Euro Area Economic Forecast

Economic Snapshot for the Euro Area

December 22, 2020

Detailed national accounts data revealed that Q3’s strong rebound in GDP was supported by both the domestic and external economy: Resuming business activity and unleashed pent-up consumer spending fueled domestic demand, while easing lockdowns abroad boosted exports. That said, the recovery seems to have hit a stumbling block in Q4.  The reintroduction of restrictions due to rising Covid-19 cases left visible scars on the services sector and on consumer and business sentiment in November, while a lost Christmas season will further weigh on activity at the tail end of 2020. In politics, in late November Eurozone finance ministers reached a deal to revamp the bloc’s bailout fund to provide extra cash for failing banks, starting in 2022. Moreover, Hungary and Poland recently lifted their veto on the EU’s multi-year budget and Covid-19 recovery fund in exchange for a softening of the rule of law mechanism.

The economy is seen expanding 4.6% in 2021, which is down 0.2 percentage points from last month’s forecast. In 2022, GDP is seen increasing 3.5%.


 

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