Trade, Innovation, and Productivity
Joe Biden’s replacing of Donald Trump as president of the United States of America may be a chance for a new start in the trade relations between the US and the EU. Trade tensions between the two partners have been significant during Trump’s term. In 2018, the US imposed tariffs of 25% and 10% respectively on steel and aluminium imports from the EU and other US trading partners including Canada, Japan, Turkey, and China. These trade tariffs have been shown to have a negative impact on the EU trade with a 1.2% decrease in the exports of steel and aluminium products one year after their implementation with a resulting decrease in value-added and employment in European steel and aluminium sectors of 0.76% and 1.02% respectively. The retaliatory response by the EU involved extra duties on US-originating goods (mainly steel, aluminium, and agricultural products). Another ongoing trade conflict involves the subsidies to Boeing and Airbus that already resulted in Washington’s imposing 25% tariffs on multiple European agri-food products. The EU, in turn, secured an approval from the World Trade Organization to impose tariffs on USD 4 billion worth of US goods. Brussels has not, however, levied these tariffs until now and may not apply them if parties agree to renegotiate. Lastly, Biden’s administration may resume the negotiations of the EU-US preferential trade agreement that has been halted during Donald Trump’s term in the office.
Labour market and Environment
As much as EUR 108,000 million was invested in Social Impact Investments (the SII) in 2017 –twelve times more than in 2011. SII is aimed at generating societal and financial returns, at the same time offering innovative alternatives to help social organisations to access funding and increase their ability to make an impact. Despite a significant progress of this market at the EU level, the maturity of the SII in most EU Member States remains low – 75% of the EU MS are at the inception phase, when implementing the concept. The three main challenges identified by the EP study (2020), when it comes to the development of the SII market are: 1) national governments being insufficiently involved in the development of SII, 2) most of the existing initiatives targeting the supply side of the market and neglecting the demand one, 3) the EU funds being distributed predominantly as general funding mechanisms, not tailored to the specific needs of the SII market stakeholders (social enterprises included). On the top of that, the COVID-19 pandemic has negatively affected the SII market actors, similarly to that of other economic stakeholders. Combating the existing challenges at the EU and national level might be possible by virtue of promoting the concept of SII, closing the knowledge gap and raising awareness about the SII, and facilitating the capacity building of the market.
Macro and Fiscal
The latest tax collection figures from the Ministry of Finance point to fast increase in VAT revenue in Poland in the third quarter of 2020. Over the last four consecutive months, VAT revenue increased by more than 12% y/y. Thanks to such a good performance, the VAT revenues during the first 10 months of this year have been at a practically unchanged compared to the last year. This happened in spite of the policy changes (new “rate matrix”, simplification of VAT treatment of imports), which reduced somewhat the effective rate. The reason for that might be an increase in the volume of electronic payments in Q2 compared to Q1 (by 4%). As Christmas expenditure this year will also most likely take an electronic form, the VAT revenues may remain relatively satisfactory despite the decline in the economic activity. Against all odds, the VAT Gap could also be lower than it was forecasted earlier this year.