ECB: Fiscal Measures Due to War to Add 0.4 Point to GDP, 0.1 Point to Inflation over Medium Term
2 August 2022
By David Barwick – FRANKFURT (Econostream) – The positive impact on growth and negative impact on inflation of fiscal measures taken by euro area countries in response to Russia’s war of aggression will be felt primarily in the current year, the European Central Bank said on Monday.
In a pre-release from the fifth economic bulletin of 2022, due out Thursday, the ECB reported that according to harmonised country-level simulations, the measures ‘could increase euro area GDP growth by about 0.4 percentage points and reduce HICP inflation (mainly by lowering energy price inflation) by just under 0.4 percentage points in 2022.’
‘In 2023, the impact on growth is estimated to fade, while the impact on inflation is expected to be broadly reversed’, the ECB continued. ‘In cumulative terms over the projection horizon, the total stimulus measures in response to the war are estimated to have an impact of almost 0.4 percentage points on overall growth and a limited impact of just over 0.1 percentage point on inflation.’
The simulations were subject to uncertainty, the ECB noted, with the HICP effect of fiscal measures depending for example on the extent to which subsidies impact prices. How the measures affect growth hinged on the short-term reaction of consumption and on the effect in one to two years of defence spending, it said.
As for the magnitude of fiscal measures taken by euro area member states as a reaction to Russian military aggression, this was near 1% of GDP this year, with three quarters of the volume intended to compensate for higher energy prices and the remainder related to defence expenditures and financing of the influx of refugees, the ECB said.