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Open in new tab Winter 2021 (Interim) Forecast
1.
EURO AREA AND EU OUTLOOK
horizon. Uncertainty
aggregate, though not for all Member States – to
reach the pre-crisis level of output within the
forecast
risks
surrounding this baseline forecast remain elevated
and crucially related to the evolution of the
pandemic
and
effectiveness of vaccination rollout.
efficiency
pace,
and
and
the
The Winter 2021 Interim Forecast provides an
update of the Autumn 2020 Forecast, published on
5 November 2020, focusing on GDP and inflation
developments in all EU Member States.
1.2.
EVOLUTION OF THE PANDEMIC AND
INTERVENTIONS TO STEM IT
The EU is still firmly in the grip of the pandemic
Following a sharp increase in infections to around
640 per 100,000 inhabitants in mid-November, the
14-day incidence of the virus in the EU decreased
towards the end of last year and has fluctuated
within an elevated range of 350-450 since late
December (see Graph 1.1 and 1.2). Still, the
situation remains very different and changeable
across Member States.
the
infection’s curve appeared to be getting worse in
some Member States (e.g. France, Portugal and
Ireland), but improving in others (e.g. Germany,
The Netherlands,
and Poland). The
Italy
emergence and subsequent spread of new, more
infectious variants of
the virus may have
contributed to sustaining high infection numbers in
recent weeks and is likely to put Member States
under further pressure in the short term.
In early 2021,
1.1.
INTRODUCTION
New developments since the autumn shape
the outlook
Europe is still firmly in the grip of the pandemic.
The resurgence in infections in the autumn forced
many Member States to reintroduce or tighten
containment measures
that affect economic
activity. More recently, new, more contagious
variants of the coronavirus have been spreading
around the globe, aggravating the epidemiological
situation and leading to renewed lockdowns across
the EU.
the
the
positive
reached between
breakthrough
side,
On
development of vaccines in the autumn and the
start of vaccination campaigns in late 2020 or early
2021 in all Member States has brightened the
outlook beyond the near term. Furthermore, the
agreement
the European
Commission and the United Kingdom on the terms
of their future cooperation with the European
Union reduces the cost of the UK leaving the
Single Market and Customs Union, compared to
what was assumed in the Autumn Forecast. The
Council and the European Parliament reached
consensus
Financial
Framework and NextGenerationEU and, a few
days later, a political agreement on the Recovery
and Resilience Facility (RRF) was reached, which
will help Member States pave the way to a
sustainable recovery. This endorsement of forceful
EU policy action has reinforced a strong upside
risk for the EU’s economic outlook. Finally, in the
summer months,
economy
rebounded more strongly than previously expected,
while activity appears to have been relatively
resilient in the fourth quarter amid the second
wave of the pandemic.
the Multiannual
the European
on
A delayed but stronger recovery
Overall, while the outlook for the near term looks
weaker than expected last autumn, growth in the
European economy is set to resume this spring and
gather momentum in the summer, as progress in
vaccinations allows for a gradual unfreezing of
economic activity. External demand is also set to
support the recovery on the back of an improved
outlook for the global economy. These positive
forces should allow the EU economy – on
2
01002003004005006007008009001,000Sep 20Oct 20Nov 20Dec 20Jan 21Feb 21EUDEFRESNLITPLGraph 1.1: Cumulative number of new COVID-19 cases in the last 14 days, EUSource: WHO.per 100 000 inhabitants intensive
care units,
The rise in infection rates in the autumn led to a
surge in hospitalisations that has strained the
forcing
capacity of
governments to reintroduce containment measures,
restrict cross-border movements or
reinstate
lockdowns. These interventions, however, have
generally been less stringent and more targeted
than those imposed in March and April last year.
largely
Industry and construction have been
allowed
and
operate, while
kindergartens have generally remained open,
which together with an extensive use of remote
working, has prevented the denting of the labour
force. At the same time, restrictions on social
gatherings and non-essential shopping came at a
time of the year when these normally peak due to
the festive season, amplifying
the economic
fallout.
schools
to
in January
Accordingly, the Oxford Stringency Index showed
an increase for the EU in the fourth quarter of 2020
and again
(to 65.1 and 75.1,
respectively), but remained below its April 2020
peak (82.0). Both
imposed and self-imposed
restrictions led to a sharp fall in mobility, as
measured by the Google mobility index (see Graph
1.3). Compared to the period between 3 January
and 6 February 2020 – before the outbreak of the
pandemic in Europe – average mobility in the EU
was about 17% lower in the fourth quarter of 2020,
and declined further (to -26%) in January 2021.
This compares to -25% and -9% on average in the
second and third quarters of last year, respectively.
The extent and timing of the decline in mobility
varied considerably across Member States (see
Graph 1.4). Some countries that had been spared a
major surge in infections and hospitalisations in
spring last year recorded their largest decline in
mobility in the last quarter (e.g. Czechia, The
Netherlands).
Vaccination underway in the EU
far
The official rollout of vaccinations in the EU
began on 27 December 2020, marking
the
materialisation of a positive risk highlighted in the
Autumn Forecast. So
the European
Commission has secured 2.3 billion doses from six
different vaccine producers for the use in Member
States. Despite some organisational challenges and
temporary
vaccination
campaigns are proceeding across all EU Member
States, with
the number of vaccinations
administered reaching an average of 3 doses per
100 people in early February, with large cross-
country differences.
shortages,
supply
Around the world, the situation and outlook for
the pandemic varies by region
Outside the EU, the epidemiological situation
varies widely both within and between regions.
The increase in infection and mortality rates in
both the US and the UK has far outstripped the EU
in recent weeks (see Graph 1.2). At the same time,
Winter 2021 (Interim) Forecast
3
02004006008001,0001,2001,400Sep 20Oct 20Nov 20Dec 20Jan 21Feb 21EUUKUSROWGraph 1.2: Cumulative number of new COVID-19 cases in the last 14 days, international comparisonSource: WHO.per 100 000 inhabitants-45-40-35-30-25-20-15-10-50-95-85-75-65-55-45-35-25Mar 20May 20Jul 20Sep 20Nov 20Jan 21dev. from baselineIndexStringency (inverse)Mobility (rhs)2020-Q22020-Q32020-Q4Graph 1.3: Stringency of restrictions and mobility, EUSource: Oxford University, Google.Note:Indicators weighted by the share of countries in EU GDP. -70-50-30-10103050IEATSKSINLDELTDKPTLVELITLUHRCZPLSEESBEROFRBGFIHUEEMTGraph 1.4: Google mobility trendsMarch & April, changeMay & June, changeJuly, Aug. & Sept., changeOct., Nov., & Dec., changeJan. 2021, changeJan. 2021, level%, pps.Note: Distanceto base period (Jan 3 -Feb 6), average of dailyvalues.Source:Google. Winter 2021 (Interim) Forecast
vaccination campaigns appear to have progressed
quickly in both countries, which improves the
epidemiological outlook beyond the near term.
Asia still shows relatively low aggregate numbers,
with China and, to a lesser extent, Japan and South
Korea appearing to have effectively contained the
spread of the virus, despite some small outbreaks
recently. On the other hand, there are signs of an
uptick in infection rates in larger Latin American
economies and parts of Africa.
1.3. GLOBAL
ECONOMY:
RECENT
DEVELOPMENTS AND OUTLOOK
Swift bounce back after an unprecedented
slump of the global economy
Following a severe contraction in the first half of
last year, the global economy rebounded strongly
in the third quarter, as virus containment measures
were eased and aggressive and broad-based policy
responses cushioned the impact of the crisis on
incomes and kept credit channels open. The Global
Composite PMI rose to around 53 points in the
fourth quarter of 2020 (up from 52, on average, in
the second), signalling expansion, with an
improving situation in manufacturing in the US
and most emerging market economies. Industrial
production grew further in October and November,
confirming the strong recovery in the goods sector,
even if spending on consumer goods contracted in
advanced economies in November as mobility
faltered.
Weaker near-term growth due to renewed
COVID-19 outbreaks, but overall improved
outlook amid stronger policy support
Real GDP growth in the third quarter of 2020
surpassed expectations in a number of economies,
which implies an upward revision to the 2020
forecast and a higher carryover
for 2021.
Conversely, global economic activity at the start of
2021 is likely to have been dented by renewed
the widespread
outbreaks of
the pandemic,
4
campaigns
are progressing
reintroduction of containment measures, and
additional uncertainties around the emergence of
new variants of the virus. At the same time,
vaccination
in
advanced economies, which should help to sever
the link between infections and economic activity
progressively over the course of the forecast
horizon. Moreover, the unprecedented fiscal and
monetary stimulus measures that were put in place
in several advanced economies in spring 2020
have been reinforced by new stimulus packages in
Japan and the US.
Overall, real global GDP (excluding the EU) is
projected to have contracted by 3.4% in 2020 and
is set to rebound by 5.2% and 3.8% in 2021 and
2022, respectively. Compared to the autumn, the
outlook has improved for the major advanced
economies and Asian emerging market economies,
but remains broadly unchanged for other regions.
These projections are underpinned by an
assumption
that, globally, virus containment
measures will remain in place throughout 2021,
though they will be eased in the second half of the
year in advanced economies and somewhat later in
the emerging markets, reflecting the roll-out of
vaccination campaigns.
30354045505560657075-8-6-4-202468101314151617181920q-o-q%Graph 1.5: Growth in global GDP and global PMIsContribution from emerging marketsContribution from advanced economiesGlobal manufacturing PMI (rhs)Global services PMI (rhs)Sources: OECD, IMF and national sources for GDP, JPMorgan/IHS Markit for PMI. index > 50 = expansion(Annual percentage change)201720182019202020212022202020212022World (excl.EU)3.93.73.0-3.45.23.8-3.84.73.7World (excl.EU) exports of goods and services5.23.80.2-9.16.54.6-10.56.04.4World (excl.EU) imports of goods and services5.94.2-0.5-9.47.54.9-10.36.34.1Table 1.1:International environmentTrade volumesAutumn 2020forecastReal GDP growthWinter 2021 interimforecast Winter 2021 (Interim) Forecast
The global (ex-EU) recovery in trade continues
for goods but lags for services
implemented in many regions and particularly in
Europe.
trade
(non-EU)
in goods
rebounded
Global
strongly in the third quarter of 2020 from a sharp
and broad-based contraction in the first half of the
year. Momentum is expected to have slowed since
then due to the impact of renewed containment
measures on global demand and hampered global
supply chains. While the new export orders
component of the Global Manufacturing PMI came
in firmly above 50 points in the fourth quarter, it
decreased close to the stagnation threshold in
January. Going forward, growth in the global
goods trade (excluding the EU) is projected to
recover in line with global economic activity and
should continue to benefit from the strong uptick
in manufacturing activity. By contrast,
the
recovery of trade
in services, after a steep
contraction in the first half of 2020, has been
subdued, and is forecast to remain so until the
restrictions on tourism activities and travel are
lifted. Global trade tensions and trade policy
uncertainty are likely to continue to weigh on trade
over the forecast horizon. Overall, world imports
of goods and services (excluding the EU) are
forecast to grow by 7.5% in 2021 followed by
4.9% in 2022.
Oil prices shoot up on expanded production
cuts
Oil prices have been rising since November 2020
reflecting sharp production cuts by OPEC+,
compounded by a reduction of output by other
producers, weakening USD, and, recently, the
surprise announcement by Saudi Arabia to cut
production by an additional 1 million barrels/day
in February and March 2021. At the same time,
inventories have fallen and demand for oil has
recovered somewhat at the end of 2020, though
remaining subdued compared to 2019 levels.
Against this backdrop, market expectations of oil
prices now average USD 54.2 per barrel in 2021
and USD 51.9 per barrel in 2022.
1.4.
FINANCIAL MARKETS
Global financial markets have remained on a
positive trend since the autumn
Global financial markets recovered further from
their trough in March 2020, despite the ongoing
pandemic and renewed containment measures
levels, while
In the US, stock markets have risen well above
their pre-pandemic
long-term
Treasury yields have increased, driven by the
expectation of additional fiscal policy stimulus and
an improved economic outlook. Markets have also
started to price in a more inflationary environment,
as the 10-year Treasury breakeven rates (the
difference between the inflation-protected and
nominal yields of the same maturity) rose above
2% for the first time since 2018.
The positive news about the breakthrough in
vaccines and additional policy support in advanced
economies has triggered a rapid rise in emerging
market economies’ stock markets. Spreads of
emerging market sovereign debt have been
compressed, particularly among investment grade
issuers, driven by the global rotation towards
emerging markets’ more risky assets. Foreign
capital inflows (mainly debt) into emerging market
economies recovered rapidly towards the end of
the year, in particular into China, while their
currencies have strengthened vis-à-vis the USD.
European markets have mirrored global
trends…
easing
additional monetary
European stock markets have
rallied since
November. The announcement of effective
and
vaccines,
economic data confirming the ongoing industrial
recovery in the euro area boosted the Euro Stoxx
50. On the bond markets, the increase in Europe’s
benchmark yields has been more limited than in
the US (e.g. 10-year Bund yields added about 10
bps. over the past three months). Spreads of most
euro area Member States vs German bunds have
5
1020304050607080901516171819202122price per bblGraph 1.6: Oil price assumptionsUSDEURassumptionsSource: Intercontinental Exchange. Winter 2021 (Interim) Forecast
Financial
in December on
tightened further in recent months, supported by
the agreement reached
the
Framework,
Multiannual
NextGenerationEU
and
Resilience Facility (RRF). On
the European
corporate bond markets, spreads have narrowed
further over the past few months, reaching roughly
pre-pandemic levels for all credit ratings.
the Recovery
and
6
…also helped by further monetary easing by
the ECB…
In response to the expected economic fallout
caused by the resurgence of the pandemic in the
fourth quarter of 2020, the ECB took a broad set of
monetary policy easing measures at its December
2020 meeting. Most notably, the ECB extended the
horizon for its net asset purchases under the
pandemic emergency purchase programme (PEPP)
to at least the end of March 2022 and increased its
total envelope by €500bn to €1,850bn. It also
extended the duration of reinvestments of maturing
securities bought under the PEPP by twelve
months, to the end of 2023. Moreover, the ECB
additional
to support
the flow of credit
liquidity-enhancing
announced
measures
to
households and firms. In this respect, it prolonged
the very favourable conditions of its targeted
longer-term refinancing operations (TLTRO III) as
well as the duration of the collateral easing
measures adopted in April 2020. It also announced
three additional TLTRO III operations to be
conducted between June and December 2021 and
raised the total amount that banks are entitled to
borrow in these operations. The ECB also plans to
conduct four additional pandemic emergency
longer-term refinancing operations (PELTROs) in
2021. These measures should help support
liquidity conditions in the euro area financial
system and preserve the smooth functioning of
money markets by providing an effective liquidity
backstop.
The ECB also extended until March 2022 the
Eurosystem repo facility (EUREP) and all the
bilateral and temporary swap and repo lines set up
with EU central banks outside the euro area. These
measures have been designed as a precautionary
backstop to address possible euro liquidity needs
in non-euro area Member States, but also to reduce
possible spillovers of market dysfunctions from
those economies to euro area bond markets. At the
same time, most EU central banks have kept their
monetary policies unchanged or taken additional
easing measures to ensure that their monetary
policies remain sufficiently accommodative to
support the economic recovery from the pandemic
crisis.
…with the euro stabilising on foreign exchange
markets.
At the end of January 2021, the euro was broadly
stable in nominal effective terms compared to the
autumn. Since then, the euro appreciated against
safe haven currencies such as the USD and the
Japanese yen in the context of an improvement in
global risk sentiment. However, this appreciation
was broadly offset by the euro’s depreciation
against the currencies of major emerging countries,
including China, Russia and Turkey, and against
the pound sterling following the EU-UK trade and
cooperation agreement reached in December.
-1.5-1-0.500100200300Jan 20Apr 20Jul 20Oct 20Jan 21Graph 1.7: German Bund Yield and selected euro area Sovereign bond spreads -10-year maturityESFRITDE (rhs)basis pointsSource:Bloomberg.%6080100120Jan 20Apr 20Jul 20Oct 20Jan 21Graph 1.8: Stock market performanceEuropeStoxx 600US S&P 500Hang Seng CompositeNikkei 225 IndexUK FTSE 100Jan 2020=100Source: Bloomberg.