Review of fiscal and budgetary actions in 2021
- In the second year of the COVID-19 pandemic, European economies experienced a strong recovery. The most recent forecast by national Independent Fiscal Institutions (IFIs) in autumn 2021 anticipates real gross domestic product (GDP) to have grown by about 5% on average in 2021. The COVID-19 pandemic continued to have a substantial effect on public budgets in European economies in 2021. General government deficits were expected to narrow compared to 2020, but nevertheless be large at an average of 6% of GDP in 2021.
- While ongoing support measures were appropriate, national IFIs remained concerned about the adoption of non-COVID-related measures and significant structural increases in government expenditures, which were not offset by additional revenues.
Outlook for public finances in 2022
- European economies are expected to continue their recovery in 2022, albeit at a slower pace. According to the national IFIs’ autumn 2021 forecasts, they are projected to grow by about 4% on average.
- COVID-19-related fiscal measures and automatic stabilisers are expected to have a much smaller impact on government deficits in 2022 than in the previous two fiscal years. General government deficits are expected to narrow to an average of 3% of GDP in 2022.
- Some national IFIs have raised concerns about 2022 budgets, notably regarding the lack of agility in 2022 budgets to mitigate high uncertainty related to the COVID-19 pandemic, the abolition of national expenditure ceilings and the absence of comprehensive medium-term budget strategies.
Impact of COVID-19 fiscal response on public deficits
- The 25 European countries covered in this report have introduced over 1 000 budgetary measures to counter the effects of the pandemic. The total size of the fiscal measures amounted to 5% of GDP in 2020 and 4% in 2021, and is projected to reach 1% in 2022. The fiscal stimulus might increase further in 2022 if new measures are adopted or current support measures are extended.
- In general, national IFIs deem the fiscal response to COVID-19 appropriate. Nevertheless, they have several concerns over the impact of the adopted fiscal stimulus on GDP and the distribution of benefits, potential mistargeting of the fiscal stimulus and implementation difficulties.
National escape clauses
- Governments of most EU Member States that have an escape clause have these activated until the end of 2022, even though in many Member States pre-pandemic output levels were already reached in 2021.
- National IFIs are supportive overall of the prolongation of national escape clauses in 2022 due to the high uncertainty related to the pandemic’s development, but emphasise the need to return to a rules-based framework and to plan for the medium term.
Impact on IFI activities
- The COVID-19 crisis continues to have a large impact on the activities of national IFIs. The main challenges that national IFIs face in executing their tasks include: i) a high level of uncertainty about the pandemic and political decisions; ii) lack of government transparency; iii) lack of clarity on fiscal measures and escape clauses; and iv) insufficient resources.