Yahoo Finance ECB: Eurozone economy set for slower COVID recovery
WATCH: ECB keeps Eurozone interest rates intact
Economists at the European Central Bank (ECB) have downgraded forecasts for eurozone growth next year, prompted by the severity of the COVID-19 second wave.
ECB president Christine Lagarde said on Thursday that staff at the central bank had downgraded short-term GDP forecasts. The ECB now expects GDP to grow by just 3.9% in 2021, Lagarde said, compared with a forecast of 5% made in September.
The downgrade was driven by the COVID-19 second wave, which has swept Europe in recent months and forced many countries to return to lockdowns.
“We all had anticipated that there would be a possible second wave, it was actually embedded in previous projections,” Lagarde said at a press conference on Thursday.
“But the depth of it, the duration of it, and the containment measures associated with it were not anticipated to the extent that they actually occurred and are still taking place.”
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The ECB expects eurozone GDP to return to contraction again in the fourth quarter, Lagarde said, shrinking by an estimated 2.2%. The drag from the second wave is seen continuing into the first quarter of 2021.
However, a stronger-than-expected third quarter rebound meant that the ECB’s forecast for GDP growth across 2020 was in fact upgraded. Economists at the central bank now expect the eurozone economy to contract by just 7.3% in 2020. The ECB had predicted an 8% fall in GDP when it last prepared forecasts in September.
Despite the short-term downgrade, Lagarde said ECB economists still expect the eurozone economy to rebound “over the medium term” to similar levels seen in September’s projections.
December’s forecast sees the eurozone economy expanding by 4.2% in 2022 — an upgrade from September’s projections.
“Even though the near-term outlook has deteriorated, the path of euro area GDP from 2022 is expected to be broadly similar to that foreseen in the September 2020 ECB staff projections,” staff wrote in the December report.
Lagarde said risks “remain tilted to the downside but have become less pronounced.” She said rollout of vaccines should hopefully mean economies return to normal by the end of 2021.
The upgrade forecasts came as the ECB delivered its final policy update of 2020. The central bank left interest rates unchanged but extended and expanded its package of COVID-specific support.
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