Eurozone can still rebound in 2021 after lighter lockdowns

S&P Global Ratings forecasts that the eurozone economy will shrink by 7.2 percent this year before rebounding by 4.8 percent in 2021. Constraints on economic activity, while much less stringent than in March and April, have interrupted the recovery in place. The extension of support for fiscal and monetary policies, as well as their coordination, will be essential to restart the economy from 2021 onward.
The European Central Bank will have no choice but to keep its interest rates lower for longer and extend its asset purchases into the end of 2021, given inflationary pressures are unlikely to build before 2023. The second wave of Covid-19 is unlikely to be as disruptive to the eurozone economy as the first. Companies have learned to better operate amid the turmoil, health and safety measures are in place, and protection equipment more widely available. The latest round of lockdowns won't hit the economy at full steam this time; the containment measures haven't tightened from zero as was the case in March. Recent announcements on effective vaccines have also steadied nerves. The fatality rate is now one-tenth the level during the first outbreak, and the second wave could even have already peaked. But Christmas celebrations will be the litmus test.
S&P Global Ratings now expects the eurozone's real GDP to be 6.5 percent below last year's levels in the fourth quarter, compared with 14.8 percent below in the second quarter of 2020.
“This leaves our 2020 GDP forecasts broadly unchanged, given we also underestimated the strength of a rebound in the third quarter.
(WBJ)