Interview, Conference Presentation
What Europe’s Reopening Means for Economic Growth
- Europe is projected to rebound strongly in 2021 as vaccine rollouts unlock pent-up demand during the summer, with the UK forecast to see 7.1% annual growth and a very strong second quarter driven by falling infections and the removal of restrictions by the end of June.
- The euro area is expected to recover one to two months later than the UK due to slower vaccine deployment and rising infections, with a 5.1% growth forecast for 2021 and a sharp bounce in services spending anticipated in the second and third quarters.
- Germany is forecast to return to pre-pandemic activity levels by the third quarter of 2021, whereas Italy and Spain are expected to lag behind by approximately six months due to differing reliance on COVID-sensitive activities and fiscal support timing.
- Manufacturing activity is expected to maintain positive momentum in the near term as industrial production remains less impacted by restrictions, while COVID-sensitive service sectors like arts, entertainment, and travel are forecast to remain deeply depressed until specific restrictions are lifted.
- Near-term risks are tilted to the downside, particularly in the euro area, due to the emergence of more infectious virus strains, slower-than-anticipated vaccine rollouts, and potential delays in the reopening timeline which could push current growth expectations into later in the year.
- An upside risk involves the potential for consumer excess savings, valued at 15% of GDP in the euro area and nearly 30% in the UK, to unwind more rapidly than the base case forecast, potentially delivering a larger boost to consumption than currently projected.