Euro Area Economic Forecast

Economic Snapshot for the Euro Area

July 27, 2021

Euro area economy seen rebounding this year

This year, the economy will rebound thanks to the gradual easing of restrictions domestically and abroad, the disbursement of EU recovery funds, and unleashed pent-up demand amid expansionary fiscal and monetary policies. However, weaker public finances, the spread of Covid-19 variants and banks’ badloans pose downside risks.

Inflation falls from a high in May 

Harmonized inflation came in at 1.9% in June, marginally down from May’s 2.0%—which had marked the highest print since October 2018—due to a softer increase in energy prices. This year, an ultra-loose monetary policy stance, higher energy and CO2 prices, recovering activity and global supply disruptions will feed inflation, although a large output gap should temper it.


 

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