00:00Commissioner Valdis Dombrowski for the economy within Europe and of course
00:03productivity and great many of the other goals that we're trying to achieve here
00:06economically and Europe we've just come out with your spring forecast I'd like
00:10to get your overall view we've been talking about the stagflationary dynamic
00:14as a consequence of the war in Iran the economic consequences for Europe what
00:18are as at your current appraisal the economic consequences for Europe and how
00:22far down that stagflationary path are we good afternoon indeed today we
00:27presented European Commission's spring economic forecast and it basically
00:34confirms what we saw coming which is stagflationary shock to European economy
00:40meaning a simultaneous slowdown of economic growth and increase in
00:45inflation in terms of economic growth we foresee now 1.1% growth in the EU this
00:52year and 1.4% growth next year and so we see you know these are
00:57forecasts that I think are probably quite susceptible very vulnerable to change
01:00given obviously they're basically totally dependent on a war that's going on
01:04geopolitically what are the different scenarios that you're sort of playing
01:08with that you're sort of assuming obviously the ECB has laid out a
01:11framework for us to think about how is the Commission thinking about it what do
01:13those scenarios look like yes so the baseline scenario which we presented today is
01:20is it's based on the futures markets prices for energy for oil and gas so we use those futures
01:32course as an assumption for for energy prices that's that's a baseline scenario but indeed we also did a
01:40scenario assessment what happens if the energy prices stay higher for longer how
01:47it affects European economy and basically the assumptions we used we see that the
01:54growth prospects for the EU are roughly halved both this year and next if this
02:02energy shock is longer and more pronounced but what I also find interesting within that
02:08downside scenarios and we're not talking about just a little bit of an increase
02:10in oil we're talking about a peak in oil at 180 dollars a barrel we're talking
02:14about 80 euro megawatt hours for gas so for that scenario at what point do you
02:19think we start getting close to downside scenario if we get to say through July
02:23through August we start to go towards the winter is that when you think we
02:26would be operating in the downside scenario well our main scenario still remains a
02:35baseline scenario and that's based as I was mentioning on on the futures markets
02:41prices this scenario analysis is just using some assumptions to just to just to
02:48do the economic modeling what happens if the prices stay longer at the higher level so
02:56it's entirely market pricing rather than saying hey listen if this war is still
02:59going on the straight is still blocked in September we assume then we'll be in the
03:03downside we're just going to be dependent on basically what the futures market is
03:06telling us well obviously we will continue to monitor the situation and
03:11adjust as situation develops so that's our forecast right now that it will be
03:16using also for our macroeconomic and fiscal governance framework for a European
03:23semester cycle next months and so on and if we get towards that downside scenario do you
03:28think that that reopens a conversation about potentially escape clause and debt
03:32rules and the European Union particularly when it comes to supporting the economy when
03:36it comes to energy well first of all we are seeing that European economy is
03:43proving resilient to this energy shock because even in those more negative
03:48scenarios we expect economic growth in the EU to continue so as regards a policy
03:56response our recommendation is to stick with a temporary and targeted response
04:04measures and also the ones which do not drive up as a demand for fossil fuels because what we are
04:10facing is a
04:11supply shock so if we just stimulate a demand we sustain higher global prices and spend lots of money for
04:19a little gain so that's why we need to be focused but also keeping fiscal sustainability
04:25considerations and so far I have the measures that have been rolled out by
04:28member states have they been in keeping with those three T's that they do you
04:31think that they've all been in line or there's some that have been concerning to
04:34you well we do this monitoring and I would say the measures we are seeing
04:42member states taking now on average are better designs and they were back in 2022 so
04:49we are learning some of the lessons from the crisis but still there is a scope for
04:54improvement in terms of the quality of the measures and how concerned are you
04:58that these sort of the risk posed to growth by the ECB and what it will be
05:01doing this year obviously the market pricing is sort of fluctuated on this in
05:05these particular forecasts that you've put out you're sort of anticipating a
05:08three percent rate for the ECB at the end of the year close to that which is a
05:12little bit further than the market is right now can the European economy handle a one
05:16percentage hike to rates by the end of the year is it sort of potentially a
05:20recipe for you know recession within Europe if we go well I hope to be a bit
05:25institutional here as European Commission we respect European central
05:29banks independence and that's obviously the central banks prerogative to set the
05:36interest rates but indeed we anticipate monetary tightening by ECB and also other
05:43central banks in the EU or at least so to say moving away from previously foreseen
05:51easing so it's it's clear that the central banks will help to respond to the higher
05:57inflation and we've seen some of the concern represented more recently in the
06:01bond market that's a concern is a reaction obviously to the what we're
06:04seeing in growth what we're seeing to increase expectations for inflation but
06:07it's also a reaction to what we're seeing fiscally and what we're seeing in
06:10terms of debt within the European Union how concerned are you about what we've
06:14seen in the bond market in the last couple of weeks well it's clear that we
06:17are operating in a very different interesting environment now than we had
06:22a couple of years ago like during the COVID we did broad based economic stimulus
06:27but we did it in an environment of roughly zero interest rates now interest rates
06:33are much higher thus our fiscal room of manure is more limited and that's another
06:41reason why we are emphasizing on the need for temporary and targeted fiscal
06:46measures to limit the fiscal implications but already know we forecast that the budget
06:53deficit in the EU in general is going to increase so from 3.1% of GDP last year to
06:593.5% this year and 3.6% next year and just a question about sort of financial
07:05market stability because it's something that I'm sort of observing over the
07:08last few days and talking to policymakers I mean we see this equity market in the
07:12United States that seems completely unbreakable to any kind of shock you know
07:16but maybe a sentiment shift in AI could bring that down rapidly at a time when
07:19you have stagflation in Europe rising yields you look at that and you say you
07:23know this market is positioned potentially for something quite untidy to
07:26happen well as this is also one of the risks we mentioned in our economic
07:31forecast if there is some readjustment in AI equity markets that may have a
07:38implicate financial implications around the world so this is one of the risks we
07:44also outline in our forecast and one of the last things we probably need in
07:48addition to the stagflationary shock in Europe is another trade war with the
07:51United States are you confident that we're going to get this trade deal
07:54enshrined into law and put forward before Trump's deadline of July the 4th
07:58well from the EU side we are committed to implement the agreement and expect the
08:03same from the US and as a fact that now EU member states and European Parliament
08:08have reached a political agreement on this EU US trade deal I think boats well
08:16that we'll be able to conclude this agreement quite soon and there's also a
08:23sense that we're putting some of our kind of political aims within the West for
08:27sale in interest of the economic aids I'm thinking particularly of sanctions on
08:32Russian oil we've seen the United States roll those back the UK as well do you
08:36think that that's too high a cost a cost to pay that sort of political price for
08:39that economic insulation well this is a topic we discussed earlier this week also
08:45as a G7 finance ministerial meeting where the message from the EU was very clear now
08:51it's not a time to ease sanctions against Russia because Russia unfortunately is a
08:56country which is benefiting from the war in Iran and having windfall profits due to
09:00higher energy prices so if anything we need to actually further tighten sanctions
09:06against Russia and that's that's a line we're holding and another sort of final
09:12questions I think that when we see these growth forecasts I mean growth in the
09:16eurozone will only reach about 1.2 percent by next year it's obviously still a
09:20fairly de minimis level of growth it puts more on focus kind of the long-term
09:25growth prospects of the European Union are we in a sort of red alert moment
09:28we've been talking about competitiveness now for more than a year what can we
09:31actually get over the line get moving in the next couple of months really turn
09:34that picture around well exactly what we see that the external environment is not
09:40conducive to growth so we need to look more in our internal drivers of growth and
09:48that's why we're very much emphasizing our competitiveness agenda removing barriers
09:54to the EU single market making progress with savings and investments union reducing
09:58and misty burden and all these work streams I would say are at different stages of
10:05development and we'll be seeing actually things maturing and us making further steps in
10:12the coming months well Commissioner Jombrowski thank you so much for your time today on the day that you put
10:16out your
10:16spring forecast for 2026 and of course 2027 thank you thank you
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