September 13, 2022

Industry Turnover Index in Portugal increased by 24.3% in July, in nominal and year-on-year terms (31.6% in the previous month), still reflecting the price increases in industry (24.8% in June). Excluding the Energy grouping, sales in industry rose 16.6% (24.4% in June). Domestic market and non-domestic market change rates were 22.6% and 26.6% (27.3% and 37.6% in June, by the same order). Employment, wages and salaries and hours worked (adjusted of calendar effects) year-on-year change rates were 2.9%, 6.8% and 1.7% (2.9%, 6.6% and 2.6% in June), respectively.

Source: Statistics Portugal
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

September 13, 2022

Source: Statistics Netherlands (CBS)
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

September 12, 2022

Regulation on R&D deduction in Corporate Tax in Türkiye

Article 3/A of the Law No. 5746 regulates the R&D deduction regarding the R&D and innovation activities carried out by the income and corporate taxpayers within their businesses.

 Accordingly, 100% of the amount of research and development expenditures made by income and corporate taxpayers, exclusively for the search for new technology and information,

Provided that the projects within this scope are evaluated as R&D and innovation projects by the Ministry of Industry and Technology, in terms of companies, in accordance with Article 10 of the Law No. 5520, and for income taxpayers, in accordance with Article 89 of the Law No. 193, will be deducted in the determination of earnings.

As of August 9, 2016, the R&D discount application will be utilized by taking into account the Law No. 5746 and the relevant regulations in the discount application regarding research and development projects for the search for new technology and information, which are the subject of applications made within the scope of Article 3/A of the Law No. 5746.

Is it possible to benefit from both the R&D income exemption in Technoparks and the R&D and design deduction related to these earnings? 

The R&D and design deductions are not available to taxpayers who wish to take use of the incentives in Law No. 4691 because they are ineligible to take advantage of the incentives in Law No. 5746. However, if it is preferred and the requirements are met, the supports in Law No. 5746 can be used in place of the incentives in Law No. 4691. 

Can the R&D deduction amount, which cannot be deducted in the relevant year due to insufficient earnings, be carried over to the next accounting periods? 

The amount of R&D deduction, which cannot be deducted due to insufficient earnings in the relevant period, can be carried over to the next accounting periods. 

Will the amount of support provided due to R&D, innovation and design activities be considered as income in legal records?

The support received from international institutions or public institutions and organizations by those engaged in R&D and innovation activities and design activities, from foundations and international funds that use funds or credits to support R&D and innovation projects and design projects, within the public institutions and organizations, established by law or within the scope of technology development project agreements held in a special fund account. 

This fund is not taken into account in determining the taxable income and the amount of R&D or design expenditure made in the relevant year according to Law No. 193 and Law No. 5520. If this fund is transferred to another account or withdrawn from the enterprise in any way other than addition to the capital within five years following the accounting period in which it was obtained, the taxes not accrued on time shall be deemed to have been lost.

The grants received for the projects within the scope of the abolished subparagraph (a) of the first paragraph of Article 10 of the Law No. 5520 will be included in the corporate income and the R&D expenditures covered by these supports will be able to benefit from the R&D deduction.

 In case the grant amounts cannot be determined exactly, how will the R&D and design discount amount be determined in the corporate tax calculation?

– The support amounts to be received as grants must be taken into a special fund account on the date of receipt, the amounts in this account should not be included in the corporate income and the R&D and design expenses made from this amount should not be subject to the R&D and design deduction.

– If the amount of support to be received as a grant is determined before the deadline for filing the corporate tax return of the relevant year, R&D and design expenditures exceeding the grant amount can be subject to R&D and design deduction. 

– If the amount of support to be received as a grant is determined after the deadline for filing the corporate tax return of the relevant year, provided that the R&D and design expenditures exceeding the grant amount have not been subject to the R&D and design deduction in the relevant period, a correction declaration is submitted and the subject of R&D and design deduction can be possible. However, the expenditures to be subject to the R&D and design deduction must be R&D and design expenditures and related to the supported R&D and design project.

 What kind of action is taken if the support and incentive conditions used within the scope of R&D are violated or the incentives are used outside of their purpose? 

In case of violation of the provisions of the law or the use of support and incentive elements for other than their purpose, tax loss is deemed to have arisen in terms of taxes that were not accrued on time, and the lost taxes are collected together with default interest and tax loss penalty. On the other hand, non-tax supports are collected in accordance with the provisions of the Law No. 6183 on the Collection of Public Receivables and by applying default interest.

 What will be the costs if the R&D and design project is incomplete or unsuccessful?

In cases where the completion of R&D projects is not possible due to compelling reasons, or there is no economic value due to the failure of the project, the amounts made within the scope of R&D, innovation and design activities and capitalized in previous years are booked as expense.

Can projects supported by KOSGEB (SMALL AND MEDIUM INDUSTRY DEVELOPMENT ORGANIZATION) benefit from deductions and supports within the scope of Law No. 5746? Do these projects also need to be submitted to TUBITAK’s (SCIENTIFIC AND TECHNOLOGICAL RESEARCH COUNCIL OF TÜRKİYE) approval?

It is possible for the R&D and design projects approved by KOSGEB to benefit from the support and incentives included in the Law No. 5746. These projects are also not required to be submitted to TUBITAK’s approval.

Can projects approved by the Ministry of Industry and Technology within the framework of San-Tez Program benefit from deductions and supports within the scope of Law No. 5746?

Projects approved by the Ministry of Industry and Technology within the framework of the San-Tez Program can benefit from the support and incentives included in the Law No. 5746, provided that the conditions are met.

 You can contact us for further information about R&D support and incentives.

Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

September 12, 2022

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $70.6 billion in July, down $10.2 billion from $80.9 billion in June, revised.

Exports, Imports, and Balance 

July exports were $259.3 billion, $0.5 billion more than June exports. July imports were $329.9 billion, $9.7 billion less than June imports.

The July decrease in the goods and services deficit reflected a decrease in the goods deficit of $8.2 billion to $91.1 billion and an increase in the services surplus of $2.1 billion to $20.4 billion.

Year-to-date, the goods and services deficit increased $136.6 billion, or 29.0 percent, from the same period in 2021. Exports increased $286.4 billion or 19.9 percent. Imports increased $423.0 billion or 22.1 percent.

Three-Month Moving Averages

The average goods and services deficit decreased $5.4 billion to $79.1 billion for the three months ending in July.

• Average exports increased $2.5 billion to $257.5 billion in July.
• Average imports decreased $2.9 billion to $336.7 billion in July.

Year-over-year, the average goods and services deficit increased $10.0 billion from the three months ending in July 2021.

• Average exports increased $45.3 billion from July 2021.
• Average imports increased $55.3 billion from July 2021.

Exports 

Exports of goods decreased $0.3 billion to $183.0 billion in July.

Exports of goods on a Census basis increased $0.6 billion.

• Capital goods increased $2.1 billion.
  • Other industrial machinery increased $0.6 billion.
  • Computer accessories increased $0.4 billion.
  • Telecommunications equipment increased $0.3 billion.
• Automotive vehicles, parts, and engines increased $0.9 billion.
  • Passenger cars increased $1.0 billion.
• Foods, feeds, and beverages decreased $1.3 billion.
• Industrial supplies and materials decreased $0.9 billion.
  • Natural gas decreased $1.3 billion.
  • Other petroleum products decreased $1.0 billion.
  • Nonmonetary gold increased $2.0 billion.

Net balance of payments adjustments decreased $0.9 billion.

Exports of services increased $0.8 billion to $76.3 billion in July.

• Travel increased $0.6 billion.
• Other business services increased $0.3 billion.

Imports 

Imports of goods decreased $8.5 billion to $274.1 billion in July.

Imports of goods on a Census basis decreased $8.3 billion.

• Consumer goods decreased $7.4 billion.
  • Pharmaceutical preparations decreased $3.0 billion.
  • Toys, games, and sporting goods decreased $0.9 billion.
  • Gem diamonds decreased $0.9 billion.
• Industrial supplies and materials decreased $1.8 billion.
  • Other petroleum products decreased $0.7 billion.
  • Bauxite and aluminum decreased $0.5 billion.
  • Crude oil increased $1.0 billion.
• Automotive vehicles, parts, and engines increased $1.8 billion.
  • Other automotive parts and accessories increased $0.7 billion.
  • Passenger cars increased $0.6 billion.
  • Trucks, buses, and special purpose vehicles increased $0.5 billion.

Net balance of payments adjustments decreased $0.2 billion.

Imports of services decreased $1.2 billion to $55.9 billion in July.

• Transport decreased $1.1 billion.
• Travel decreased $0.3 billion.

Real Goods in 2012 Dollars – Census Basis 

The real goods deficit decreased $10.4 billion to $103.4 billion in July.

• Real exports of goods increased $4.9 billion to $159.6 billion.
• Real imports of goods decreased $5.5 billion to $263.0 billion.

Revisions

Exports and imports of goods and services were revised for January through June 2022 to incorporate more comprehensive and updated quarterly and monthly data. In addition, exports of goods beginning with February 2022 now include military goods that were transferred from U.S.-owned stockpiles to Ukraine. Previously, these goods were recorded in exports of services. See the “Notice” in this release for more information.

Revisions to June exports

• Exports of goods were revised up $0.2 billion.
• Exports of services were revised down $2.3 billion.

Revisions to June imports

• Imports of goods were revised up less than $0.1 billion.
• Imports of services were revised down $0.8 billion.

Goods by Selected Countries and Areas: Monthly – Census Basis

The July figures show surpluses, in billions of dollars, with South and Central America ($7.4), Netherlands ($3.6), Singapore ($2.6), Hong Kong ($2.3), Switzerland ($2.1), United Kingdom ($1.7), Brazil ($1.4), Australia ($1.3), and Belgium ($1.2). Deficits were recorded, in billions of dollars, with China ($33.0), European Union ($11.9), Mexico ($11.7), Vietnam ($10.0), Canada ($8.7), Japan ($5.5), Germany ($5.1), Taiwan ($4.6), Ireland ($4.2), India ($3.7), South Korea ($3.6), Malaysia ($2.9), Italy ($2.3), Saudi Arabia ($1.3), France ($0.8), and Israel ($0.6).

• The deficit with the European Union decreased $5.7 billion to $11.9 billion in July. Exports increased $1.7 billion to $31.4 billion and imports decreased $4.0 billion to $43.3 billion.
• The deficit with China decreased $3.9 billion to $33.0 billion in July. Exports increased $0.9 billion to $12.8 billion and imports decreased $3.0 billion to $45.8 billion.
• The deficit with Mexico increased $2.0 billion to $11.7 billion in July. Exports decreased $0.2 billion to $27.6 billion and imports increased $1.8 billion to $39.3 billion.

Goods and Services by Selected Countries and Areas: Quarterly – Balance of Payments Basis 

Statistics on trade in goods and services by country and area are only available quarterly, with a one-month lag. With this release, second-quarter figures are now available.

The second-quarter figures show surpluses, in billions of dollars, with South and Central America ($31.4), Netherlands ($11.5), Singapore ($9.6), Brazil ($9.4), Australia ($6.8), Hong Kong ($6.5), United Kingdom ($4.3), Belgium ($2.5), and Switzerland ($1.8). Deficits were recorded, in billions of dollars, with China ($100.8), European Union ($37.4), Mexico ($33.3), Vietnam ($32.7), Canada ($20.9), Germany ($18.2), Japan ($15.2), India ($14.8), Taiwan ($11.8), Italy ($11.0), South Korea ($9.9), Malaysia ($8.8), Ireland ($4.6), France ($3.9), Israel ($2.5), and Saudi Arabia ($2.0).

• The deficit with China decreased $12.0 billion to $100.8 billion in the second quarter. Exports decreased $2.8 billion to $47.1 billion and imports decreased $14.8 billion to $147.9 billion.
• The balance with Switzerland shifted from a deficit of $7.0 billion in the first quarter to a surplus of $1.8 billion in the second quarter. Exports increased $3.6 billion to $23.7 billion and imports decreased $5.2 billion to $21.9 billion.
• The deficit with Vietnam increased $5.5 billion to $32.7 billion in the second quarter. Exports increased $0.8 billion to $4.0 billion and imports increased $6.3 billion to $36.7 billion.

Source: U.S. Bureau of Economic Analysis
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

September 12, 2022

Austriaʼs gross domestic product (GDP) in the second quarter of 2022 was 6.0 % higher in real terms than in the same quarter of the previous year. According to preliminary calculations by Statistics Austria, this corresponds to an increase in real GDP of 1.5 % (seasonally and calendar adjusted) compared to the first quarter of 2022.

“The Austrian economy continued to grow in the second quarter 2022. The gross domestic product was 6.0 % higher than in the same quarter of the previous year and thus 3.8 % above the corresponding period of the year 2019 before the Corona crisis. Almost all sectors of the economy contributed to growth, such as industry, utilities, trade and transport. Accommodation and food services posted strong growth of 77.2 %, even though the comparable quarter of the previous year was still significantly impacted by lockdown measures. Inflation continues to be a cause for concern. At 9.1 %, it remained at a high level in August and is affecting on consumption possibilities. For households, inflation is now the most common reason for noticeable income losses,” explains Statistics Austria Director General Tobias Thomas at the sixth edition of the “Austrian Recovery Barometer” press conference.

Economic output continued to grow strongly in second quarter 2022

After the Austrian economy grew strongly again at the beginning of 2022, the growth momentum slowed down in the second quarter: Economic output in the Q2 2022 was +6.0 % compared with the same quarter of the previous year. In the first quarter of 2022, growth of 10.2 % was still recorded compared with Q1 2021. Compared with the same quarter of the previous year, almost all sectors of the economy made a positive contribution to growth; in particular, there was strong momentum in hotels and restaurants and transport, while economic output in construction declined slightly in real terms.

Growth in industry and construction continued at a subdued pace in July 2022

Turnover growth in industry and construction continued at a subdued pace, according to early economic estimates for the industry and construction sectors in July 2022. The turnover index for these sectors once again increased for both industry (+18.8 %) and construction (+4.2 %). Overall, in July 2022 the turnover index for industry and construction is 31.3 % above the pre-crisis level of July 2019.

Foreign trade significantly above pre-crisis level

Foreign trade achieved a significant plus of 23.7 % on the import side and 18.9 % on the export side in the period from January to May 2022 compared with the corresponding period of the previous year. Taking the pre-crisis year 2019 as a basis, it can be seen that in May 2022 both imports, at +33.1 %, and exports, at +25.9 %, developed very positively compared to the corresponding month of 2019. A good part of the increases in foreign trade values can be attributed to import and export prices. Thus, the value of gas imports increased by 251.0 % in the first five months of the current year, while the imported volume decreased by 23.6 %. The value of gas imports from Russia increased particularly strongly by 272.2 %, while the imported volume was 25.8 % lower in the same period.

Inflation increased to 9.1 % in August 2022 according to flash estimate

According to a flash estimate, the consumer price index for August 2022 was 9.1 %. In particular, price increases in fuel, household energy and food have caused inflation to climb in July. The mini basket, which is designed to reflect weekly purchases and includes fuel as well as food, rose 19.1 % year-on-year in July. The micro basket, which represents daily shopping and includes newspapers and coffee at the coffee house in addition to food, rose 10.4 % over the same period.

Tourism reaches almost pre-crisis level in first half of summer 2022 with 37 million overnight stays

For the first three months of the summer tourism season (May to July 2022), 37.04 million overnight stays were reported in Austrian accommodation establishments. This means that the number of overnight stays in the period May to July 2022 was 42.8 % higher than the corresponding period of summer 2021 (25.93 million). The number of overnight stays was 4.6 % lower than the pre-Corona level of 2019 (38.83 million).

Overnight stays by guests from abroad reached 24.83 million, down 8.8 % from May-July 2019, while those by resident guests were 5.2 % higher at 12.21 million. In particular, Austrian urban tourism (provincial capitals and Vienna), which was especially affected by the pandemic, still remained one-fifth (-20.4 %) below the pre-crisis period of May to July 2019 (8.20 million) with 6.53 million overnight stays in the first half of summer 2022.

Job vacancies at peak level

In Q2 2022, job vacancies once again reached an all-time high since Statistics Austria began surveying job vacancies in 2009, with a total of 206 300 vacancies. In this context, very strong increases were recorded in all sectors compared to the pre-crisis level (Q2 2019) (manufacturing sector (ÖNACE B-F) +62.7 %; services sector (ÖNACE G-N) +60.4 %; public sector +51.6 %).

Source: Statistics Austria
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

September 12, 2022

Foreign Trade Indices in Türkiye, July 2022

Source: Turkish Statistical Institute (TurkStat)
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

September 13, 2022

GDP growth in the euro area and the EU

In the second quarter of 2022, seasonally adjusted GDP increased by 0.8% in the euro area and by 0.7% in the EU compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the first quarter of 2022, GDP had grown by 0.7% in the euro area and 0.8% in the EU

Compared with the same quarter of the previous year, seasonally adjusted GDP increased by 4.1% in the euro area and by 4.2% in the EU in the second quarter of 2022, after +5.4% in the euro area and +5.5% in the EU in the first quarter of 2022.

During the second quarter of 2022, GDP in the United States decreased by 0.1% compared with the previous quarter (after -0.4% in the first quarter of 2022). Compared with the same quarter of the previous year, GDP increased by 1.7% (after +3.5% in the first quarter of 2022)

GDP growth by Member State

The Netherlands (+2.6%) recorded the highest increase of GDP compared to the previous quarter, followed by Romania (+2.1%) and Croatia (+2.0%). Decreases were observed in Poland (-2.1%), Estonia (-1.3%), Latvia (-1.0%) and Lituania (-0.5%).

GDP components and contributions to growth

During the second quarter of 2022, household final consumption expenditure increased by 1.3% in the euro area and by 1.2% in the EU (after 0.0% in both the euro area and the EU in the previous quarter). Government final consumption expenditure increased by 0.6% in both the euro area and the EU (after +0.2% in the euro area and +0.1% in the EU in the previous quarter). Gross fixed capital formation increased by 0.9% in the euro area and by 0.7% in the EU (after -0.8% and 0.0% respectively). Exports increased by 1.3% in the euro area and by 1.4% in the EU (after +1.2% and +1.0%). Imports increased by 1.8% in the euro area and by 1.9% in the EU (after -0.2% and +0.2%).

Household final consumption expenditure had positive contributions to GDP growth in both the euro area and the EU (+0.6 percentage points – pp in both zones). The contributions from government final expenditure were also positive (+0.1 pp in both zones). The contributions of gross fixed capital formation were positive for the euro area and for the EU (0.2 pp in both zones), too. The contributions from the external balance were negative (-0.2 pp for both the euro area and the EU). The contributions from changes in inventories were negligible for both zones.

GDP levels in the euro area and EU

Based on seasonally adjusted figures, GDP volumes in the euro area and EU were 1.8% and 2.3% respectively above the level recorded in the fourth quarter of 2019, before the COVID-19 outbreak.

For the United States, GDP was 2.6% higher than the level of the fourth quarter of 2019

Employment growth in the euro area and EU

The number of employed persons increased by 0.4% both in the euro area and in the EU in the second quarter of 2022, compared with the previous quarter. In the first quarter of 2022, employment had increased by 0.7% in the euro area and by 0.5% the EU.

Compared with the same quarter of the previous year, employment increased by 2.7% in the euro area and by 2.4% in the EU in the second quarter of 2022, after +3.1% in euro area and +2.9% in the EU in the first quarter of 2022.

Hours worked increased by 0.6% in the euro area and by 0.5% in the EU in the second quarter of 2022, compared with the previous quarter. Compared with the same quarter of the previous year, the increases were 3.7% in the euro area and 3.0% in the EU (see annex table on employment in hours worked). These data provide a picture of labour input consistent with the output and income measure of national accounts.

Employment growth in Member States

In the second quarter of 2022, Lithuania (+3.1%), Czechia and Ireland (both +1.6%) recorded the highest growth of employment in persons compared with the previous quarter. Employment declined in Spain (-1.1%), Portugal ( -0.7%), Estonia (-0.6%), Romania (-0.5%) and Croatia (-0.4%).

Employment levels in the euro area and EU

Based on seasonally adjusted figures, Eurostat estimates that in the second quarter of 2022, 213.4 million people were employed in the EU, of which 164.1 million were in the euro area.
In relation to the COVID-19 pandemic, employment in persons in the euro area was 2.7 million above the level of the fourth quarter of 2019, and 3.5 million above this level in the EU.

Evolution of labour productivity in the euro area and EU

The combination of GDP and employment data allows an estimation of labour productivity. The analysis of growth compared to the same quarter of the previous year shows that productivity growth fluctuated around 1% for both zones between 2013 and 2018 before the COVID-19 pandemic caused high volatility in 2020. In the second quarter of 2022, productivity based on persons increased by 1.5% in the euro area and 1.8% in the EU compared to the same quarter of the previous year. Based on hours worked, productivity compared to the same quarter of the previous year increased by 0.3% in the euro area and by 1.0% in the EU.

Source: Eurostat
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

September 12, 2022

Given the central role of fiscal policy in addressing both recent crises and future challenges, the call to reform fiscal governance in Europe resonates like never before.

Fiscal policy provides essential support when households and firms are hit by large shocks, such as the pandemic, or when monetary policy is constrained. However, that requires healthy public finances. High debt and rising interest rates are making it harder for governments to address today’s multiple priorities, including tackling extreme increases in the cost of living and addressing the climate emergency.

Against this backdrop, the European Union needs revamped fiscal rules that have the flexibility for bold and swift policies when needed, but without endangering the sustainability of public finances. It is critical to avoid debt crises that could have large destabilizing effects and put the EU itself at risk. This will require building greater fiscal buffers in normal times.

A new IMF paper proposes reforms to the EU fiscal framework to help manage the tremendous policy challenges.

The overhaul should be economically sound and politically acceptable, building on the lessons from several past attempts to improve the fiscal rules. It will be critical to balance the respect for the sovereignty of national fiscal policies while strengthening the incentives for adopting sound policies for the EU.

The proposal centers on three pillars: revamping numerical fiscal rules to take explicitly into account the fiscal risks countries face while having a clear medium-term orientation; strengthening national fiscal institutions to improve domestic debate and ownership of policies; and creating an EU fund to help countries better manage economic downturns and provide essential public goods.

Ambitious reforms needed

The existing rules have had some success, especially by increasing public awareness that fiscal deficits should be below 3 percent of gross domestic product, enhancing government accountability. But they have not prevented an undesirable buildup of public debt and fiscal sustainability risks among some members.

As we saw with the European sovereign debt crisis, these risks have threatened the stability of the monetary union in the past and continue to create vulnerabilities today. This is despite numerous efforts to refine the numerical rules and strengthen central oversight over the years.

To some extent, weak national institutions, political pressures and large negative shocks have led to poor compliance. Combined with design limitations of the framework, which sets ceilings on deficits in bad times without providing sufficient incentives to build buffers in good times, this has led to the build-up of fiscal imbalances. The framework has also fared poorly at stabilizing output and lacks tools to provide common public goods for member countries.

In response to the pandemic, in March 2020, the European Commission triggered the general escape clause—which allows a temporary deviation from the EU fiscal rules—enabling member countries to respond more forcefully and flexibly. But the increase in deficits has pushed debt levels even further above the Maastricht Treaty reference value of 60 percent of GDP in many countries, posing additional challenges in transitioning back to the existing rules.

The IMF’s proposal has three interconnected pillars:

• Risk-based EU-level fiscal rules: While the current 3 percent deficit and 60 percent debt reference values remain, the speed and ambition of fiscal adjustments would be linked to the degree of fiscal risks. These are identified by debt sustainability analysis using a common methodology, developed by a new and independent European Fiscal Council, or EFC, in consultation with other key stakeholders. Countries with greater fiscal risks would need to converge to a zero or positive overall fiscal balance over the next three to five years. Countries with lower fiscal risks and debt below 60 percent would have more flexibility but still need to consider risks in their plans. The framework would incentivize buildup of fiscal buffers allowing for significant flexibility to respond to adverse shocks and conduct countercyclical policy.
• Strengthened national fiscal insti­tutions: All EU countries would have to enact medium-term fiscal frameworks and set multi-year annual spending caps consistent with their overall balance anchor over the period. Independent national fiscal councils would play a stronger role to strengthen checks and balances at the country level, including making or endorsing macroeconomic projections, assessing fiscal risks, and ensuring the consistency of the expenditure ceilings and fiscal plans. The European Commission would continue to play its key surveil­lance role and the EFC would serve as the central node for a network of national fiscal councils, helping to promote good practices and providing an independent voice both on debt risks and the execution of the framework.
• A well-designed EU fiscal capacity: This would be established to achieve two key roles: improving macroeconomic stabilization, especially when monetary policy is operating at the effective lower bound, and allowing the provision of common public goods at the EU level, such as climate change and energy security infrastructure. Delivering these has become more urgent due to the green transition and common security concerns. A dedicated climate investment fund is an important part of the proposal.

The proposal should be seen as a package of interlinked elements to promote an effective reform. It requires a mutually reinforcing relationship between EU rules and national imple­mentation, particularly greater domestic ownership of the rules and better alignment between country frameworks and EU rules. The former can only be achieved by balancing the needs of member countries with safeguarding them from negative spillovers from other parts of the union. This argues for a risk-based approach—the first pillar of the IMF proposal. The latter requires a stronger role for our second pillar: significantly upgraded national frameworks—including enhancing the capacity and mandates of independent fiscal institutions.

Amid extraordinary economic uncertainty and fiscal challenges ahead, reform of the EU fiscal framework cannot wait. The extension of the general escape clause through 2023 provides a window of opportunity to do just this; further delays would force countries to go back to the old rules with all of their problems. The opportunity should not be wasted.

Source: IMF
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September 10, 2022

In August, the ANZ bank business outlook indicator increased. As a result, a net 47.8% of enterprises said that they anticipate general business circumstances to deteriorate in the coming year, down from a net 56.7% of firms in July who anticipated worsening general business conditions. As a result, the headline continued to be below the net-0% cutoff point that separates business optimism from pessimism.

With relation to credit availability, planned investments, and commercial construction, business sentiment improved.

A measure that has a better association to GDP growth is enterprises’ expectations for their own activity, which increased to a net negative 4.0% in August from a net negative 8.7% in July.

Source: Focus Economics
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.

September 10 , 2022

The Bank of Korea reported that South Korea’s current account surplus decreased to $1.09 billion in July from $5.61 billion in June.

A $1.18 billion deficit was recorded in the goods account, compared to a $5.55 billion surplus the year before.

Due to a sizable surplus in the transport account, the services account saw a $0.34 billion surplus, up from a $0.28 billion deficit in 2021.

In July 2022, the main income account surplus had decreased from $2.84 billion from the previous year to $2.27 billion.

A $0.34 billion loss was recorded in the secondary income account.

In the financial statement for July 2022, net assets rose by $0.18 billion.

While direct investment liabilities rose by $2.26 billion, direct investment assets rose by $5.67 billion.

During the month, portfolio investment assets increased by $3.24 billion, while portfolio investment liabilities increased by $4.22 billion.

Source: RTTNews
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.