OECD Economic Surveys of the European Union and the Euro Zone 2021 - Presentation

2021 OECD ECONOMIC SURVEYS OF THE EURO AREA AND THE EUROPEAN UNION For a stronger, innovative and greener Europe September 10th , 2021

@OECDeconomy @OECD

https://www.oecd.org/economy/euro-area-and-european-union-economic-snapshot/

Key objectives

A strong and resilient recovery

Greener and more innovative growth

A more cohesive European Union and Euro Area 2

Three main avenues for a strong and resilient recovery Keep fiscal and monetary policy support in place until the recovery is firmly established

Make the best use of Next Generation EU funds

Implement the Green Deal to move towards carbon neutrality 3

Policy challenges for a strong and resilient recovery

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Europe has been hit hard by the pandemic GDP, % change in 2020

Source: OECD (2021), OECD Economic Outlook: Statistics and Projections (database) 5

Fiscal policy has been swifter and bolder than in the past Change in the underlying primary balance, % Public finances of the EA17

Note: Data refer to European Union member countries that are also members of the OECD (22 countries).Source: OECD (2022), OECD Economic Outlook: Statistics and Projections (database).

6

Substantial monetary support helped cushion the shock Central bank total liabilities, % of GDP 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0

Euro area United States Japan

2007

2009

2011

2013

2015

2017

2019

2021

Source: Statistical Data Warehouse, European Central Bank; Refinitiv (2021), Datastream Database and OECD (2021).

7

The EU has reached a high vaccination rate People fully vaccinated, %, major OECD economies 2021

Note: This represents the share that have received all doses prescribed by the vaccination protocol.

Source: Our World in Data (2021) from official data.

8

The recovery is set to firm up Annual percentage change

2019

2020

2021

2022

Gross domestic product

1.3

-6.7

5 – 5.5

4.25 –4.75

Headline inflation

1.2

0.3

2 – 2.5

1.25 – 1.75

Source: Update of the June OECD Economic Outlook (as of 06/09/21).

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Core inflation remains moderate A. Inflation

Euro Area, year-on-year, % change

B. Wage growth

Euro Area, year-on-year, % change

Note: 1. Harmonised indices of consumer prices; core inflation excludes energy, food, alcohol and tobacco.

2. based on the difference between 5-year and 10-year inflation swaps.

Source: Eurostat (2021), "Harmonised indices of consumer prices", Eurostat Database and Thomson Reuters (2021), Refinitiv Database; ECB (2021), Statistical Data Warehouse.

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EU growth lags US growth Gross Domestic Product Index, 2000 = 100

Source: OECD (2021), OECD Economic Outlook: Statistics and Projections (database).

11

Large regional disparities persist

Source: OECD (2020), OECD calculations based on data from the OECD Regional Statistics (database).

12

The gap between metropolitan and remote regions is very wide Distribution of small (TL3) regions by quartile of GDP per capita, 2016, %

.

Source: OECD (2020), OECD calculations based on data from the OECD Regional Statistics (database).

13

Next Generation EU (NGEU) is an opportunity for radical change Recovery and Resilience Facility grants (% of 2019 GDP)

14

NGEU can spur digitalisation, for instance by reducing disparities in broadband availability Households with minimum 30 Mbps of fixed broadband coverage, as percentage of all households in total and rural areas, 2018 Rural

Total

(per regional income level, in constant USD PPPs)

100

100

NLD

BEL

LUX

IRL

LVA

USA

CAN

DNK

PRT

DEU

HUN

SVK

CZE

EST

SVN

EU27

0

AUT

0

GRC

20

ESP

20

FRA

40

ITA

40

SWE

60

POL

60

LTU

80

FIN

80

OECD calculations based on CRTC (2019), Communications Monitoring Report 2019 (Canada), European Commission (2019), Study on Broadband Coverage in Europe 2018 (European Union) and FCC (2019), 2019 Broadband Deployment Report (United States).

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NGEU should also support R&D, including in poorer EU regions R&D investment, % GDP, 2017 (per regional income level, in constant USD PPPs)

Source: OECD (2020), OECD calculations based on data from the OECD Regional Statistics (database) and Eurostat Regional Economic Accounts (database); OECD (2020), OECD Main Science and Technology Indicators - MSTI (database).

16

NGEU should also support investment in better European interconnections Electric energy: import capacity in % of net generation capacity

Source: ENTSOE-E Winter Outlook (2019-2020), https://www.entsoe.eu.

17

Achieving a strong and resilient recovery Keep monetary and fiscal policy support until the recovery is firmly established.

Swiftly implement national recovery plans to deliver structural reforms and sound investments.

Evaluate the fiscal framework to better ensure sustainable public finances, counter-cyclicality and ownership.

Assess how SURE and Next Generation EU can contribute to the improvement of the Euro Area architecture.

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Moving towards climate-friendly growth

19

Climate-related risks are on the rise Number of extreme weather events

Source: Munich Re. 20

Reaching emissions targets requires more efforts Emissions of greenhouse gases

Source: Eurostat (2020). Targets for 2030 and 2050 are represented in an approximate way, since they are defined in terms of net emissions while the figure shows gross emissions.

.

21

Carbon prices in the EU Emissions Trading System have risen recently Carbon prices, primary market auctions EUR/tCO2, spot price

Source: Thomson Reuters, Refinitiv Database.

22

Reducing emissions in transport should be a priority Emissions of greenhouse gases Index 1990 = 100

Source: Eurostat (2020), “Greenhouse gas emissions by source sector”, Eurostat Database, European Environmental Agency.

23

Carbon pricing should be extended across sectors, in combination with other measures Effective Carbon Rates

Average by sector and energy category

Source: OECD (2021).

24

Moving towards carbon neutrality Increase the EU Emissions Trading System coverage Strengthen regulatory standards for energy efficiency Make all new cars zero-emission from 2035 25

Fostering cyclical convergence in the euro area

26

Common fiscal tools can help smooth shocks EU disbursement of SURE loans by country (billion EUR)

Source: European Commission. The EU programme SURE can provide financial assistance in the form of loans from the EU to Member States to address sudden increases in public expenditure for the preservation of employment in the context of the pandemic.

27

Integration of the EU financial system has slowed Cross-border positions of euro area banks in the euro area, billions of USD 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Source: BIS international Banking Statistics.

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Insolvency regimes vary significantly across European countries 3.0

3.0 Personal costs to failed entrepreneurs

Lack of prevention and streamlining

Barriers to restructuring

EST

HUN

NLD

CZE

BEL

LTU

SWE

POL

LVA

ITA

EA²

SVK

GRC

0.0

OECD

0.0

AUT

0.5

PRT

0.5

SVN

1.0

IRL

1.0

FIN

1.5

ESP

1.5

DEU

2.0

DNK

2.0

FRA

2.5

GBR

2.5

Source: Andrews, D., M. Adalet McGowan and V. Millot (2017), "Confronting the zombies: Policies for productivity revival", OECD Economic Policy Papers, No. 21, OECD Publishing, Paris.

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Improving the functioning and resilience of European financial markets Complete the Banking Union

Facilitate the disposal of bank NPLs

Step up convergence in insolvency regimes 30

Other key recommendations of the EU and EA surveys

31

Achieving a strong and resilient recovery Improve fiscal policy by strengthening independent fiscal institutions and medium-term budgetary frameworks.

Invest in European interconnections, such as electricity grids and infrastructure for electric cars.

Remove barriers to private investment by simplifying licensing procedures.

32

Moving towards a climate-friendly economy Require comprehensive disclosure of climate and environment-related risks by financial intermediaries and large non-financial firms Increase the use of digital tools to provide information on the recycling and repair possibilities of products

33

Upgrading the productive specialisation of regions Promote cross-country collaboration in R&D and in innovative industrial projects Devote more cohesion funds in poorer regions to R&D projects Make more regions benefit from agglomeration economies, through reduced travel time to large cities and better ability to telework Adjust competition rules and enforcement to new challenges: • closely review and prevent “killer acquisitions” • develop new tools to address distortive foreign subsidies • increase competition in digital markets

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Making more efficient use of the EU budget to enhance the productivity of regions Make public procurement more competitive by increasing the centralisation of procurement and the professionalisation of officials Ensure compliance with procurement procedures

transparency

requirements

in

Further adopt competitive project selection procedures, with an emphasis on projects’ contribution to regional growth objectives Step up prevention and detection of fraud and corruption involving cohesion funds .

Improve coordination between rural development policy and cohesion policy 35

Making labour markets more resilient to the economic cycle Encourage member states to reinforce job retention schemes in case of a temporary economic shock, together with training Encourage member states to enhance activation policies

Extend cross-border recognition of professional qualifications.

Complete the implementation of the Electronic Exchange of Social Security Information

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For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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