Europe's Cautious Fiscal Response to the Energy Shock

Euro area governments have adopted a cautious fiscal stance toward the energy shock resulting from Middle East tensions, spending only 0.1% of GDP on support measures. Meanwhile, markets have rallied on hopes for conflict de-escalation despite softening PMI data.

Key Takeaways

• 1.Euro area governments have committed only 0.1% of GDP to counter current energy shocks, a significant drop from the 3% spent in 2022-23.
• 2.Current energy support is largely untargeted (70%), which risks distorting price signals and weakening incentives to curb energy demand.
• 3.Eurozone PMIs are expected to decline to 48.5 in May, signaling a contraction in economic activity due to Middle East tensions.

Table of Contents

• MUTED RESPONSE TO THE ENERGY SHOCK SO FAR
• THE CONTEXT
• THE DATA
• OUR VIEW
• OTHER THINGS TO NOTE
• TODAY'S DATA RELEASES
• Legal Notices

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