ECB: “Support against high energy prices in force until 2026”

Brussels – Aid to households and businesses will continue until 2026 due to the increasing utility bills. There will be a gradual reduction of the support measures launched due to the energy crisis following the Russian-Ukrainian conflict, but they will not disappear for another two years.  In a specific section of the Economic Bulletin dedicated to the subject, the European Central Bank tries to take stock of the situation. These are projections based on a conservative scenario, without considering new shocks in a global context still characterized by high uncertainty due to a conflict in the Middle East that risks expanding in the region and the ongoing war between Russia and Ukraine. The situation, however, should improve, based on available data and conditions:  around two-thirds of the support measures for households and businesses to combat high energy prices in force in 2023 are expected to expire in 2024 and another 20 percent in 2025. This means that the share of subsidies in proportion to total support “should decrease significantly in 2024 and will be negligible from 2025.” But this does not mean that the measures designed to combat high utility bills affecting consumption and production will disappear, as “the remaining measures are projected to stay in place in 2026.”

In any case, they will be minimized, ending the burden on the public accounts of eurozone member states at a time when several players, including the ECB itself, call for national fiscal consolidation of public accounts, put to the test first by the COVID-19 health crisis and by geopolitical tensions. In that sense, the good news is that lower energy prices have reduced the pressure on governments and the impact on government deficits and debt.

The ECB revised “downward” its projections for the cost of support to households and businesses for 2023. As energy prices are lower than projected at the beginning of 2023, the direct consequence, especially in accounting, is that this downward parabola in energy costs has made these measures less costly by about half a percentage point of Gross Domestic Product. The central bank estimates that these measures in response to high energy bills will amount to 1.3 percent of GDP in 2023, down from 1.8 percent.