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Factors shaping the recovery of the euro area in 2021

2020 left behind a series of economic indicators that broke the record for decades. These include lower GDP, large public deficits, collapsed working hours and public debt. Everyone has great expectations for 2021, thanks to several vaccines against covid-19 that are already being applied. New Year’s economic data isn’t a big headline, but it could lead to a recovery and reveal some of the trends that will dominate the economy over the next few years.

Angel Tarabella, Director of Oxford Economics for Europe, Heterogeneous growth across countries and government financial support will show a recovery. The industry continues to outperform services and inflation will begin to recover in the middle of the year.

Steady growth

The euro area will experience the most substantial growth in its history. Still, the shock is so great that Tarabella does not expect eurozone GDP to return to pre-crisis levels until early 2022. He emphasizes that the rate of recovery varies greatly from economy to economy.

Extensive tax system

Fiscal policy It is the second pillar on which the outlook for recovery depends. One of the few positive consequences of the coronavirus crisis is evidence that politicians have learned from past mistakes. This is a model of unjustified seriousness after the 2008-2009 and 2012 crisis and is especially important for Europe, which contributed to the delay in recovery.

This financial support has dramatically reduced household income and prevented many companies from closing down. However, the level of public debt in place has reached a level not seen in decades. However, despite the recovery in debt levels this year, the European Central Bank’s monetary policy should not pose any risks in the short term.

Better than industry, service

Talavera expects manufacturing to be more resilient at the sector level than services in the short term. The service sector is much more focused on human contact, but the industrial sector has easier social distances.

Inflation recovery in 2021

Another important issue is the recovery of inflation this year. The ECB forecasts negative inflation as it did earlier this year. Still, the combination of factors (oil, recovery, public spending, the end of VAT cuts in Germany) will cause prices in the euro area to rise again.

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Factors shaping the recovery of the euro area in 2021 Factors shaping the recovery of the euro area in 2021

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