Euro area faces recession

The spread of the corona virus poses major challenges for the euro area economy. Sentiment indicators for February still point to a supposed rise in momentum. However, they had been surveyed before the widespread outbreak of the corona virus in Europe began to unfold; so they do not include today’s information set regarding the likely impact of measures to contain the pandemic. Economic activity is endangered wherever people meet in a confined space, and the international exchange of goods and travel are severely disrupted. The situation evolves extremely fast; and there is radical uncertainty about the further spread of the virus and about economic and financial repercussions. We assume that - with the exception of some regions that are more severely affected - the epidemic will slow down until the summer months, when warmer weather slows the spread of the corona virus; and that economic activity will gradually return to normal levels in the second half of the year. A recession - especially in Italy, but also in the monetary union as a whole - remains inevitable. The gross domestic product in the euro area is expected to shrink by 1 percent in 2020 and to rise again by 2.3 percent in the coming year. The unemployment rate will increase again, and the recent moderate rise in consumer prices will probably slow down in the course of the current year.