Bumpy ride back to normal

Economic output in the Euro area declined by 15 percent in the first half of 2020. In the meantime, member states have gradually lifted restrictions that contain the pandemic starting in late spring. Monthly indicators of production and turnover suggest that there will be a strong rebound in the third quarter, by which almost two thirds of the production decline will be made up. However, the further recovery in the coming quarters will likely be rather sluggish: Due to a sharp increase in the number of new infections in some member states there is high uncertainty about further restrictions to contain the pandemic, particularly for the upcoming winter months. Direct restrictions will remain a significant burden for economic activity in countries and regions with a high number of new infections and in sectors that require social interaction in confined spaces. In addition, the consequences of the sharp losses in turnover and income over the course of the crisis may gradually show up and weigh on the recovery. Unemployment has recently started to rise again, and this trend will likely continue. Overall, we expect the gross domestic product in the Euro area to decline by 7.1 percent in 2020, followed by growth of 5.3 percent and 2.6 percent in 2021 and 2022. Thus, production will not surpass its pre-crisis level before 2022.