MNI BRIEF: Fiscal Support Adds 0.8% To Inflation Over 5Yrs-ECB

EU fiscal support in response to the energy crisis will add 0.8% to eurozone HICP inflation over the period 2020-25, while adding around 2.5% to GDP, according to the latest ECB Economic Bulletin.

Measures are likely to amount to a gross stimulus equivalent to 2% of GDP in both 2022 and 2023, with only 12% of discretionary fiscal measures targeting vulnerable households and firms directly affected by rising gas and electricity prices.

Support of around 0.5% GDP will remain embedded even if, as expected, that support is largely withdrawn over the course of 2024, with additional withdrawal in 2025 bringing the estimated budget cost down to 0.2% of GDP. The euro area debt to GDP ratio is anticipated to fall by close to 5% overall in 2024.