The assessment of the NGEU funds’ impact on the European economy involves more than simply tracking milestones set within the Recovery and Resilience Plans (RRPs). The geopolitical landscape complicates this evaluation, pushing us to understand not just implementation but also the funds’ broader economic transformation potential.
The European Commission has undertaken two significant assessments of the Recovery and Resilience Facility (RRF), projecting a 2026 GDP increase ranging from 0.7% to 1.4%. However, these forecasts have already become outdated due to slower-than-expected implementations. The ECB has revealed that the real impact on the GDP from 2021 to 2023 was only about 10 to 20 basis points, falling short of earlier projections.
In terms of future implementation, there’s uncertainty regarding the absorption of funds by the 2026 deadline. The actual demand for loans, aimed at stimulating the private sector, remains ambiguous. Although the European Commission predicts a cumulative GDP impact of only 0.3% to 0.7% by 2031, many question the transformative potential of this fiscal boost.
On the reform side, there’s consensus that the proposed reforms could enhance GDP and foster growth. Yet, illuminating the time scales and quantitative impacts is essential to gauge their contribution to climate, energy, and social goals by 2030. The ex-post evaluation planned for 2028 could provide critical insights into these matters.
Since the inception of NGEU funds, significant political and geopolitical changes have unfolded. Growing Euroscepticism complicates European cooperation and challenges progress on the critical issues like the upcoming financial framework negotiations and the competitiveness plan driven by the Draghi report. This shifting terrain complicates the path forward for the transformative effects envisioned by the RRPs.
As global dynamics evolve further, including the implications of the Ukraine conflict and new U.S. administration policies, the NGEU programme may confront redefined spending priorities. Reduced fiscal space among Member States necessitates flexibility and consensus to uphold the ambitious objectives established in 2020, ensuring that the transformative vision of the NGEU funds remains intact.
The NGEU funds’ impact on the European economy is mired in complexity as assessments struggle to quantify their true macroeconomic effects. The European Commission projected GDP growth from the funds between 0.3% and 1.4%, but slower implementations have made these estimates questionable. Political shifts towards Euroscepticism and an evolving geopolitical environment further complicate the future of these funds, necessitating adaptability and strategic prioritisation to achieve their transformative aims by 2030.
The NGEU funds present a complex landscape of anticipated economic impact, potential reforms, and evolving geopolitical challenges. Despite initial optimistic forecasts on GDP growth, realities have shown a murkier picture, highlighting the slow implementation rates and the potential for limited macroeconomic effects. Moving forward, addressing these uncertainties and strategically prioritising spending will be crucial to achieving the transformative goals of NGEU amidst a changing global landscape.
Original Source: www.caixabankresearch.com
