In most European countries, the structural primary deficit should shrink next year. This reduction represents a negative fiscal impulse, raising concern that it would act as a headwind to growth. However, the level of the primary deficit is such that it still corresponds to an accommodative fiscal stance. Taking into account national fiscal policies as well as expenditures financed by the Recovery and Resilience Facility and other EU grants, fiscal policy in the euro area should have a significant positive impact on GDP growth next year, thereby accompanying and strengthening the ongoing recovery. In addition, it should enhance the effectiveness of the ECB’s accommodative policy.
Our different uncertainty gauges are complementary, in terms of scope and methodology. Based on the latest readings, several uncertainty gauges show a slight increase. This reflects a combination of ongoing supply disruption and bottlenecks but also and in particular, renewed concern about the pandemic, considering the significant rise in several countries of infections with the Delta variant and concern about the Omicron variant.
The rising trend in prices in the USA is far from over and has become a real focus of attention. In November 2021, inflation was 6.8% year-on-year (yy), its highest level since June 1982. Although soaring energy prices (up 33% yy) contributed to the increase in the cost of living, as in previous months, these were no longer the sole cause. Even stripping out energy and food, inflation was still 4.9% in November, another record. Having risen by 3.9% yy, rents, which represent the main item of expenditure for households (33% of the index), are beginning to have a significant effect. Far from being anecdotal, their increase has accelerated month after month in the wake of the surge in real estate prices
The ECB’s meeting on 16 December is highly anticipated, primarily for the central bank’s new growth and inflation forecasts. When it comes to growth, the ECB’s September forecast was for annual average growth of 5% in 2021, 4.6% in 2022 and 2.1% in 2023. It could leave its 2021 forecast unchanged, with the positive figures for Q3 offset by a less positive view of Q4, due to the effect of supply constraints, inflationary pressures and a resurgence of the pandemic. Growth in 2022 will be weakened by the same factors. The scale of the forecast downward revision will indicate the level of the ECB’s concerns. It will also be interesting to see whether any growth ‘lost’ in 2022 will be shifted, in part at least, into a higher forecast for 2023.
Weekly numbers of new Covid-19 cases have continued to rise in most regions of the world. The biggest jump (81%) in weekly numbers was in Africa, particularly in southern Africa where the number of cases is soaring with the emergence of the Omicron variant. The continent was followed by North America (16%) and Europe (3%). Infection numbers in Asia fell by 6% and stabilised in South America. Meanwhile, 320 million booster doses were administered around the world, half of them in high-income countries. To date, 55.2% of the world’s population has now received at least one dose of a Covid-19 vaccine.
