After a projected GDP decline of 7½ per cent in 2020, growth of 3½ and 3¼ per cent in 2021 and 2022, respectively, will bring output back to its pre-pandemic level only at the end of 2022. Persistent virus outbreaks and accompanying containment measures will continue to hamper activity until a vaccine is widely implemented. Private consumption and investment will be affected the most by pervasive uncertainty and low confidence. Unemployment is projected to rise until mid-2021, approaching double-digit rates, and fall only gradually afterwards. Fiscal support and subdued activity will keep Maastricht public debt above 100% of GDP. Failure to promote reallocation from declining activities towards those likely to expand would durably worsen growth prospects.
With inflation set to remain well below the ECB objective by end-2022, monetary policy should ensure that borrowing costs for the public and private sectors remain durably very low while the pandemic-induced crisis lasts. To avoid a premature tightening that could derail the recovery, national fiscal policies should also remain supportive over the coming two years, taking advantage of very low interest rates and sizeable financing under the EU recovery plan. However, as the pandemic will likely have a durable negative impact on some sectors, the composition of fiscal measures needs to shift from an emphasis on income support to the promotion of labour and capital reallocation. At the EU level, steps to reduce financial fragmentation are also key for improving resilience, inter alia through greater cross-border lending. Efficient vaccine distribution and further development of testing and tracing capabilities are needed to minimise the impact of future virus outbreaks.
After years of crisis, the European economy has robustly expanded in 2017, helped by very accommodative monetary policy, mildly expansionary fiscal policy and a recovering global economy. GDP growth is projected to remain strong in 2018 and 2019 by the standards of recent years.
The euro area economy has expanded since 2014, helped by very accommodative monetary policy, mildly expansionary fiscal policy and a recovering global economy. GDP growth is projected to slow somewhat, but to remain strong by the standards of recent years.