Week Ahead (24 April)

Wednesday, 26 April – European Commission to table its proposal to reform EU fiscal rules

The European Commission is likely to table its proposal to reform the EU’s fiscal rules on Wednesday. Last November, the European Commission adopted a Communication outlining orientations for a reformed EU economic governance framework, aiming to strengthen debt sustainability while enhancing inclusive growth through investment and reforms. The current rules defined by the Stability and Growth Pact set a 60% limit on governmental debts of national GDP and have been suspended since 2020. However, the war in Ukraine has dimmed the prospects of a rapid post-pandemic economic recovery in Europe, forcing the Commission to reassess the reform of the Stability and Growth Pact.

The proposed reforms to EU spending rules mark a shift away from the current one-size-fits-all approach to debt reduction. The move towards a more tailored approach, based on each country's specific debt sustainability analysis, represents an attempt to provide more flexibility and accuracy in addressing individual countries' fiscal challenges. This is particularly the case for countries with high debt-to-GDP ratios such as Greece, Italy, and Portugal. Yet, there is an ongoing debate over numerical benchmarks. There are currently two opposing views expressed by member states on fiscal reform, one prioritising the reduction of sovereign debt, expressed by Germany and the so-called ‘’frugal states’’, such as Netherlands, Austria, and Sweden, and one emphasising growth, expressed by France, Belgium, and members of the European south. Germany’s proposal for a mandatory annual debt reduction of 1% for high-debt countries is indicative of the challenges of balancing national interests with the wider EU objectives.

This week’s proposal is expected to kick off a lengthy debate among finance ministers in the euro area, with fiscal rules likely to be changed from 2024 onwards. Once agreed, the new plan will have to be approved by a majority vote in the Council.

Wednesday, 26 April – Eurostat to release energy data in the EU for the second half of 2022

On Wednesday, Eurostat will release key energy data for the second half of 2022, in particular electricity prices, natural gas prices, and overall energy prices.

In the first three quarters of 2022, natural gas prices in Europe rose to unprecedented levels, while oil also came close to its all-time high of $147. Prices at the TTF (Title Transfer Facility), the main reference virtual market for gas trading in Europe which is based in Amsterdam, reached €349 MWh in August, before starting to gradually decrease. Their decline in Q4 2022 is largely thanks to the EU’s significant progress in filling its gas storage capacity, reaching 94.8% of its maximum capacity in late November. In February, gas prices fell to their lowest level since September 2021 and today’s wholesale gas prices are around €40 per MWh.

The EU has now achieved record levels of natural gas storage due to a milder than expected winter. According to the latest estimates, the bloc's storage capacity was at 55.7% at the beginning of this month, the highest level for early April since at least 2011. This is also around 20% higher than the average for the previous five years. Latest forecasts suggest that the bloc will be able to meet its goal of refilling gas storages to 90% by November 2023 with relative ease. More specifically, most recent estimates suggest that the storage target could be met as early as August, indicating that the EU would most likely survive next winter without severe harm, despite China, the world’s largest LNG importer, exiting its zero-covid policy last January.

Nevertheless, a resumption of reduced gas consumption is a precondition for next winter. To that end, the 15% voluntary target of cutting gas demand, introduced last August, has been extended for another 12 months beyond its expiration date of 31 March 2023.

Wednesday, 26 April - Deadline for the UK CMA to issue its final decision on Microsoft’s acquisition of Activision Blizzard

The Competition and Markets Authority, the UK antitrust watchdog, is scheduled to issue its final decision on Microsoft’s proposed $69 billion acquisition of Activision Blizzard on Wednesday.

It is expected that the CMA will approve the acquisition after recently reversing its position against it. On 24 March, the CMA announced that it would narrow the scope of the investigation, stating that the deal would not harm competition or the video game industry.

This U-turn is a significant development in one of the CMA’S most high-profile cases since the UK’s departure from the EU. However, the regulator still has concerns about the nascent cloud gaming sector's impact and is anticipated to propose remedies to address these concerns. Microsoft is expected to accept these remedies, allowing the acquisition to proceed. The EU is also examining the deal's impact on cloud gaming in a separate investigation. The deadline for the European Commission’s own final judgment is on 22 May.

Since its announcement in January 2022, Microsoft has repeatedly pledged to sustain major Activision Blizzard franchises on rival platforms for the near future. However, the takeover deal, which, if successful, would be the biggest gaming acquisition in history, has drawn broader regulatory scrutiny. In December, the Federal Trade Commission (FTC) in the U.S sued to block the deal over its potential harm to the video games industry, arguing that Microsoft has a track record of buying companies and restricting access to popular titles. Other countries where regulators are reviewing the deal are Australia, New Zealand, Japan, and South Korea.

Friday, 28 April - Preliminary flash estimate of GDP for EU and eurozone in Q1 2023 to be released

On Friday, Eurostat will release its preliminary flash estimate on GDP in the EU and the eurozone for Q1 2023. In Q4 2022, the eurozone economy unexpectedly grew by 0.1%, managing to avoid a technical recession despite the impact of high energy prices and the negative growth rates recorded in Germany and Italy.

However, Eurozone is forecasted to perform better than originally projected in 2023, largely thanks to lower energy prices. In February, the European Commission revised upward its own forecast predicting 0.9% growth in the euro area, instead of the 0.3% predicted last November. This week’s release of preliminary data will indicate whether a slow recovery is underway, in line with the Commission’s latest forecast for 2023.

Nevertheless, the Commission’s revised growth forecasts rely on the technical assumption that Russia’s aggression against Ukraine will not further escalate. Moreover, regardless of the volatility of energy prices, the overall geopolitical uncertainty, coupled with ongoing monetary policy tightening could set the eurozone’s sluggish economic growth in the coming months at risk.