Chapter News

Eurosystem staff macroeconomic projections for the euro area, December 2020

How will our economy evolve over the next few years? The ECB and Eurosystem staff produce quarterly macroeconomic projections. These aim to assess how the economy in the euro area will develop.

Today we again published a baseline scenario as well as two alternative scenarios, taking into consideration the high uncertainty surrounding the impact of the coronavirus on the eurozone economic outlook


Following a drop of 15.0% in the first half of 2020, euro area real GDP rebounded by 12.5% in the third quarter, which was a significantly stronger increase than expected in the September 2020 ECB staff projections. Nevertheless, the recent intensification of containment measures in response to a strong resurgence of coronavirus (COVID-19) infections across countries is expected to result in another decline in activity in the fourth quarter. Activity is also expected to be subdued in the first quarter of 2021. Despite this near-term setback, positive news on the development of vaccines gives cause for greater confidence in the assumption of a gradual resolution of the health crisis throughout 2021 and in early 2022. This, together with substantial support from monetary and fiscal policies – partly related to the Next Generation EU (NGEU) package – and the ongoing recovery in foreign demand, should allow a firm rebound during the course of 2021, with real GDP expected to return to its pre-crisis level by mid-2022. Thus, 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. As the policy measures are expected to be successful in averting large financial amplification effects and limiting the economic scars of the crisis, real GDP in 2023 is expected to stand 2½% above its 2019 pre-crisis level.

As regards inflation, upward base effects associated with the earlier slump in oil prices and upward impacts from the reversal of the VAT rate cut in Germany imply a rebound in headline inflation in 2021. HICP inflation excluding energy and food is expected to show a much more muted recovery in 2021 as broad-based disinflationary effects from weak demand, especially across the services sectors, dominate upward cost pressures from supply side constraints. Over the medium term headline inflation is expected to gradually increase, mainly reflecting a slight rise in the contribution of HICP inflation excluding energy and food which, however, is seen to remain rather subdued, at 1.2%, in 2023. Overall, the baseline foresees HICP inflation rebounding from 0.2% in 2020 to 1.0% in 2021 and then gradually increasing further to 1.1% in 2022 and 1.4% in 2023. Compared with the September 2020 ECB staff projections, HICP inflation has been revised down for 2020 and 2022, on account of weaker incoming data for HICP inflation excluding energy and food and a downward reassessment of inflationary pressures since the previous projections in the context of abundant but diminishing slack in the goods and labour markets.[1]

In view of the continued significant uncertainty regarding the evolution of the pandemic, potential medical solutions (including the distribution and take-up of vaccines) and the degree of economic scarring, two alternative scenarios have again been prepared. The mild scenario sees a more successful containment of the virus, a swift roll-out of vaccines and limited scarring. In this scenario, real GDP would rebound by 6.0% next year, reaching pre-crisis levels as early as the end of 2021, with inflation rising to 1.5% in 2023. In contrast, the severe scenario, with a delayed resolution of the health crisis and substantial and permanent losses to economic potential, would imply a marginal increase in 2021 in real GDP, which would stand in 2023 still almost 2% below its pre-crisis levels, with inflation at only 0.8% in that year.


Compliments of the European Central Bank.