European Semester: How to sustain a green recovery facing increased uncertainty

What is included in this year’s European Semester Spring Package?

The 2022 European Semester Spring Package includes:

• a Communication on the main elements of the European Semester Spring Package;
• country-specific recommendations (CSRs) for 27 Member States;
• country reports for 27 Member States;
• in-depth reviews for 12 Member States
• a report under Article 126(3) of the Treaty on the Functioning of the EU;
• opinions on the draft budgetary plans of Germany and Portugal;
• the fourteenth enhanced surveillance report for Greece;
• post-programme surveillance reports for Cyprus, Ireland, Spain and Portugal;
• a proposal for a Council Decision on guidelines for the employment policies of the Member States; and
• a monitoring report on progress towards the UN Sustainable Development Goals in an EU context.

How has the European Semester process been adapted this year?

For the 2022 cycle, the European Semester preserves its main purpose of broad economic and employment policy coordination, while evolving in line with the implementation requirements of the Recovery and Resilience Facility (RRF). The implementation of the RRF makes it necessary to continue adapting the European Semester to take into account overlaps and ensure that joint efforts can focus on the delivery of high-quality and ambitious recovery and resilience plans (RRPs).

The implementation of the plans will drive Member States’ reform and investment agendas for the years to come. The European Semester, with its broader scope and multilateral surveillance, will complement this implementation process. The two processes will continue to be intrinsically linked and every effort will be made to avoid overlaps and eliminate unnecessary administrative burdens.

As announced in the 2022 Annual Sustainable Growth Survey, this year’s Spring Package reintroduces country reports and country-specific recommendations (CSRs). The country reports provide a snapshot of the existing and newly emerging challenges along the four dimensions of competitive sustainability, as well as an analysis of individual Member States’ resilience.

How does the European Semester Spring Package take account of the exceptional circumstances brought about by Russia’s invasion of Ukraine?

The EU economy reached its pre-pandemic output level in the autumn of 2021 and the outlook before Russia invaded Ukraine was for a phase of prolonged and robust expansion.

However, Russia’s war of aggression against Ukraine has created a new environment, exacerbating pre-existing headwinds to growth, which were previously expected to subside. Further hikes in commodity prices, renewed supply disruptions and heightening uncertainty are denting growth and imply significant downside risks. It also poses additional challenges to the EU economies related to security of energy supply and fossil fuel dependency on Russia.

REPowerEU is Europe’s plan to end Europe’s dependency on Russian fossil fuels as soon as possible. It is also about rapidly reducing our dependence on Russian fossil fuels by fast-forwarding the clean transition and joining forces to achieve a more resilient energy system and a true Energy Union.

The CSRs adopted in the context of the European Semester provide guidance to Member States to adequately respond to persisting and new challenges and deliver on their shared key policy objectives. This year, they also include guidance on new and dedicated REPowerEU chapters in the RRPs, to reduce the dependency on fossil fuels through reforms and investments in line with the REPowerEU objectives.

What is the link between the European Semester Spring Package and REPowerEU?

The CSRs adopted in the context of the European Semester provide guidance to Member States to adequately respond to persisting and new challenges and deliver on their shared key policy objectives. This year, this includes an energy-related recommendation to all Member States addressing major challenges such as security of supply, EU´s energy independence and climate change – offering targeted guidance for each Member State on reducing the dependency on fossil fuels in line with the REPowerEU objectives. Measures to be included in the REPowerEU chapters are expected to address the 2022 country-specific recommendations related to energy challenges.

How do the country-specific recommendations reflect the Commission’s priorities?

The RRF is the central tool to deliver the EU policy priorities under the European Semester and, in combination with REPowerEU, to address newly emerged challenges.

In line with the RRF Regulation, national RRPs cover all or a significant subset of the relevant CSRs.

Targeted new CSRs address a limited number of additional reform and investment challenges. The Commission proposes that the Council address all Member States which have had their recovery and resilience plan approved with:

• a recommendation on fiscal policy, including fiscal structural reforms where relevant;
• a recommendation on the implementation of the RRP and the cohesion policy programmes;
• a recommendation on energy policy in line with the objectives of REPowerEU and the European Green Deal; and
• where relevant, an additional recommendation on outstanding and/or newly emerging structural challenges.

The scope of the recommendations is larger for Member States that do not yet have approved RRPs.

How do the country-specific recommendations support the green transition?

The CSRs adopted in the context of the European Semester provide guidance to Member States to adequately respond to persisting and new challenges and deliver on their shared key policy objectives. This year, they also include guidance on reducing the dependency on fossil fuels in line with the REPowerEU objectives.

The CSRs focus on the need to end the European dependency on fossil fuel imports from Russia, while at the same time reduce the use of fossil fuels by prioritising energy savings and producing clean energy. Where relevant, Member States are recommended to accelerate and reinforce their reforms and investments in these areas, backed by financial and legal measures to build the new energy infrastructure and system that Europe needs.

How do the country-specific recommendations provide guidance to Member States on reducing dependence on fossil fuels in line with REPowerEU objectives?

The EU is heavily reliant on fossil fuels. Around 90% of the gas used in the EU is imported, with Russia providing almost half of these volumes in 2021.

A new country-specific recommendation has been introduced and tailored to each Member State in order to reduce the EU’s reliance on fossil fuels overall, and gas dependency on Russia. The recommendations take into consideration the need for Member States to accelerate the deployment of renewable energy and the necessary infrastructure sector, as well as increasing energy efficiency to reduce energy consumption overall. They also consider the need and potential to increase the capacity of interconnections across the EU.

What fiscal guidance is the Commission providing to Member States for the period ahead?

The specific nature of the macroeconomic shock imparted by Russia’s invasion of Ukraine, as well as its long-term implications for the EU’s energy security needs, call for a careful design of fiscal policy in 2023.

Based on the spring 2022 forecast, which projects GDP growth to remain in positive territory over the forecast horizon albeit amid high uncertainty and downside risks, a broad-based fiscal impulse to the economy in 2023 does not appear warranted. Fiscal policy should expand public investment for the green and digital transition and energy security. Full and timely implementation of the RRPs is key to achieving higher levels of investment. Fiscal policy should be prudent in 2023, by controlling the growth in nationally-financed primary current expenditure, while allowing automatic stabilisers to operate and providing temporary and targeted measures to mitigate the impact of the energy crisis and to provide humanitarian assistance to people fleeing from Russia’s invasion of Ukraine.  Fiscal policy has to remain agile so as to adjust to the rapidly evolving circumstances.

Moreover, Member States’ fiscal plans for next year should be anchored by prudent medium-term adjustment paths reflecting fiscal sustainability challenges associated with high debt-to GDP levels that have increased further due to the pandemic. To reduce risks from climate change, Member States are encouraged to systematically consider its implications on budgetary planning, alongside with policies and tools that help prevent, reduce and prepare for climate-related impacts in a fair way. Green budgeting practices in the Member States should be continued and encouraged to ensure coherence of public expenditures and revenues with environmental goals.

Fiscal policies should continue to be appropriately differentiated across Member States:

• Member States with high debt should ensure a prudent fiscal policy in 2023, in particular by limiting the growth of nationally-financed current expenditure below medium-term potential output growth, taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. For the period beyond 2023, these countries should pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring credible and gradual debt reduction and fiscal sustainability in the medium term through gradual consolidation, investment and reforms.
• Member States with low/medium term should ensure current expenditure is in line with an overall neutral policy stance in 2023, taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. For the period beyond 2023, Member States should pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions.

Does the Commission have any concerns regarding Member States’ fiscal sustainability?

Continuing to ensure public debt sustainability remains important for many Member States. Medium- and long-term fiscal sustainability challenges largely reflect the significant impact of the COVID-19 pandemic on public finances, which added to existing pre-crisis debt vulnerabilities in several countries.

The challenge of rising expenditure on pensions, health care and long-term care because of an ageing population needs to go hand in hand with ensuring adequacy of pensions and other social benefits. Putting pension systems on a sustainable footing from both a fiscal and social perspective will require further reforms to lengthen careers and making labour markets more inclusive.

Improving the fiscal sustainability of health care and long-term care requires improving their efficiency, while at the same time ensuring their adequacy and accessibility.

What is the Commission’s assessment on the status of the general escape clause?

Heightened uncertainty and strong downside risks to the economic outlook in the context of war in Europe, unprecedented energy price hikes and continued supply chain disturbances warrant the extension of the general escape clause of the Stability and Growth Pact through 2023.

On 3 March 2021, the Commission concluded that the deactivation of the general escape clause of the Stability and Growth Pact should be conditional upon the state of the EU and euro area economy, recognising that it will take time for the economy to return to more normal conditions and that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy with the level of economic activity in the EU or euro area compared to pre-crisis levels as the key quantitative criterion.  In the context of war in Europe, unprecedented energy price hikes and continued supply chain disturbances, the state of the EU and euro area economy has not returned to more normal conditions. Moreover, the decision on the continued application or deactivation of the general escape clause should also consider the need for fiscal policy to be able to respond appropriately to the economic repercussions of Russia’s military aggression against Ukraine, including from energy supply disruptions.

The continued activation of the general escape clause in 2023 will provide the space for national fiscal policy to react promptly when needed, while ensuring a smooth transition from the broad-based support to the economy during the pandemic times towards an increasing focus on temporary and targeted measures and fiscal prudence required to ensure medium-term fiscal sustainability.

The general escape clause does not suspend the Stability and Growth Pact. It allows for a temporary departure from the normal budgetary requirements, provided that this does not endanger fiscal sustainability in the medium term. In autumn 2022, the Commission will re-assess the relevance of proposing to open excessive deficit procedures based on the outturn data for 2021. In spring 2023, the Commission will assess the relevance of proposing to open excessive deficit procedures based on the outturn data for 2022, in particular taking into account compliance with the fiscal country-specific recommendations addressed to the Member States by the Council. Based on the above considerations, and given the implications of heightened uncertainty and strong downside risks on the economic outlook for the EU and euro area as a whole, the Commission considers that the Union is not yet out of a period of severe economic downturn.

On this basis, the conditions to maintain the general escape clause in 2023 and to deactivate it as of 2024 are met. The Commission invites the Council to endorse this conclusion to provide clarity to Member States.

When will the Commission present the next steps on the economic governance review?

The Commission will provide orientations on possible changes to the economic governance framework after the summer break and well in time for 2023.

What are the main findings of the Article 126(3) report?

The Commission prepared a report under Article 126(3) of the Treaty on the Functioning of the European Union for 18 Member States (Belgium, Bulgaria, Czechia, Germany, Estonia, Greece, Spain, France, Italy, Latvia, Lithuania, Hungary, Malta, Austria, Poland, Slovenia, Slovakia and Finland).

For all these Member States except Finland, the report assesses their compliance with the deficit criterion. In the case of Lithuania, Estonia and Poland, the report was prepared due to a planned deficit in 2022 exceeding the 3% of GDP Treaty reference value, whereas the other Member States had a general government deficit in 2021 exceeding 3% of GDP.

For Member States with general government gross debt above 60% of GDP in 2021 and who did not respect the debt reduction benchmark – namely Belgium, France, Italy, Hungary and Finland – the report assesses compliance with the debt criterion in 2021 based on outturn data.

The report finds that the deficit criterion is not fulfilled by Belgium, Bulgaria, Czechia, Germany, Estonia, Greece, Spain, France, Italy, Latvia, Lithuania, Hungary, Malta, Austria, Poland, Slovenia and Slovakia. Taking into account all relevant factors, the report finds that the debt criterion is not fulfilled by Belgium, France, Italy, Hungary and Finland. The debt criterion is complied with by Slovakia.

As regards Member States with a debt ratio above the 60% of GDP reference value, the Commission considers, within its assessment of all relevant factors, that compliance with the debt reduction benchmark would imply a too demanding frontloaded fiscal effort that risks to jeopardise growth. Therefore, in the view of the Commission, compliance with the debt reduction benchmark is not warranted under the current exceptional economic conditions.

The Commission does not propose to open new excessive deficit procedures in spring 2022. The COVID-19 pandemic continues to have an extraordinary macroeconomic and fiscal impact that, together with the current geopolitical situation, creates exceptional uncertainty, including for designing a detailed path for fiscal policy. On these grounds, the Commission considers that a decision on whether to place Member States under the excessive deficit procedure should not be taken.

Romania is the only Member State under an excessive deficit procedure, based on the pre-pandemic developments. On 3 April 2020, the Council decided that an excessive deficit existed in Romania based on planned excessive deficit in 2019. In its latest recommendation of 18 June 2021, the Council asked Romania to put an end to the excessive deficit situation by 2024 at the latest. Romania’s general government deficit in 2021 and the fiscal effort in 2021 are in line with those recommended by the Council. Therefore, the procedure is kept in abeyance.

The Commission will reassess Member States’ budgetary situation in autumn 2022. The monitoring of debt and deficit developments will continue on the basis of the 2022 autumn Economic Forecast and the 2023 Draft Budgetary Plans to be submitted by euro area Member States by 15 October 2022. In autumn 2022, the Commission will reassess the relevance of proposing to open excessive deficit procedures.

What are the general findings of the country reports?

The country reports provide a snapshot of the existing and newly emerging challenges along the four dimensions of competitive sustainability, as well as an analysis of the individual Member States’ resilience.

The reports take stock of the implementation of past CSRs and of the measures included in the recovery and resilience plans that will largely drive and complement Member States’ reform and investment agendas until 2026.

The reports identify key outstanding or newly emerging challenges, not sufficiently covered by commitments undertaken in the recovery and resilience plans, which are the basis for this year’s CSRs. This ‘gap analysis’ and the related recommendations notably take into account the need to reduce our energy dependencies following Russia’s invasion of Ukraine, in line with the REPowerEU objectives, and to properly address the related socio-economic implications.

Each country report presents an accessible narrative for the reader to quickly become acquainted with the economic and employment outlook of the country, its key challenges, the main thrust of the policy response envisaged, as well as topical outstanding issues. In addition, the annexes of each report provide country-specific data and analysis across a wealth of topics, covering cross-cutting perspectives (such as progress towards the Sustainable Development Goals) as well as specific policy areas and shedding light on questions such as “the employment and social impact of the green transition”. Such analysis draws on a wide range of data and tools, including the resilience dashboards developed by the Commission, the Social Scoreboard agreed with Member States, and many more.

The findings are varied and – inherently – country-specific given the combination of shocks affecting each country differently. Moreover, as their RRPs differ in scope and magnitude, the key findings distinguish between actions already foreseen in the plans and remaining challenges to be addressed.

How does the Commission assess the recent evolution of macroeconomic imbalances?

The assessment of macroeconomic vulnerabilities is marked by a strong economic recovery from the COVID-19 crisis in a context of rising uncertainty in face of the surging energy and commodity prices and other impacts from the Russian aggression of Ukraine. Private and public debt levels are easing as the economy rebounds from the crisis. Nonetheless, in many cases they remain above their pre-COVID-19 levels, reflecting the sharpness of the economic contraction in 2020, and the measures taken to support the economy. External rebalancing remains incomplete: the current accounts of large net-debtor countries with significant cross-border tourism sectors have improved, but remain below their pre-COVID-19 levels, while large current account surpluses in some Member States persist despite some temporary reduction during the pandemic. House prices are growing at their fastest pace in over a decade. The banking sector weathered the pandemic crisis well, although some risks might emerge as moratoria on debt repayments have ended and temporary support measures are withdrawn.

Overall, vulnerabilities are receding and are falling below their pre-pandemic levels in various Member States; justifying a revision of the classification of imbalances in two cases. The policy agenda embedded in the RRPs, as well as past policy action support further adjustment and stronger fundamentals for the concerned economies, delivering prospects for a continued narrowing of vulnerabilities. Economic growth will support further adjustment but countries marked by low potential growth could face challenging dynamics. Inflationary pressures are rising and tighter financing conditions and exchange rate volatility may weigh on debt servicing. This is a particular risk where private or public debt is held in foreign currencies, and where refinancing needs are substantial.

What are the main findings of the in-depth reviews?

The Commission has assessed the existence of macroeconomic imbalances for the 12 Member States selected for in-depth reviews in the 2022 Alert Mechanism Report. All those Member States had been identified with imbalances or excessive imbalances in the last annual cycle of surveillance under the Macroeconomic Imbalances Procedure.

• Ireland and Croatia are no longer experiencing imbalances. In Ireland, debt ratios have declined significantly over the years and continue to display strong downward dynamics. In Croatia, debt ratios have also declined significantly over the years and continue to display strong downward dynamics.
• Greece, Italy, and Cyprus continue to experience excessive imbalances.
• Germany, Spain, France, the Netherlands, Portugal, Romania, and Sweden continue to experience imbalances.

Details on the country-specific aspects for the 12 concerned Member States are laid out in Appendix 4 of the Communication.

In which areas is the implementation of country-specific recommendations particularly lagging behind? What will the Commission do to improve this?

The 2022 European Semester cycle takes stock of the Member States’ policy action taken to address structural challenges identified in the CSRs adopted since 2019.

Following the establishment of the RRF, the 2022 CSR assessment takes into account the policy action taken by the Member States to date, as well as the commitments undertaken in the recovery and resilience plans, depending on their degree of implementation.

Overall, at least some progress has been achieved with the implementation of 63% of the 2019-2020 CSRs. Compared to last year’s assessment, additional progress has been achieved regarding both 2019 CSRs of a structural nature and more crisis-oriented 2020 CSRs. However, reform implementation differs significantly across policy areas. In particular, Member States have made most progress over recent years in the area of access to finance and financial services, followed by progress in the areas of anti-money laundering and business environment. On the other hand, progress has been particularly slow on pension systems, the single market, competition and state aid, and housing.

Progress with the implementation of the fiscal recommendations adopted in 2021 has been sizeable. Member States have made at least “some progress” in almost 80% of the recommendations addressed to them in July 2021.

The RRF is a central tool to deliver EU and national policy priorities under the European Semester, as the recovery and resilience plans are required to address all or a significant subset of the relevant CSRs. The CSR assessment reflects the current early stages of the RRF’s implementation, rather than the level of progress that could be achieved assuming a full implementation of the plans. Therefore, considerable additional progress in addressing structural CSRs is expected in the years to come with the further implementation of the RRF.

What is the Commission’s assessment of the German draft budgetary plan?

Germany submitted an updated draft budgetary plan (DBP) for 2022 in April, after a new government took office in December 2021.

In 2022, based on the Commission’s forecast and including the information incorporated in its updated Draft Budgetary Plan, the fiscal stance, including the impulse provided by the RRF, is projected to be supportive, as recommended by the Council. Germany plans to provide continued support to the recovery by making use of the RRF to finance additional investment. As recommended by the Council, Germany also plans to preserve nationally financed investment.

The Commission recalls the importance of the composition of public finances and the quality of budgetary measures, including through growth-enhancing investment, notably supporting the green and digital transition. These objectives are fulfilled by the measures underpinning the updated Draft Budgetary Plan.

Germany is invited to regularly review the use, effectiveness and adequacy of the support measures, including those aimed at addressing the increase in energy prices, and stand ready to adapt them to changing circumstances.

What is the Commission’s assessment of the Portuguese draft budgetary plan?

Portugal submitted a new DBP for 2022 in April when the draft law on the State Budget for 2022 was presented to the Portuguese Parliament. In autumn 2022, the Commission did not assess the DBP as submitted by Portugal, given that the State Budget for 2022 had been rejected in the Portuguese Parliament. It instead invited the Portuguese authorities to submit a new DBP for 2022 in due course, and as soon as a government presented to the Portuguese Parliament a new draft law on the State Budget for 2022.

In 2022, based on the Commission’s forecast and including the information incorporated in the DBP, the fiscal stance – including the impulse provided by the RRF – is projected to be supportive. As recommended by the Council, Portugal plans to provide continued support to the recovery by making use of the RRF to finance additional investment. As recommended by the Council, Portugal also plans to preserve nationally financed investment. Portugal broadly limits the growth of nationally financed current expenditure as the significant expansionary contribution of nationally financed current expenditure in 2022 is mainly due to the above-mentioned measures to address the economic and social impact of the increase in energy prices, as well as the costs of providing support to displaced persons. Given the level of Portugal’s government debt and high sustainability challenges in the medium term, when taking supportive budgetary measures, it is important to preserve prudent fiscal policy in order to ensure sustainable public finances in the medium term.

The Commission recalls the importance of the composition of public finances and the quality of budgetary measures, including through growth-enhancing investment, notably supporting the green and digital transition. Making decisive progress in strengthening expenditure control, cost-efficiency, and appropriate budgeting – in particular through intensified efforts in the planned review of public expenditure and in the implementation of measures to improve the financial sustainability of the National Health Service and state-owned enterprises – remains important to facilitate the rechannelling of public resources towards new strategic policy priorities, such as delivering on the twin transition.

Portugal is invited to regularly review the use, effectiveness and adequacy of the support measures, including those aimed at addressing the increase in energy prices, and stand ready to adapt them to changing circumstances.

What are the main findings of the enhanced surveillance report for Greece?

The Commission has published the fourteenth report for Greece under the enhanced surveillance framework that was activated following the conclusion of the financial assistance programme in August 2018. The report concludes that Greece has taken the necessary actions to achieve agreed commitments, despite the challenging circumstances triggered by the economic implications of new waves of the pandemic as well as of Russia’s invasion of Ukraine.

The authorities have completed a number of specific commitments in the areas of public financial management, property taxation, disability benefits, environmental inspections and justice, and agreed on the extension of the mandate of the Hellenic Financial Stability Fund. The EU institutions welcome the close and constructive engagement in all areas and encourage the authorities to keep up the momentum and, where necessary, reinforce the efforts, in particular as concerns reforms in the area of financial sector policies, primary health care, the cadastre, codification of the labour legislation, and reaching the agreed targets for the clearance of arrears.

The report could serve as a basis for the Eurogroup to decide on the release of the next set of policy-contingent debt measures.

The successful delivery of the bulk of the policy commitments and the effective reform implementation have improved the resilience of the Greek economy and strengthened its financial stability. This has significantly reduced the risks of adverse spill-over effects on other Member States in the euro area, hence effectively addressing the condition underpinning the application of enhanced surveillance. The authorities remain committed to reform implementation and to completion of outstanding elements. On the basis of these considerations, the European Commission may not prolong enhanced surveillance after its expiration on 20 August 2022.

What are the main findings of the post-programme reports for Cyprus, Ireland, Spain, and Portugal?

Cyprus‘ economy rebounded strongly from the recession-related to the COVID-19 pandemic. Growth is expected to slow down this year – as Russia’s invasion of Ukraine and the related sanctions are expected to have a negative impact and higher inflation dampens disposable income – before rebounding in 2023. The country’s fiscal position improved markedly in 2021. The general government deficit is expected to narrow further in 2022 and 2023. The Cypriot financial sector also performed well during the COVID-19 crisis and significant further progress was achieved in reducing non-performing loans (NPLs). Cyprus continues to have a sizeable liquidity buffer and benefits from ‘investment grade’ ranking by three major rating agencies.

Ireland‘s economy is expected to continue to grow strongly, though the Russian invasion of Ukraine poses new challenges, including general uncertainty, additional inflationary pressures and new supply bottlenecks, as well as lower growth in Ireland’s trading partners. The outlook for the public finances is favourable, also thanks to buoyant tax revenues. Irish banks recorded sound results for 2021 and remain on a stable footing despite the pandemic. Overall, downside risks prevail.

Spain‘s economy remains on a recovery path despite the disruptions prompted by Russia’s invasion of Ukraine. More dynamic tourism activity and the implementation of the recovery and resilience plan are expected to sustain economic growth over the forecast horizon, while targeted policy response could help moderate energy prices and mitigate the impact of Russia’s invasion of Ukraine on vulnerable households and on the most exposed economic sectors. The very dynamic performance on the revenue side is driving the recovery of the government balance. Nonetheless, downside risks are predominant given the context of large global instability and uncertainty. The Spanish banking sector has remained resilient during the pandemic and the level of NPLs moderate.

Portugal‘s economy has continued to recover at a strong pace, rising beyond its pre-pandemic level in the first quarter of 2022. Growth is expected to continue at a sound pace, helped by the improved outlook in the tourism sector. Public finances have benefited from the recovery and the public deficit turned out significantly below government plans in 2021 and supports the expectation of a comparatively favourable budgetary outlook for 2022. The government debt-to-GDP ratio is set to move below its pre-pandemic level in 2023. The banking sector has improved its profitability, while solvency rates have remained stable after the end of most credit moratoria in September 2021. Overall, the economic outlook remains favourable but the balance of risks has moved to the downside.

What is the current economic and employment outlook?

After the soft patch at the turn of 2021, the EU economy entered 2022 with the prospect of a vigorous expansion over this year and the next. The Russian invasion of Ukraine and the related heightened uncertainty, however, has forced a reassessment of the economic outlook.

According to the Spring 2022 Economic forecast, real GDP growth in the EU is set to slow from an estimated 5.8% in 2021 to 2.7% in 2022 and 2.3% in 2023. Inflation is expected to be higher and remain high for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures. For 2022, it is projected at 6.1% and 2.7% in 2023. While the new growth outlook is considerably less bright than projected before the invasion of Ukraine, it still implies economic expansion, adding momentum to the comfortable starting position upon entering the crisis and the crucial support provided by the full deployment of the RRF. At the same time, the unprecedented nature and size of the new shocks makes all projections subject to considerable uncertainty.

The COVID-19 crisis has affected sectors, regions, and population groups unevenly, and revealed underlying vulnerabilities. Over the past year, the labour market has rallied. By the fourth quarter of 2021, the employment rate had reached 74.0%, surpassing the pre-pandemic level at the end of 2019 by 0.6 pps. The unemployment rate decreased to 6.2% in March 2022 (1.3 pps less than one year before), with substantial support from short-time work schemes and other job retention measures during the peak of the crisis. Over the same period, the monthly youth unemployment rate declined by 4.2 pps to 13.9%, reaching the lowest level ever recorded.

What is included in the proposal on guidelines for employment policies?

This year’s Commission proposal for the employment policies of the Member States for 2022 aligns the narrative to the post-pandemic environment, bringing in more elements related to making the green transition socially fair, as well as reflecting recent policy initiatives of particular relevance, notably in the context of the Ukraine crisis.

For example, the proposed revisions to the Employment Guidelines:

• take into account the post-pandemic environment, with flexible working arrangements, such as telework;
• incorporate recent policy developments, such as the European Child Guarantee and improving working conditions for people working through digital labour platforms;
• underline the need to redouble efforts to address labour shortages and skills mismatches through skills policies and lifelong learning; emphasise the importance of a fair energy transition and policy measures to mitigate its social impact;
• refer to support for labour market access and social integration of people fleeing the war in Ukraine; and
• underline the importance of support measures for vulnerable households in light of the increase in energy prices and cost of living.

The Guidelines link actions to thethree EU headline targetson employment, skills and poverty reduction for 2030 as agreed by EU Leaders at the Porto Summit in 2021, and underline the importance of ambitious national targets.

What lessons can be drawn from the analysis of the EU’s progress in implementing the UN Sustainable Development Goals (SDGs)? How have the SDGs been taken into account in the Spring Package?

The Commission remains committed to integrating the United Nations Sustainable Development Goals (SDGs) into the European Semester. It provides the opportunity for taking a comprehensive look at progress towards EU targets as well as globally shared objectives. The Commission does so along the four dimensions of competitive sustainability, i.e. macroeconomic stability, aspects of environmental sustainability, productivity and fairness.

The 2022 European Semester cycle provides updated and consistent reporting on progress towards the achievement of the SDGs across Member States. Specifically, the country reports summarise the progress of each Member State towards implementation of the SDGs, and include a detailed annex, based on the monitoring carried out by Eurostat.

The country reports will also make reference to the recovery and resilience plans of the 24 Member States which have been adopted by the Council. The support provided under the RRF underpins a significant number of reforms and investments that are expected to help Member States make further progress towards the SDGs.

While progress has been observed in past years with regard to almost all SDGs, there are areas where more needs to be done. This includes, for example, combatting climate change and its impacts (SDG13).

The Commission will continue to monitor the effects of the COVID-19 pandemic and the current geopolitical situation on progress towards achieving the SDGs.

What are the main findings of Eurostat’s report on progress in the implementation of the UN Sustainable Development Goals in the EU? 

The EU made progress towards most goals (14 out of 17 SDGs) over the last five years of available data. The EU continued to make the most progress towards fostering peace and personal security within its territory and improving access to justice and trust in institutions (SDG 16), followed by the goals of reducing poverty and social exclusion (SDG 1) as well as the economy and the labour market (SDG 8).  The assessment of EU progress for the goals on partnerships (SDG 17), clean water and sanitation (SDG 6) and life on land (SDG 15) is broadly neutral, meaning they are characterised by an almost equal number of sustainable and unsustainable developments.

What are the next steps in the European Semester process?

The Commission calls on the European Council to endorse and on the Council to adopt the Commission proposals for the 2022 CSRs. The Commission also calls on Member States to implement the recommendations fully and in a timely manner, in close dialogue with their social partners, civil society organisations and other stakeholders at all levels.

For more information

Press release – European Semester Spring Package: Sustaining a green and sustainable recovery in the face of increased uncertainty 

Communication on the main elements of the European Semester Spring Package

Country reports for the 27 Member States

Country-specific recommendations (CSRs) for the 27 Member States

Report under Article 126(3) of the Treaty on the Functioning of the EU

Opinions on the draft budgetary plans of Germany and Portugal

Fourteenth enhanced surveillance report for Greece

Post-programme surveillance reports forCyprus,Ireland,SpainandPortugal

Proposal for a Council Decision on guidelines for the employment policies of the Member States

Monitoring report on progress towards the UN Sustainable Development Goals in an EU context.

Spring 2022 Economic Forecast

The REPowerEU Plan

The Versailles Declaration

NextGenerationEU