With its €750 billion Next Generation plan, the EU aims to repair the damage that Covid-19 wrought and reset economic growth onto a higher and more sustainable path. How powerful is the plan? S&P Global Ratings estimates that Next Generation EU could add as much as 4.1 percent to GDP by 2026, according to a high-impact scenario. In a low-impact scenario, S&P believes the plan could add 1.5 percent to the EU's output by that time.
“Our scenario approach makes specific assumptions about these economic levers: the multiplier effects of public spending, the deployment of funds available, the timing of the implementation of the plan, and the absorption rates of EU funds in each country. The two scenarios combine these levers differently to understand the potential impact of the EU fiscal stimulus on growth (see box 1 for details). Yet, we acknowledge the difficulties of estimating the economic impact in the five years ahead because of uncertainties about the plan's implementation. We assume the funds will be spent from mid-2021, though delays are likely,” the report reads.
“We view the plan at the EU level as supportive of European sovereigns' creditworthiness, though national governments' ability to implement structural reforms hinges on the unwinding of economic imbalances that have worsened because of the pandemic,” S&P stated.