‘Check against delivery’
Lieber Klaus Schwab,
Liebe Karin Keller-Sutter,
Your Majesties,
Presidents,
Prime Ministers,
Excellencies,
Ladies and Gentlemen,
The first quarter of the century has come to an end. And it has brought about a sea-change in global affairs. This century started with great expectations. 25 years ago, the era of hyperglobalisation was nearing its peak. As supply chains went global, hundreds of millions of people were being lifted out of poverty, especially in India and China.
In America, the dot-com boom was at its height, symbolising the optimism of a connected global economy in which technology was seen as an unambiguous force for prosperity and peace. With Russia making the G7 the G8, democracy was ascendent across the world, some even said it was the End of History for ideological struggle. In the European Union, our single currency, the euro, was about to bring our people and economies much closer together. The global economy reaped the dividends. And here in Davos, world leaders discussed how global cooperation, and technology could help the fight against poverty and disease. It was the promise of a more integrated and cooperative world.
25 years on, has this promise been fulfilled? Yes, the world today is still nearly as connected as ever. But it has also started fracturing along new lines. On the one hand, since the year 2000, the volume of global trade has doubled, although trade within regional blocs is now expanding faster than trade between them. It is common that a chip is designed in the US, built in Taiwan with European machines, packaged in Southeast Asia, and assembled in China. On the other hand, last year alone global trade barriers have tripled in value. International trade institutions have often struggled to address the challenges posed by the rise of non-market economies that compete by a different set of rules. Innovation continues to flourish, with advances in AI, quantum computing, and clean energy poised to change our way of life and work, but technology controls have also quadrupled in recent decades. Our supply chain dependencies are at times weaponised, as shown by Russia’s energy blackmail, or exposed as brittle when global shocks, such as the pandemic, emerge without warning. And the very interconnectors that bring us together, like undersea data cables, have become targets – from the Baltic Sea to the Taiwan Strait.
The cooperative world order we imagined 25 years ago has not turned into reality. Instead, we have entered a new era of harsh geostrategic competition. The world’s major economies are vying for access to raw materials, new technologies and global trade routes. From AI to clean tech, from quantum to space, from the Arctic to the South-China Sea – the race is on. As this competition intensifies, we will likely continue to see frequent use of economic tools, such as sanctions, export controls, and tariffs, that are intended to safeguard economic and national security. But it is important that we balance the imperative to safeguard our security against our opportunity to innovate and enhance our prosperity. In this spirit, we will need to work together to avoid a global race to the bottom. Because it is in no one’s interest, to break the bonds in the global economy. Rather we need to modernise the rules to sustain our ability to produce mutual gain for our citizens.
For us Europeans, the race begins at home. Europe has a unique social market economy. We have the second largest economy and the biggest trading sector in the world. We have longer life expectancy, higher social and environmental standards, and lower inequalities than all our global competitors. Europe is also home to immense talent, along with the proven ability to attract ideas and investment from across the world. Our capacity to invent and create is underappreciated – Europe’s global share of patent applications is on par with the US and China. But the world is changing. So must we. In the last 25 years, Europe has relied on the rising tide of global trade to drive its growth. It has relied on cheap energy from Russia. And Europe has too often outsourced its own security. But those days are gone.
To sustain our growth in the next quarter of the century, Europe must shift gears. This is why I asked Mario Draghi to deliver a report on European Competitiveness. And on that basis, next week the European Commission is presenting our roadmap, which will drive our work for the next five years. The focus will be to increase productivity by closing the innovation gap. A joint plan for decarbonisation and competitiveness to overcome skills and labour shortages and cut red tape. It is a strategy to make growth faster, cleaner and more equitable, by ensuring that all Europeans can benefit from technological change. And let me elaborate more on three foundations that will underpin this strategy.
First, Europe needs a deep and liquid Capital Markets Union. European household savings reach almost EUR 1.4 trillion, compared with just over EUR 800 billion in the US. But European companies struggle to tap into that and raise the funding they need because our domestic capital market is fragmented. And because that pushes money overseas: EUR 300 billion of European families’ savings are invested abroad – every year. That is a key issue holding back the growth of our tech start-ups and hindering our innovative clean-tech sector. We do not lack capital. We lack an efficient capital market that turns savings into investments, particularly for early-stage technologies that have game-changing potential. This is why we will create a European Savings and Investments Union with new European saving and investment products, new incentives for risk capital and a new push to ensure the seamless flow of investment across our Union. We will mobilise more capital to let made-in-Europe innovation and risk-taking thrive.
Second, we must make business much easier all across Europe. Too much of our top talent is leaving the EU because it is easier to grow their companies elsewhere. And too many firms are holding back investment in Europe because of unnecessary red tape. We need to act at all levels – continental, national and local. And we want to lead the way at the European level. For instance, we will launch a far-reaching simplification of our sustainable finance and due diligence rules. And we will make sure to create a conducive environment for our SMEs to scale up their capacity to build, produce and innovate in Europe. But I want to go even further than this. Today, the European Single Market still has too many national barriers. Sometimes companies are dealing with 27 national legislations. We will offer instead to innovative companies to operate all across our Union under one single set of rules. We call it the 28th regime. Corporate law, insolvency, labour law, taxation – one single and simple framework across our Union. This will help bring down the most common barriers to scaling up all across Europe. Because continental scale is our greatest asset in a world of giants.
The third foundation is energy. Before the start of Putin’s war, Europe got 45% of its gas supply and 50% of its coal imports from Russia. Russia was also one of our largest oil suppliers. This energy appeared cheap, but it exposed us to blackmail. So when Putin’s tanks rolled into Ukraine, Putin cut us off his gas supplies, And in return we substantially reduced our dependency on Russian fossil fuels in record time. Our gas imports from Russia went down by roughly 75%. And now we import from Russia only 3% of our oil, and no coal at all. But freedom came at a price. Households and businesses saw sky-high energy costs and bills for many are yet to come down. Now, our competitiveness depends on getting back to low and stable energy prices. Clean energy is the mid-term answer, because it is cheap, it creates good home-grown jobs and it strengthens our energy independence. Already today, Europe generates more electricity from wind and solar than from all fossil fuels combined. But we still have work to do to feed through these benefits to companies and people.
Not only must we continue to diversify our energy supplies, and expand clean sources of generation from renewables and, in some countries, also from nuclear. We will have to invest in next-generation clean energy technologies, like fusion, enhanced geothermal, and solid-state batteries. We must also mobilise more private capital to modernise our electricity grids and storage infrastructure. We must remove any remaining barriers to our Energy Union. And we must better connect our clean and low-carbon energy systems. All of this will be part of a new plan that we will present in February. It is time to complete our Union also on energy, so that clean power can run freely across our continent, and bring prices down for all Europeans.
Ladies and Gentlemen,
This is our plan. And the next few years will be vital to stay in the race of clean and disruptive technologies. Europe has everything it needs to make this happen. We have a private sector with a long tradition of innovation. We have a top-class workforce. We have a huge Single Market of 450 million people and a unique social infrastructure to protect people from the great risks of life. We have credible and independent institutions, transparent governance, and an unshakeable commitment to the rule of law. It is thanks to all this that in the last five years, Europe has weathered the fiercest storm in our economic history. And we overcame an unprecedented energy crisis. We did this together, and we can do it again. And we have the political will. Because when Europe is united, it gets things done.
Ladies and Gentlemen,
The coming years will be vital well beyond Europe. All continents will have to speed up the transition towards net zero, and deal with the growing burden of climate change. Its impact is impossible to ignore. Heatwaves across Asia. Floods from Brazil to Indonesia, from Africa to Europe. Wildfires in Canada, Greece, and California. Hurricanes in the US and the Caribbean. Climate change is still on top of the global agenda. From decarbonising to nature-based solutions. From building a circular economy to developing nature credits. The Paris Agreement continues to be the best hope of all humanity. So Europe will stay the course, and keep working with all nations that want to protect nature and stop global warming. Likewise, all continents will have to grasp the opportunities of AI and manage its risks. On challenges like these, we are not in a race against each other, but in a race against time. Even in a moment of harsh competition, we need to join forces. And Europe will keep seeking cooperation – not only with our long-time like-minded friends, but with any country we share interests with. Our message to the world is simple: if there are mutual benefits in sight, we are ready to engage with you. If you want to upgrade your clean-tech industries, if you want to upscale your digital infrastructure – Europe is open for business.
And as great power competition intensifies, I see a growing appetite across the world to engage more closely with us. In the last two months only, we concluded new partnerships with Switzerland, Mercosur and Mexico. This means that 400 million Latin Americans will soon be engaged in a privileged partnership with Europe. These deals were in the making for years, if not decades. So, why are they all happening today? It is not only because Europe is a large and attractive market. But because with Europe, what you see is what you get. We play by the rules. Our deals have no hidden strings attached. And while others are only interested in exporting and extracting, we want to see local industries flourish in partner countries. Because this is also in our interest. It is how we diversify our own supply chains. And this is why Europe’s offer is so attractive, all across the world. From our neighbours in Africa, who are working with us to develop local clean-tech value chains and clean fuels to the vast Asia-Pacific region. Hence, the first trip of my new Commission will be to India. Together with Prime Minister Modi we want to upgrade the strategic partnership with the largest country and democracy in the world.
I believe we should also strive for mutual benefits in our conversation with China. When China joined the WTO 25 years ago, the impact of rising Chinese exports was called the ‘China shock’. Today, some are talking about a second China shock – because of state-sponsored over-capacity. Of course we must respond to this. Defensive trade measures are being adopted across the world, including in the Global South, as a response to Chinese market distortions. This is also why Europe has taken measures, for instance on electric cars. At the same time, I have always stressed that we are ready to continue our discussions. And we will continue to de-risk our economy. Many believe – including in China – that it would be in China’s long-term interest to manage more responsibly its economic imbalances. That is also our view. And I believe that we must engage constructively with China – to find solutions in our mutual interest. 2025 marks 50 years of our Union’s diplomatic relations with China. I see it as an opportunity to engage and deepen our relationship with China, and where possible, even to expand our trade and investment ties. It is time to pursue a more balanced relationship with China, in a spirit of fairness and reciprocity.
This new engagement with countries across the world is not only an economic necessity – but a message to the world. It is Europe’s response to rising global competition. We want more cooperation with all who are open for it. And this of course includes our closest partners. I think, of course, of the United States of America. No other economies in the world are as integrated as we are. European companies in the US employ 3.5 million Americans. And another million American jobs depend directly on trade with Europe. Entire supply chains stretch on both sides of the Atlantic. For instance, an American airplane is built with control systems and carbon fibres from Europe. And American medicines are made with chemicals and laboratory tools that come from our side of the Atlantic. At the same time, Europe imports twice as many digital services from the US as we do from the entire Asia-Pacific. Of all American assets abroad, two-thirds are in Europe. And the US provides over 50% of our LNG. The trade volume between us is EUR 1.5 trillion. And together, the EU and the US represent almost 30% of global trade in goods and services.* A lot is at stake for both sides. So our first priority will be to engage early, discuss common interests, and be ready to negotiate. We will be pragmatic, but we will always stand by our principles to protect our interests and uphold our values – that is the European way.
Ladies and Gentlemen,
The rules of engagement between global powers are changing. We should not take anything for granted. And while some in Europe may not like this new reality, we are ready to deal with it. Our values do not change. But to defend these values in a changing world, we must change the way we act. We must look for new opportunities wherever they arise. This is the moment to engage beyond blocs and taboos. And Europe is ready for change.
Thank you very much, and long live Europe.
 
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20 January 2025, New York — Statement on behalf of the European Union and its Member States by H.E. Ambassador Stavros Lambrinidis, Head of the Delegation of the European Union to the United Nations, at the Joint Briefing by the Presidents of the General Assembly and the the Economic and Social Council.

Presidents, colleagues,
I have the honour to speak on behalf of the European Union and its Member States.
The Candidate Countries North Macedonia, Montenegro, Albania, Ukraine, the Republic of Moldova, Bosnia and Herzegovina and Georgia, as well as Armenia, align themselves with this statement.
We highly appreciate the tradition of setting priorities at the beginning of each year to ensure coherence between the General Assembly and the Economic and Social Council.
The complex challenges that countries – and the UN – face today require all hands on deck, with the work of the GA and ECOSOC fully aligned.
2025 will be a pivotal year in this regard. With only five years to go to fully implement the SDGs, and with growing needs and inequalities in times of uncertainty, we must urgently work collectively on all three interrelated pillars, and ensure not just the UN’s willingness, but its effectivenessin achieving peace and security, sustainable development, and human rights for all.
President Yang,
We are confident that, with your agenda and under your leadership, much can be achieved in 2025. Your priorities presented last week showcased an impressive ambition to work towards addressing the numerous challenges we face. You can count on the EU support in your endeavours to ensure that the United Nations General Assembly fulfils its mission to leave no one behind.
We appreciate in particular your leadership, both in facilitating the successful Pact negotiations and, now, in following up on the Pact and its annexes. We welcome the four steps laid out towards its implementation.
Meeting with co-facilitators and co-chairs of relevant intergovernmental processes is the right first step. Indeed, the Pact implementation should be pursued in ongoing processes, where possible. Several of those are anchored within ECOSOC, underscoring the importance for both bodies working hand-in-hand.
Furthermore, we appreciate your convening of three informal and inclusive dialogues. You can count on our active participation to ensure the success of our efforts to reinvigorate our work at the UN and to turbo-charge the SDGs.
This, of course, cannot be done without the active engagement and involvement of civil society and the private sector. A Town Hall Meeting with civil society will be a crucial contribution to ensure full ownership in the Pact’s implementation.
President Rae,
Dialogue will indeed be key this year, under your stewardship. As the foundation of our work at the UN, dialogue will allow us to make progress and overcome divergence in ECOSOC. In your inaugural statement, you emphasised that your goal is to make ECOSOC open to contributions from all – to make it a true “House of the People”. I am glad to hear that your priorities are set to enable the achievement of this goal.
Dialogue should lead to Partnerships. We cannot achieve the SDGs each on our own, so we must identify joint priorities and deliverables in all aspects of sustainable development — here at the UN, but also at country level. With Global Gateway, the EU walks the talk and builds mutually-beneficial partnerships on the ground, delivering on the common ambitions that we define here together.
ECOSOC will have a busy year as it works to:

accelerate the implementation of the 2030 Agenda for Sustainable Development
effectively follow up on the outcomes of the Summit of the Future, and
contribute to important global conferences and processes, such as the Fourth International Conference on Financing for Development (FFD4), the 2025 UN Ocean Conference, the World Social Summit, the 30th anniversary of the Fourth World Conference on Women and the adoption of the Beijing Declaration and Platform for Action (Beijing+30), the process for revitalisation of the Commission on the Status of women, as well as the review of the implementation of the outcome of the World Summit on the Information Society (WSIS+20).

I can assure you that the EU and it Member States will actively participate in the work of ECOSOC and we will use these meetings to advocate for the implementation of the Pact for the Future to re-invigorate a more effective and inclusive multilateralism.
As you have rightly emphasised, we need deeper engagement between ECOSOC and international financial institutions, among others, also to ensure that FFD4 delivers on bridging the funding gap to meet global development goals.
This year marks an important opportunity to make tangible steps towards addressing the widening gap in gender equality. The EU will engage actively in the CSW revitalisation process, to strengthen the Commission’s purpose to serve women and girls around the world. The EU will also participate in the 69th Commission on the Status of Women in March, and the 58th Commission on Population and Development in April. SDG 5 (Achieve gender equality and empower all women and girls) is also one of the SDGs under in-depth review during this year’s High-Level Political Forum (HLPF).
And this brings me to my final point:
As every year, the ECOSOC cycle finishes with the HLPF.s. I am proud to announce that this year 5 EU Member States will present their VNR.
Presidents,
We are sure that under your guidance, the General Assembly and ECOSOC will deliver. In these challenging times, we must build on the strengths of both bodies, jointly reinforcing and complementing each other, while avoiding unnecessary duplication. You can count on the EU and its MS as your allies in this endeavour.
Thank you.

 
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Thank you. Good evening, everyone. 
The Eurogroup had a very useful discussion on economic policy priorities for the euro area, which showed a high degree of convergence, and alignment with the agenda of the new commission.
While we have successfully navigated a period of significant challenges in recent years, demonstrating a remarkable degree of economic resilience, the euro area continues to be confronted with significant structural challenges.
Productivity growth has been slow for too long in the euro area, and euro as a whole, threatening our competitiveness and hinders our ability to invest in the future.
Debt levels remain high and, looking further ahead, public spending faces growing pressures from defence spending to an ageing population.
We face these challenges in a context of heightened global tensions as Russia’s war of aggression against Ukraine continues and the high degree of uncertainty surrounding the policy priorities of the new US administration.
To tackle these challenges, with ministers we agreed today on the need for urgent and coordinated policy action to improve competitiveness, productivity and innovation across the euro area. We need to move from words to action. We must act towards:
improving access to funding for businesses; promoting innovation; improving the business environment by reducing administrative burdens and regulatory complexity; removing obstacles to investment and supporting public and private investment in common priorities, such as the green and digital transformations and defence.
We also need to strengthen economic resilience and uphold prudent fiscal policies as a key to achieving macro-financial stability.
There was also broad consensus on the need to deepen the Banking Union and the CMU.
The Eurogroup can play an important role in driving the delivery of these priorities and, in doing so, securing our long-term prosperity.
Today’s meeting also heard from representatives of the European Central Bank (ECB) and the Bank for International Settlements who provided updates on their exploratory work on new technologies for wholesale settlement of transactions.
From the commission side we are supportive of exploring how to modernise our wholesale payment systems to cater for the needs of the market while keeping in mind the need to maintain financial stability and safe, efficient payment systems, as well as our common goal of creating a Savings and Investment Union.
The Eurogroup will return to these discussions in the future.
As regards the digital euro, we need to make fast progress with the legislative proposals.
Europe needs to be at the forefront of embracing the digital age and making the most of all the opportunities that it offers.
Our monetary system, with its common currency at its heart, must also adapt to a digitalised future.
Despite steady progress, further efforts are needed to reach a compromise.
We are fully committed to supporting the Polish Presidency to reach this common approach in the Council this year.
Work on the digital euro also continues in the European Parliament.
The Commission is committed to providing all the technical support needed to facilitate swift progress.
Finally, the new French and Lithuanian ministers presented today’s meeting with the policy priorities of their respective governments.
The Commission looks forward to closely engaging with the Lithuanian authorities on the preparation of their medium-term fiscal-structural plan.
As regards France we welcomed the commitment of the French minister to reduce the French general government deficit and to eventually put public debt on a sustainable downward trend.
It is good news that the adjusted fiscal trajectory presented by the French authorities last week preserves the same ambitious level of overall fiscal effort over the adjustment period.
We also welcome the continued commitment of France to the reforms and investments underpinning the extension of its adjustment period.
Thank you.
For more information, please contact:

Balazs Ujvari, Spokesperson, EUROPEAN COMMISSION

Francisca Marçal Santos, Press Officer, EUROPEAN COMMISSION

 
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During her tenure as Commerce Secretary, Gina Raimondo oversaw more than $90 billion invested in targeted programs to safeguard U.S. national security, spur innovation, stimulate job creation in good-paying careers, and bolster U.S. competitiveness.
Washington, D.C. — Under the Biden-Harris Administration and U.S. Secretary of Commerce Gina Raimondo’s leadership, the Department of Commerce took a new approach to economic policy to turn the agency into an engine of innovation and growth. With transformational investments to enhance U.S. competitiveness, Secretary Raimondo worked to unite the Department’s bureaus and economic tools to ensure the United States can meet the challenges of the 21st century and lead for decades to come.
“Over the last four years, my mission at the Department of Commerce has been to unite our tools in an effective way to enhance U.S. competitiveness and protect U.S. national security. Because of the incredible work of our public servants at the Department, I believe we achieved that goal and are leaving Commerce a more muscular and influential agency,” said U.S. Secretary of Commerce Gina Raimondo. “Whether it’s reshoring our domestic semiconductor supply chain, leading the U.S. government response to AI, safeguarding U.S. national security against adversaries seeking U.S. tech to advance their military goals, connecting Americans to high-speed and reliable internet, and so much more, the Department of Commerce is positioned to address the national and economic security challenges of the 21st century.”
“I traveled to dozens of communities across America and witnessed the impact the Department of Commerce is making to help Americans not just get by but to lead lives of dignity.  Commerce has made us safer, more successful, and better prepared to handle the challenges and opportunities ahead,” said U.S. Deputy Secretary of Commerce Don Graves. “Every bureau at the Department of Commerce has worked tirelessly over these four years to ensure the American Dream is within reach of every American community. I thank every member of our Department, along with our public and private sector partners, for making this success possible.”
Read more about  the transformation of the Commerce Department under Secretary Raimondo’s leadership in the Investing in American Competitiveness: U.S. Department of Commerce Impact Report here and see notable highlights below. 
Advancing Domestic Production and Securing the Supply Chain 
The CHIPS Program Office is investing $39 billion to rebuild the domestic semiconductor manufacturing base and secure the semiconductor supply chain. Commerce built a brand-new capacity to invest alongside industry and deliver on national priorities while protecting taxpayer dollars.

CPO has awarded approximately $34 billion, signed preliminary terms for an additional $2 billion with more negotiations ongoing, and disbursed more than $4 billion. That’s 34 negotiated deals across 22 states.
Two years after the passage of the CHIPS Act, the program has delivered. The U.S. has seen more investment in electronics manufacturing over the last four years than in the previous three decades combined. Planned investments now are nearly $450 billion, marking the largest wave of semiconductor manufacturing expansion in U.S. history.

Ensuring AI is Safe, Secure, and Trustworthy
Commerce leads U.S. Government efforts to ensure AI systems are safe, secure, and trustworthy through scientific testing and evaluation, establishing established new institutions and frameworks to advance the science of AI safety and security through rigorous testing, evaluation, and guidelines.

Commerce established the U.S. AI Safety Institute (U.S. AISI), a scientific center of excellence advancing the frontier of evaluating models for dual-use domains such as cyber capabilities, chemical and biological misuse risks, and software and AI development capabilities.
NIST produced first-of-its-kind voluntary industry standards for governing, understanding, measuring, and managing risks of AI systems, including the AI Risk Management Framework, and guidance on protecting against misuse from dual-use foundation models, labeling and detecting synthetic content, and more.

Boosting Regional Competitiveness
For the first time in the Department’s history, Commerce is making massive investments in communities to meet Americans where they are with the scale and strategy required to transform local economies. With those investments, the Department has mobilized state, local, private, and philanthropic resources to support communities and workers in a new industrial era and drive long-term economic growth in areas previously left behind.

Commerce designated thirty-one regional Tech Hubs, with more than $700 million in investments to ensure the key technologies of the future start, grow, and remain in the United States. Investments include developing facilities to commercialize new technologies in fields from sustainable polymers, to drones, to quantum sensing. Federal investments are also driving business and entrepreneurship development in selected regions – beyond federal funding, the Tech Hubs have already attracted nearly $6 billion in investment commitments from private, public, and philanthropic sources.
The Recompete Pilot Program provides almost $200 million in flexible funds to address the root causes of distress in six communities facing low prime-age employment rates – together, these communities represent places with poverty rates nearly triple the national average and median household incomes less than half the national average.
The Minority Business Development Agency (MBDA) invested $125 million in the first-of-its-kind Capital Readiness Program (CRP), which funds incubators and accelerators that help underserved entrepreneurs grow and scale their businesses.

Growing American Jobs and the Workforce of the Future
Commerce’s flagship workforce training investment, the $525 million Good Jobs Challenge, is using sectoral-workforce partnerships to create and deploy proven workforce solutions in key industries such as technology, energy, and manufacturing. The Good Jobs Challenge’s 40 awardees are on track to place 53,000 workers in good-paying jobs with benefits, and nearly doubling workers’ previous annual earnings. Already, more than 12,000 workers across 35 states and Puerto Rico have made the jump from low-wage, insecure employment into high-demand, quality jobs.
Connecting Everyone in America to Affordable, Reliable, High-Speed Internet Service
Internet for All programs are bringing every single household and small business access to affordable, reliable, high-speed Internet service by 2030. Once complete, 7.5 million currently unserved locations will be connected to the 21st century economy.
Curbing the People’s Republic of China (PRC) Military Modernization
Commerce has taken unprecedented action to implement strategic and effective controls to impair and impede the PRC’s ability to procure and produce the technology it needs to develop next generation weapons systems or advanced AI. Under Secretary Raimondo’s leadership, BIS introduced the most targeted and aggressive controls in the bureau’s history. These unprecedented, country-wide actions were taken in concert with partners and allies, ensuring increased effectiveness.

Over four years, through multiple rules, Commerce implemented unprecedented country-wide and sector-wide restrictions on advanced semiconductor technology exports to China, including on advanced chips and on equipment needed to make those chips. These cumulative actions represent a seismic shift in the way that BIS conducts business and imposes export controls, imposing a precision strike to hamper PRC efforts to indigenize the production of advanced semiconductors and related equipment and tools. These controls target chips needed for developing and deploying the next generation of advanced weapon systems and AI-enabling technologies, directly impacting the PRC’s ability to improve the design and execution of weapons of mass destruction (WMD) and advanced conventional weapons.

Degrading Russian Military Capacity
In the first days of Russia’s unprovoked war of aggression against Ukraine, the Department moved with unprecedented speed to build a global coalition focused on cutting off access to the technologies and materials Russia relies on for its war machine. U.S. export controls are frustrating Russia’s military ambitions by increasing costs and delays and reducing equipment quality.

Commerce has implemented export controls on over 2,800 categories of items needed to sustain military action, including machinery, electrical equipment, microelectronics, aircraft parts, chemicals, and industrial and commercial items.
BIS has cracked down on Russia’s illicit procurement networks, including bringing 13 criminal Strike Force cases against defendants seeking U.S. technologies for Russian end users.

Diversifying and Strengthening Supply Chains
In the wake of COVID-19-related supply chain shocks, the Department of Commerce created new tools and private sector and international partnerships to protect and strengthen supply chains critical to national security. Pandemic-era supply chain shocks revealed intolerable national security risks from the decades-long trend of offshoring and overly concentrating critical supply chains. In response, Commerce built the U.S. Government’s analytical capacity to identify and address vulnerabilities, work with partners and allies to onshore and friend-shore critical industries, strengthen domestic manufacturing, and defend the existing industrial base from non-market actors.

Commerce established a first-of-its-kind Supply Chain Center at the International Trade Administration to shift the U.S. approach from reacting to disruptions to proactively strengthening supply chain resilience. The Center launched the SCALE tool, a diagnostic tool that allows the U.S. Government to assess supply chain risk across the U.S. economy and prioritize critical industries and products for action.

Advancing Climate Resilience
The Inflation Reduction Act (IRA) and Bipartisan Infrastructure Law (BIL) invested a record $6 billion in the National Oceanic and Atmospheric Administration (NOAA), allowing Commerce to fund projects that help America mitigate and adapt to climate change. Transformational funding and new resilience programs have allowed NOAA to restore thousands of acres of habitat and waterways, help people across the country make climate-smart investments in their communities and coasts, and improve the climate data and services provided to decision makers, families, communities, and businesses.

NOAA has announced $2.8 billion in funding through its coastal resilience programs to strengthen ecosystems and communities along the coasts. For example, NOAA’s $575 million Climate Resilience Regional Challenge program made awards to 19 collaborative projects to increase the resilience of coastal communities to extreme weather and other climate impacts. This program was the most oversubscribed program in the IRA demonstrating the demand communities across the country have for climate resilience capacity.

 
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Stronger Together
European Council President António Costa and European Commission President Ursula von der Leyen look forward to positive engagement with the incoming US Administration. In a rough world, the EU & US are stronger together.
The Middle East
We welcome the ceasefire and hostage release agreement in Gaza. Hostages will be reunited with their loved ones and humanitarian aid can reach civilians in Gaza. This brings hope to an entire region, where people have endured immense suffering for far too long.
California Wildfires
“The devastation in Los Angeles has been truly heartbreaking to watch. Lives, homes, memories lost. I send my thoughts and prayers to all those affected, and my gratitude to those working to keep the fires at bay.”
— EU Ambassador to the U.S. Jovita Neliupšienė
EU Presidency
Every six months an EU country takes over and helps ensure the smooth running of the legislative process. Poland will hold the presidency of the EU Council until June 30.
Western Balkans
EU Special Representative for the Belgrade-Pristina Dialogue Miroslav Lajčák visited Washington in support of strong EU-US cooperation in the region.
EU Assistance to Ukraine
“Europe has provided nearly 134 billion euros of support to Ukraine – and more will come. Just like the brave Ukrainian resistance, our support will be steadfast.”
—European Commission President Ursula von der Leyen
AI Chip Exports
We are concerned about the US measures restricting access to advanced AI chip exports for selected EU Member States. Learn more about the ways the EU is jointly boosting its economic security.
China and Public Procurement
China’s public procurement market for medical devices presents clear evidence of limiting access of EU medical devices producers to its government contracts in an unfair and discriminatory way.
Consumer Electronics Show
In Nevada, the European Pavilion featured 15 innovative companies from across Europe that presented their pioneering technology.
Job Opening
Join us to work on a key EU priority: digital transformation. Think artificial intelligence, data governance, emerging tech, and more. Application Deadline: January 30.
 
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Blog post by Pierre-Olivier Gourinchas | We project global growth will remain steady at 3.3 percent this year and next, broadly aligned with potential growth that has substantially weakened since before the pandemic. Inflation is declining, to 4.2 percent this year and 3.5 percent next year, in a return to central bank targets that will allow further normalization of monetary policy. This will help draw to a close the global disruptions of recent years, including the pandemic and Russia’s invasion of Ukraine, which precipitated the largest inflation surge in four decades.

Though the global growth outlook is broadly unchanged from October, divergences across countries are widening. Among advanced economies, the United States is stronger than previously projected on continued strength in domestic demand. We have raised our growth projection for the US this year by 0.5 percentage point, to 2.7 percent.
Growth in the euro area, by contrast, is likely to increase only modestly, to 1 percent from 0.8 percent in 2024. Headwinds include weak momentum, especially in manufacturing, low consumer confidence, and the persistence of a negative energy price shock. European gas prices remain about five times as high as in the United States, versus twice as high before the pandemic.

In emerging market economies, growth projections are broadly unchanged, at 4.2 percent and 4.3 percent this year and next. Elevated trade and policy uncertainty is contributing to anemic demand in many countries, but economic activity is likely to pick up as this uncertainty recedes. This includes China, where we now project 4.5 percent growth next year, up 0.4 percentage point from our prior forecast.
Some divergence between large economies has been cyclical, with the US economy operating above its potential while Europe and China are below. Under current policies, this cyclical divergence will dissipate. But the divergence between the US and Europe is more due to structural factors, and the disconnect will linger if these are left unaddressed. It reflects persistently stronger US productivity growth, particularly but not exclusively in the technology sector, linked to a more favorable business environment and deeper capital markets. Over time, this translates into higher returns on US investment, increased inbound capital flows, a stronger dollar and US living standards pulling away from those of other advanced economies. For China, it is notable that potential growth is now more like that of other emerging market economies.
Economic policy uncertainty is elevated, with many governments newly elected in 2024. Our projections incorporate recent market developments and the impact of heightened trade policy uncertainty, assumed to be temporary, but refrain from making assumptions about potential policy changes that are currently under public debate.

In the near term, a constellation of risks could further exacerbate these divergences. European economies could slow more than anticipated, especially if investors grow more concerned about public debt sustainability in more vulnerable countries. The main risk is that euro area monetary and fiscal policy could simultaneously run out of room if weaker economic activity pushes interest rates back toward the effective lower bound just as insufficient fiscal consolidation raises risk premia, in turn further constraining fiscal policy. In China, should fiscal and monetary measures prove insufficient to address domestic weakness, the economy is at risk of a debt-deflation stagnation trap, where falling prices raise the real value of debt, undermining activity further. The sharp decline in Chinese government bond yields, seen as haven for local investors, shows rising investor concern. Both in China and Europe, these factors could lower inflation and economic growth.
By contrast, while many of the policy shifts under the incoming US administration are hard to quantify precisely, they are likely to push inflation higher in the near term relative to our baseline. Some indicated policies, such as looser fiscal policy or deregulation efforts, would stimulate aggregate demand and increase inflation in the near term, as spending and investment increase immediately. Other policies, such as higher tariffs or immigration curbs, will play out like negative supply shocks, reducing output and adding to price pressures.
A combination of surging demand and shrinking supply would likely reignite US price pressures, though the effect on economic output in the near term would be ambiguous. Higher inflation would prevent the Federal Reserve from cutting interest rates and could even require rate hikes that would in turn strengthen the dollar and widen US external deficits. The combination of tighter US monetary policy and a stronger dollar would tighten financial conditions, especially for emerging markets and developing economies. Investors already anticipate such an outcome, with the US dollar gaining around 4 percent since the November election.
Overall, these near-term risks could lead to further divergence across economies. In the medium term, about five years, the positive effects of the US fiscal shock may dissipate and could even reverse if fiscal vulnerabilities increase. Deregulation efforts can boost potential growth in the medium term if they remove red tape and stimulate innovation. However, there is a risk that excessive deregulation could also weaken financial safeguards and increase financial vulnerabilities, putting the US economy on a dangerous boom-bust path. Medium-term risks to economic output would be heightened by restrictive trade policies and stricter migration limits.
Renewed inflation pressures, should they arise so soon after the recent surge, could well de-anchor inflation expectations this time around, as people and businesses are now much more vigilant about protecting their real income and profitability. Inflation expectations are further away from central bank targets than in 2017–21, which suggests increased risks of higher inflation. In this environment, monetary policy may need to be more agile and proactive to prevent expectations from de-anchoring, while macro-financial policies will need to remain vigilant to avoid a buildup of financial risks.

The issue is likely to be exacerbated for emerging market economies, given the passthrough of dollar exchange rates to domestic prices and the effects of weaker domestic growth in China. In most cases, the appropriate policy response in emerging market economies will be to let currencies depreciate as needed while adjusting monetary policy to achieve price stability. However, in cases where inflation dynamics have become clearly unanchored or where there are financial stability risks, capital flow management and foreign exchange interventions could help, as long as these are not a substitute for necessary macroeconomic adjustments, in line with the IMF’s Integrated Policy Framework.
For several countries, fiscal policy efforts have been delayed or insufficient to stabilize debt dynamics. It is now urgent to restore fiscal sustainability before it is too late and to build sufficient buffers to address future shocks that could be sizable and recurrent. Additional delays could trigger a worrying spiral where borrowing costs keep rising as markets lose confidence, further increasing adjustment needs. Recent strains in Brazil’s financial markets, like the reaction to the UK’s September 2022 mini-budget, underscore how funding conditions can deteriorate suddenly.
While any sizable fiscal consolidation is bound to weigh on economic activity, countries should take special care to preserve growth as much as possible along the consolidation path, for instance by focusing the adjustment on reducing untargeted transfers or subsidies rather than government investment spending. To achieve this—and help overcome persistent structural differences driving growth divergences—there should be renewed focus on ambitious structural reforms to directly boost growth. These include targeted reforms to better allocate resources, increase government revenues, attract more capital, and foster innovation and competition.
Finally, additional efforts should be made to strengthen and improve our multilateral institutions to help unlock a richer, more resilient, and sustainable global economy. Unilateral policies that distort competition—such as tariffs, nontariff barriers, or subsidies—rarely improve domestic prospects durably. They are unlikely to ameliorate external imbalances and may instead hurt trading partners, spur retaliation, and leave every country worse off.

 
Compliments of the International Monetary FundThe post IMF | As One Cycle Ends, Another Begins Amid Growing Divergence first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the U.S. Department of Commerce has announced that CHIPS National Advanced Packaging Manufacturing Program (NAPMP) has finalized $1.4 billion in award funding to bolster U.S. leadership in advanced packaging and enable new technologies to be validated and transitioned at scale to U.S. manufacturing. These awards will help establish a self-sustaining, high-volume, domestic, advanced packaging industry where advanced node chips are both manufactured and packaged in the United States.   
These awards include:

A total of $300 million under the CHIPS NAPMP’s first Notice of Funding Opportunity (NOFO) for advanced substrates and material research to Absolics Inc., Applied Materials Inc., and Arizona State University. This follows the previously announced intent to enter negotiations on November 21, 2024.

$1.1 billion to Natcast to operate the advanced packaging capabilities of the CHIPS for America NSTC Prototyping and NAPMP Advanced Packaging Piloting Facility (PPF). This follows the previously announced CHIPS R&D Facilities Model on July 12, 2024, and planned site selection for the PPF on January 6, 2025.

“Bolstering our advanced packaging capabilities is key to America remaining a global leader in leading-edge semiconductor manufacturing,” said U.S. Secretary of Commerce Gina Raimondo. “These CHIPS for America investments and CHIPS research and development flagship facilities will strengthen our end-to-end semiconductor ecosystem and help close the gap between invention and commercialization to ensure the United States is a global leader in semiconductor innovation and manufacturing.”
Awardees
Absolics, Inc. in Covington, Georgia, $100 million in direct funding: This award will support Absolics’ Substrate and Materials Advanced Research and Technology (SMART) Packaging Program and help build a glass-core packaging ecosystem. Absolics’ glass substrates will be used as an important advanced packaging technology to increase the performance of leading-edge chips for artificial intelligence (AI), high-performance compute and data centers by reducing power consumption and system complexity. Learn more about the CHIPS NAPMP Materials and Substrates award here.
Applied Materials, Inc. in Santa Clara, California, $100 million in direct funding: This project will develop and scale a disruptive silicon-core substrate technology for next-generation advanced packaging and 3D heterogeneous integration. Applied Materials’ silicon-core substrate technology has the potential to advance America’s leadership in advanced packaging and help catalyze an ecosystem to develop and build next-generation energy-efficient artificial intelligence (AI) and high-performance computing systems in the U.S. Learn more about the CHIPS NAPMP Materials and Substrates award here.
Arizona State University in Tempe, Arizona, $100 million in direct funding: The award will support the development of the next generation of microelectronics packaging through fan-out-wafer-level-processing (FOWLP). Centered at ASU Advanced Electronics and Photonics Core Facility, this project supports ASU’s research in exploring the commercial viability of 300 mm wafer-level and 600 mm panel-level manufacturing, a technology that does not exist as a commercial capability in the U.S. today. Learn more about the CHIPS NAPMP Materials and Substrates award here.
Natcast’s Advanced Packaging Facility in Tempe, Arizona, $1.1 billion in direct funding: The award will enable Natcast to operate and manage the CHIPS NAPMP advanced packaging capabilities that will be co-located with NSTC prototyping capabilities at the recently announced CHIPS for America NSTC Prototyping and NAPMP Piloting Facility (PPF) in Tempe, Arizona. Key packaging capabilities funded by this award are expected to include a baseline advanced packaging piloting line to enable the development and commercialization of new advanced packaging processes. The CHIPS for America PPF will feature cutting-edge capabilities to bridge the gap between laboratory research and full-scale semiconductor production. This facility will enable researchers and industry leaders to develop and test new materials, devices, and advanced packaging solutions in a state-of-the-art R&D environment. Learn more about this CHIPS NAPMP award here.
About CHIPS for America
CHIPS for America investments stimulate private sector investment, create good-paying jobs, make more in the United States, and revitalize communities left behind. CHIPS for America includes the CHIPS Program Office, responsible for manufacturing incentives, and the CHIPS Research and Development (R&D) Office, responsible for R&D programs. Both offices sit within the National Institute of Standards and Technology (NIST) at the Department of Commerce. NIST promotes U.S. innovation and industrial competitiveness by advancing measurement science, standards, and technology in ways that enhance economic security and improve our quality of life. NIST is uniquely positioned to successfully administer the CHIPS for America program because of the bureau’s strong relationships with U.S. industries, its deep understanding of the semiconductor ecosystem, and its reputation as fair and trusted. Visit https://www.chips.gov to learn more.
 
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Following our update in May 2024, we want to report on the progress made by the Inclusive Framework on BEPS (IF) in the development of a final package for Pillar One of the Two‐Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy agreed in October 2021. This package includes two components: a text of the Multilateral Convention (MLC) to implement Amount A and a framework for Amount B.
Amount A
Amount A introduces a system for a coordinated allocation of taxing rights to market jurisdictions with respect to a defined portion of the residual profits of the largest and most profitable MNEs. It is designed to be a sustainable, coordinated reform of the international tax system that responds to the tax challenges arising from the digitalisation of the economy, reinforces stability and certainty for taxpayers, and provides for the withdrawal and standstill of Digital Services Taxes (DSTs) and Relevant Similar Measures (RSM) with respect to all companies.
After several years of negotiations within an Inclusive Framework consisting of more than 140 members, as well as numerous consultations with stakeholders, we were able to release in October 2023 a text of the MLC, along with the accompanying Explanatory Statement (ES) and the Understanding on the Application of Certainty for Amount A of Pillar One (UAC), which reflected the significant progress achieved at that time and indicated in footnotes the handful of specific issues where different views remained between members.
Further negotiations in the first half of 2024, informed by feedback from domestic consultations following the release of the text, led to the successful resolution of the issues standing in the way of adoption of the text. (1) Specifically, the MLC text was revised to:

Clarify the definition of DSTs and RSMs, including with respect to the application of the de facto ring-fencing criteria;
Provide an election for common application of the MLC to a non-State jurisdiction and the State responsible for its international relations, subject to certain guardrails and measures to limit the additional elimination of double tax obligations that might fall on other States as a result of such an election; and
Provide further modifications within the Marketing and Distribution Profit Safe Harbour (MDSH) when calculating the excess profit of a Multinational Enterprise in a market jurisdiction with lower income levels, including a higher return on revenue (ROR) metric and higher deductions (so-called “reduction factors”) within the withholding tax upward adjustment mechanism.

In June, the revised MLC text was submitted to the Inclusive Framework for adoption. Members were informed that, in line with international law, agreement to adopt the final text does not create an obligation to sign it, with the decision to sign the text being a separate decision for jurisdictions and one that might follow specific domestic procedures. Only one member objected to the text’s adoption, citing the absence of consensus having been reached on the Amount B Framework, as set out below, and citing the fact that another member’s agreement to the adoption of the text was accompanied by a reservation on whether or not it would sign as a result of it not being in a position to support certain aspects. The text has remained stable since that point with the negotiations having been focused on resolving the outstanding issues with the Amount B Framework.
Amount B
Amount B is a simplified and streamlined approach to the application of the arm’s length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries.
In February 2024, an optional Amount B was incorporated into the OECD Transfer Pricing Guidelines (“TPG”) allowing jurisdictions, including non-IF members, to elect to implement the simplified and streamlined approach to baseline marketing and distribution activities in their jurisdiction. Members of the IF also made a commitment to respect outcomes determined under that approach where the approach is applied by “covered jurisdictions”, in recognition of their particular needs and challenges – in some covered jurisdictions, Amount B is expected to address between 30-70% of all current transfer pricing disputes.
Building on that optional model, discussions have continued on a framework under which jurisdictions that become parties to the MLC would, from the point the MLC enters into effect, be required to apply Amount B to local taxpayers performing in-country baseline marketing and distribution activities where the transaction is covered by an income tax treaty in force with another IF member jurisdiction that is also a Party to the MLC. Jurisdictions would also be required to respect outcomes determined under Amount B when applied by other parties to the MLC with which an income tax treaty is in force (the “Amount B Framework”).
While acknowledging the significant tax certainty benefits already provided to in-scope groups through the MLC – including the availability of robust binding dispute resolution for a broad range of related transfer pricing and profit attribution disputes and a framework for the withdrawal and standstill of DSTs and RSMs – some members have taken the position that the Amount B Framework is an essential part of the overall Pillar 1 package.
Significant work has been undertaken on the detailed parameters of the Amount B Framework with only a few outstanding issues remaining amongst certain jurisdictions, as follows:
a. How to appropriately reflect the interdependence between the MLC and Amount B;
b. The detailed terms of an agreed filter designed to screen out jurisdictions that account for a low number of disputes relating to transactions of the type that Amount B is intended to address;
c. The terms of an Optional Qualitative Test that certain jurisdictions have argued is needed, in addition to the existing filters, to ensure that above-baseline transactions expected to generate benefits that significantly exceed those typically derived from core distribution functions do not fall within scope; and
d. How to address the concerns of certain jurisdictions that consider that the pricing matrix delivers inappropriate outcomes for taxpayers performing baseline marketing and distribution activities in their respective jurisdictions.
Discussions on the first three items are generally well advanced, with the focus of those discussions now being on procedural questions and/or the contours of tests and their precise drafting. With respect to the fourth item, various solutions have been put forward to bridge the different positions of IF members, including a solution that would allow the concerned IF members to limit the application of Amount B to distributors generating revenues below a threshold, with an alternative fast-track early certainty mechanism made available for distributors generating revenues above it. (2) Despite constructive discussions on these solutions, we have yet to find a path forward that has the support of all members, and our focus remains on how outstanding concerns can be addressed as a part of a solution that is able to achieve consensus.
We would like to commend all IF members for their continued dedication and willingness to compromise in progressing Pillar One to this stage. We remain committed to do our utmost to help bridge the last few remaining issues relating to the Amount B Framework in order to secure IF agreement on the Pillar One package and remain committed to ensuring that the IF is prepared to support swift implementation once that agreement is reached.
 
Notes:
1 Adoption is the formal act through which the form and content of a treaty is established.
2 This solution would also allow for bilateral framework agreements to be entered into between jurisdictions as an alternative.
 
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By Srinivas Gurazada | Historically, accountants have been perceived as mere ‘bookkeepers’ who record vouchers and prepare budget execution statements of government. Accounting was seen as a technical responsibility of the Accountant General’s office, which prepares financial statements, and the Auditor General, who conducts audits. This was considered a ‘control formality’ with limited implications for the rest of the government or citizens. However, the past two decades have seen significant changes to this perception. Here are five top trends on the emerging role of the accounting profession in the public sector, which can be transformative in 2025.
1. Sustainability Reporting in the Public Sector
With the support of the World Bank, the International Public Sector Accounting Standards Board (IPSASB) in 2024 took the landmark decision to issue the first set of draft Sustainability Reporting Standards (SRS) dealing with Climate-Related Disclosures. While the full suite of public sector SRS may take up to a decade, the ball is set rolling. For the first time, public-sector accountants have taken the challenge of moving outside their comfort zone of traditional accounting and auditing.
There remain several unanswered questions, from the need for increased capacity within the accounting profession to deal with sustainability to harmonization with several other sustainability reporting approaches, including IFRS Sustainability. Supreme Audit Institutions have already initiated discussions on the role of external audit in sustainability reporting through the Global Summit of SAIs. The year 2025 is likely to be a watershed year through public consultation on draft SRS issued by IPSASB and the broader alignment of expectations, thereby significantly scaling up the responsibilities of the accounting profession in the public sector.
2. Accounting Information as the Fulcrum of Public Financial Management
Public Financial Management (PFM) is one of the most interdisciplinary professions. Accountants, economists, public policy experts, and administrators in governments play a key role in managing public finances. Public Expenditure and Financial Accountability (PEFA), the gold standard measuring framework for PFM, uses 31 indicators further segregated into 94 dimensions. Accounting and Reporting (Pillar VI) of the PEFA framework covers three Performance Indicators (PI) – PI 27 on ‘Financial data integrity,’ PI 28 on ‘In-year budget reporting,’ and PI 29 on ‘Annual Financial Statements,’ which are directly the responsibility of public sector accounting. Most of the other dimensions of PEFA either draw from accounting information or are influenced by government accounting, and the role of public accountants is likely to expand.
3. Balance Sheet Approach to Public Finances
Dust seems to have settled over two decades of debate over the merits of government accounting moving from a cash to an accrual basis. It is forecasted that by 2025, the number of countries reporting on an accrual basis will reach 50%. If achieved, this change will be a watershed moment for accounting reforms fundamentally influencing government policy decisions. Accrual accounting provides a complete picture of revenues, expenditure, assets, and liabilities, enabling government and all stakeholders to consider intergenerational equity in present-day policy making. In making the transition to accrual accounting, countries will be able to draw on the full suite of accrual basis international standards issued by IPSAS, guidance under pathways to accrual accounting, as well as international development partners support.
4. Artificial Intelligence in Public Sector Accounting
The past two decades have seen countries make rapid strides in the implementation of GovTech solutions in PFM. These developments include IFMIS / FMIS solutions, Debt Management Systems, eProcurement systems, and Public Investment Management systems. Computer Assisted Audit Tools (CAATs) and Audit Management Systems enable Supreme Audit Institutions (SAIs) to conduct audits. GovTech solutions in PFM are large transaction processing systems, which can benefit significantly from leveraging AI. A recent OECD paper on AI in PFM notes, “Over time, and with the quality of data increasing, new layers of technology have been added (to PFM): data analytics, BI tools, RPA, and more recently AI technologies.”
The year 2025 is likely to see the emergence of trends where several routine public sector accounting and auditing tasks move from humans to machines, enhancing the role of public sector accountants to value-added functions. These could range from predictive analysis on the impact of budget decisions on service delivery, perpetual forecasting of balance sheets, consolidation of accounts of various levels of government for whole of government balance sheets, and identification of red flags and risks of wastage, fraud, and corruption.
5. Collaboration between IFAC, PAOs, and Development Partners
MOSAIC (Memorandum of Understanding to Strengthen Accountancy and Improve Collaboration) sets out the basis for improving cooperation and collaboration between IFAC, international donors, and the international development community. A high-level meeting, in September  2024 in Bucharest, Romania, co-chaired by the World Bank and PAODC in September 2024 in Bucharest, Romania, took landmark decisions to scale up the impact of MOSAIC as a cornerstone for a unified global approach to enhance the capacity of professional accountancy organizations (PAOs) and elevate the quality of financial management systems in emerging economies. This initiative is expected to see a dramatic increase in the scale and impact of activities in the public sector.
In conclusion, 2025 will witness a significantly greater role for the accounting profession. It can better equip itself for this role through enhanced collaboration with all stakeholders and improvements in the curriculum of professional accounting qualifications and university courses, with a greater emphasis on government accounting and auditing. This proactive approach will ensure that accountants are well-prepared to meet the challenges and opportunities that lie ahead, ultimately contributing to more robust and transparent PFM systems globally.
 
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Blog post by Matteo Ciccarelli, Matthieu Darracq Pariès, Bettina Landau and João Sousa | Central banks project future developments based on past data patterns and a set of assumptions. Crises can change economic structures, complicating this forecasting. The ECB Blog explains how scenario, risk and sensitivity analyses address the new uncertainty.
We use economic models and data patterns from the past to project the future. In normal times, assessing what conditions will be like in the near future can be a relatively “straightforward” task. When inflation and growth are stable and predictable our central forecast, or baseline projection, proves to be reliable. However, recent crises might have caused structural changes, which would introduce analytical uncertainty, in addition to the increased general uncertainty surrounding projections. In response, the ECB has been upgrading the tools and analyses we use in our staff macroeconomic projections, which form an integral part of our economic forecasting. One of these, scenario analysis, is particularly important in the light of a world of increasing uncertainty and change.
So, what do we mean by scenario analysis?
We use three types of additional checks to enhance our standard baseline forecasting: sensitivity analysis, risk analysis, and scenario analysis. All of them, just like our standard forecast, are a combination of two elements: the use of models and expert judgement. The three additional checks in particular aim to show possible deviations from the “normal”, or most likely, forecast. In this sense they complement our baseline projection with “what if” assessments.
First, the sensitivity analysis focuses on how changes in individual factors, such as a huge change in energy prices or a different exchange rate path, might affect economic variables like economic activity and inflation. By altering one variable at a time, models can evaluate the potential impact of uncertain assumptions on the baseline.
Second, risk analysis looks at how likely it is that economic developments will deviate from the baseline. In theory, the baseline projection would correspond to the mode (i.e. the most-likely outcome) of a “predictive distribution”, while events further away from the mode are less likely to occur. The probability distribution may also show asymmetry to the “right” or to the “left” (see Figure 1), depending on the balance of risks. This asymmetry – which may depend on various quantifiable or only qualitative risk factors – represents the risk balance around the projection. The risk balance helps to interpret projections and decide about monetary policy in periods of heightened uncertainty. The risk analysis tells us to which side deviations from the baseline are more likely. This risk distribution can be estimated by resorting to various models and tools.

Chart 1
Two probability distributions around the same 2% inflation baseline

Sources: Using an analogy to the literature on numerical regarding gaussian quadrature, see Miller, A.C. and T. Rice, (1983), “Discrete Approximations of Probability Distributions”, Management Science, Vol. 29, No. 3.

Finally, the scenario analysis addresses the even more complex “what if” questions. Specifically, it examines the consequences of hypothetical events or economic conditions that deviate from the baseline. For the sensitivity analysis we alter individual factors, while for the scenario analysis the approach is wider and more holistic. The spectrum ranges from major economic and political events – like wars, financial crises, or global energy shocks – to more specific situations like trade tariffs or housing market adjustments, which can affect several factors at the same time.
A typical scenario combines two broad sets of changes from the baseline: i) additional shocks over the projection horizon, and ii) changing features of the macroeconomic propagation mechanism. The shocks driving the scenarios can come from many different directions.
They may stem from the international environment of the euro area – for example through commodity prices, exchange rates or global trade. Or they can be driven by domestic economic conditions – such as financing conditions, household spending, or firms’ price-setting. Another driver might be supply-side fundamentals of the euro area economy – for example increases in productivity related to artificial intelligence.
In addition to the type and magnitude of a shock, scenarios may also think through different future developments by altering how the economy reacts to the shocks. For instance, wages and prices can adjust more quickly to a surge in the cost of energy than to small changes. Or households may save more during times of high uncertainty, or the financial sector could amplify a shock if credit constraints arise. Altogether, a scenario is a blend of various factors which evaluates the impact of economic events on the projection baseline.
How do scenarios relate to a forecast distribution and risk analysis? The economic literature shows that you can reasonably approximate the forecast distributions by resorting to a small number of scenarios (see Figure 1). For instance, a symmetric forecast distribution can be represented by one downside and one upside scenario with equal probabilities. More complex distributions may require multiple scenarios to capture high-impact, low-probability events, or secondary modes of the distribution as shown in Figure 1. This approach helps understand the range of possible outcomes and the associated risks. The advantage over the risk distribution is that scenarios provide a narrative for specific risk events and their impact on the economy instead of a simple probability distribution.
Assuming that the forecast distribution is quantifiable (based on given models) and interpretable as a probability distribution, scenarios can be used to explore the main properties of this distribution.
What scenario analysis does the ECB do?
The ECB progressively refines its analyses, particularly in response to significant economic events. In the past we regularly published forecast ranges and sensitivity analyses, and only occasionally included ad-hoc scenarios related to international shocks. However, the COVID-19 pandemic marked a turning point in our approach. During this highly uncertain period we used different scenarios to reflect varying assumptions about the pandemic’s progression. That provided insight into what was driving changes and supported discussing different options for action.
More recently, scenarios have been instrumental in assessing the impact of geopolitical tensions, such as the war in Ukraine and potential conflicts in the Middle East. For instance, the ECB developed scenarios to evaluate the effects of the Ukraine war and rising energy prices on inflation. This provided insights where standard sensitivity failed to account for extreme developments (Figure 2, panel a). The war in Ukraine and subsequent rises in energy prices led to a significant and unexpected surge in inflation. This could not have been foreseen in the central projections, given their conditionality on oil and gas price futures as expected by markets and other more standard assumptions. Nor could it have been foreseen by sensitivity analysis (Figure 2, panel b). Scenario analyses, however, did foresee this. Specifically, the assessment of scenarios helped by pointing to the risk of much stronger increases in energy commodity prices and consequently of much higher inflation in 2022 (the Ukraine war scenario published in March 2022 foresaw already 7% inflation in 2022, and around 8% in the June and September rounds). In this respect, the inflation scenario was useful to inform the ECB’s policy and its public communication.
Projections don’t usually look at the probability of “Black Swan” events – these are events which are very unlikely, but would have a huge impact – used, for example, in bank stress testing. This is an aspect that may deserve further attention, but it is unclear what the added value of such scenarios for monetary policy making is, unless there is also extreme uncertainty as, for example, during the pandemic.

Chart 2
Baseline projection, alternative scenarios and sensitivity analysis for inflation in 2022

Sources: ECB/Eurosystem staff projections and ECB staff calculation.
Notes: The ranges surrounding the respective baseline refer to a measure of uncertainty based on past projection errors, after adjustment for outliers, showing the 90% probability that the outcome of HICP inflation will fall within this interval. Panel a): Max and Min refer to the highest and lowest outcome from various scenarios including scenarios on the war in Ukraine, higher inflation expectations, real wage catch up etc. Panel b) Max and Min refer to the highest and lowest outcome from sensitivity analyses related to energy prices, exchange rates and market interest rates.

Scenario analysis: an invaluable complementary tool
Our experience shows that scenario analyses play an important role in macroeconomic projections by complementing aspects that are not included in the baseline forecasts. Together with sensitivity and risk analysis, they provide a robust toolkit to prepare for contingency or emergency planning and to give policymakers courses of action for alternative futures, and therefore better input to fulfil their mandate.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
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