Macroeconomic and financial environment
Macroeconomic and financial environment
Global economic growth, at 3.4%, trailed its historical average as the outbreak of the war in Ukraine disrupted energy and commodity markets and China imposed fresh lockdowns to contain Covid-19. Rising inflation forced central banks around the world to tighten monetary policy.
Funding conditions for households, corporates, and sovereigns tightened as the European Central Bank began winding down its accommodative monetary policy. On the upside, member states benefitted from disbursements under the Next Generation EU instrument and labour markets remained resilient.
In early 2023, the outlook improved. Growth forecasts were revised upwards, and the most recent inflation data indicate that overall price pressures have started to recede. However, both food and core inflation are still increasing. Financial markets had a calm start to the year, but uncertainty about the growth and inflation outlook persists.
The fiscal guidance provided by the Eurogroup in March 2023, together with an ongoing discussion on changes to economic governance, will be instrumental in reducing uncertainty and anchoring expectations beyond 2023. Recent developments in the banking sector underscore the importance of implementing the common backstop and continuing to work on banking union as agreed by the Eurogroup.
