last autumn, we now have just a few weeks to successfully conclude an overall agreement that can be adopted before the European elections.
Lastly, on the issue of the euro area’s competitiveness, we looked especially at the energy angle.
Across the board, energy prices are well below the highs of one-and-a-half years ago, but still above the levels we had in previous years. They will likely remain so, at least in the short-term, which undermines the price competitiveness of European firms.
This challenge requires coordinated action and EU-level solutions. In particular, we need to continue working to diversify energy supplies and accelerate the roll-out of renewables; support greener production methods, especially in energy intensive industries; and further integrate European energy markets.
Much has already been done and the implementation of Member States’ recovery and resilience plans with their REPowerEU chapters will bring further progress. It is clear is that energy policy must be an integral part of a common European industrial strategy, one that safeguards the single market, enhances our strategic autonomy and supports the climate transition. This will also require us to reflect on new EU-level tools and resources going forward especially after the expiry of NextGenerationEU in 2026.