Three significant challenges for the eurozone in 2022

From fiscal reforms to wage growth to inflation; these are three significant challenges for the eurozone in 2022, according to economists at ING.

Still no fiscal reforms but silent power shift towards Brussels

“We do not expect changes to the numerical fiscal rules but a shift towards a more pragmatic country-specific approach, balancing between debt sustainability and the need for investments. In the meantime, the frontloading of investments planned by the new German government will find many eurozone followers, postponing any austerity to 2023.”

Expect a rebound in wage growth for 2022

“Labour shortages have returned far quicker than expected, improving workers’ bargaining power. The soaring inflation rate has already and will continue to result in higher wage demands from unions, while countries with inflation indexation will automatically see wages rise. Finally, strong profits give corporates room to increase salaries. We expect an increase to 3-3.5% in 2022, which is above the peak seen in 2019.”

Inflation will fall below 2%, but the ECB’s medium-term target will be met

“We agree with the ECB that the disappearing effect from the German VAT increase in 2021, an improvement of supply chain disruptions and a more favourable base effect for energy prices are likely to push inflation towards 2% in the second half of 2022. However, the output gap in the eurozone will turn positive next year and will be significantly marked in 2023 and beyond. The ECB’s staff forecasts from December 2022 are likely to show an inflation rate of around 2% over the forecasting horizon, a backdrop that would justify an initial rate hike in the first half of 2023.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.