Forecast for Euro Area Revised Downwards
Leading research institutes have sharply cut their economic forecasts for the euro area. For the fourth quarter of 2020, they now expect economic output to shrink by 2.7 percent. At the end of September, they were still expecting growth of 2.2 percent. The forecast was revised given the large number of coronavirus infections and the closure of parts of the economy, as was announced by ifo, KOF and Istat.
For the first quarter of 2021, the institutes now expect growth of only 0.7 percent, down from 1.5 percent as forecast in September. They do not expect growth to reach 3.0 percent until the second quarter of 2021. In contrast, growth in the third quarter of 2020 was better than expected. At the end of September, the institutes were expecting economic growth in the euro area of just 8.2 percent, but in fact it amounted to a full 12.5 percent. This brings the overall figure for the whole of 2020 to minus 7.3 percent.
The outlook is overshadowed by great uncertainty about how the economy will fare as infection rates rise while coronavirus vaccinations begin. A hard Brexit could also disrupt supply chains.
After shrinking by 3.7 percent in the fourth quarter of 2020, household spending will grow by 0.7 percent in the first quarter of 2021 and then by 2.7 percent in the second quarter.
For their forecast, the researchers assume a price of USD 51 per barrel for North Sea oil and a EUR/USD exchange rate of 1.22. Under these conditions, prices will remain stable in the fourth quarter compared with the previous quarter. They will fall by 0.3 percent in the first quarter of 2021, then rise by 1.5 percent in the second quarter.
Eurozone Economic Outlook
This quarterly publication is prepared jointly by the German external pageifo Institutecall_made, the KOF Swiss Economic Institute, and the Italian external pageIstatcall_made Institute. The forecast results are based on consensus estimates building on common macroeconomic forecast methods by the three institutes. DownloadDetails (PDF, 391 KB)vertical_align_bottom and graphs can be found in the right column.
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