Russia’s war of aggression against Ukraine and rising trade tensions continue to slow down the European economy. Despite strong policy responses to external shocks, the near-term outlook is clouded by elevated uncertainty. Disinflation is progressing, but monetary policy should remain vigilant. Fiscal policy needs to make space for new spending needs, such as defence, but to ensure medium-term sustainability, fiscal prudence must continue. The new EU budget will need to involve both increasing budgetary resources and re-prioritising existing spending in areas such as cohesion and agricultural policy. A more integrated electricity market can help lower electricity costs and boost competitiveness through expanded cross-border interconnections, reduced electricity taxation, and stronger competition. Furthermore, enhancing productivity requires a more integrated Single Market with fewer regulatory barriers for firms to scale, compete, and innovate. Deeper capital markets will also be important for innovation and productivity. A strong state aid framework is vital to maintain a level playing field for productive firms to grow and drive structural change. Improving labour mobility will further support productivity.
SPECIAL FEATURE: STRENGTHENING PRODUCTIVITY AND THE SINGLE MARKET
