EU Recovery Fund Drives Economic Growth with Future Benefits Ahead

Impact of the EU Recovery Fund on Economic Growth

By Jan Strupczewski

Immediate Effects of the Recovery Fund

BRUSSELS, Jan 29 (Reuters) - The European Union's economy is likely to be 1.4% bigger this year following the cumulative effect of investment and reforms implemented since 2021 under the EU pandemic recovery fund, Economic Commissioner Valdis Dombrovskis said on Thursday. 

Long-term Growth Projections

The 800 billion euro ($956 billion) fund, called the Recovery and Resilience Facility, was launched in 2021 to counter the economic slump caused by the COVID-19 pandemic, to maintain investment and to modernise the economy by making it greener and more digital. It will expire in August. 

Country-Specific Outcomes

"The aim at the time was clear: to support Europe's economic recovery faster in the short-term and to become stronger and more resilient in the long-term. The RRF has delivered on both fronts," Dombrovskis told a seminar.

"The RRF had an immediate positive impact at its creation: on spreads, on economic confidence and, subsequently, on public investment levels," he said.

"According to our modelling, RRF investments have the potential to increase real GDP in the EU by up to 1.4% in 2026," Dombrovskis said.

Money from the fund, a mix of grants and cheap loans, comes from joint borrowing by the EU. To get it, each government has to implement reforms agreed with the European Commission and disbursements are linked to reaching milestones and targets.

That link helped improve the implementation of various European Commission policy recommendations, Dombrovskis said. The EU executive issues such recommendations every year, but governments often ignore them. 

"By June 2025, almost 80% of the relevant recommendations – those adopted in the two years preceding the introduction of the RRF – recorded at least some progress," Dombrovskis said.

"By comparison, before the RRF, only 62% of the recommendations that were relevant at the time had recorded at least some progress, over a comparable period of time," he said.

"Of course, the full impact of reforms is difficult to quantify for the moment and will only play out in the longer run," he said.

Italy, Spain and Poland were among the countries that received the most money from the recovery fund and their growth rates reflected that, Dombrovskis said.

"Average GDP growth in Italy, Spain, Poland, Croatia and Greece was over 4% in the period from 2021 to 2024, significantly outpacing the EU average growth rate," he said.

But he noted that some EU countries that had smaller recovery fund allocations, like Germany, the Netherlands, Ireland and Austria, still recorded benefits twice as big as the amount of money they were getting from the EU thanks to investments financed through the plans of others.

"The spillover effects account for around 40% of the RRF's total economic impact," he said.

($1 = 0.8368 euros)

(Reporting by Jan Strupczewski; Editing by Kirsten Donovan)