GDP is estimated to contract by 6.8% in 2020, and projected to recover slowly, by 1.5%, in 2021. The economy has been hit hard by lockdown measures and a drop in trade. Additional containment measures, high uncertainty and weak sentiment amid the second outbreak will delay economic recovery until an effective vaccine is widely deployed towards the end of 2021. Fiscal support will help maintain household consumption, but investment will take longer to rebound. The unemployment rate will rise from low levels and inflation will slow.
The authorities reacted swiftly to the pandemic, supporting incomes, employment and liquidity. This supportive stance should be maintained. The central bank can further ease monetary policy in case of persistent weakness, beyond the conventional measures already implemented at the beginning of the crisis. Gradual fiscal consolidation is planned following a supportive budget for 2021. Care should be taken not to tighten fiscal policy too soon. Active labour market policies should be boosted to facilitate labour reallocation.