ECB’s Knot Signals Upward Revision to 2021 Growth Forecast

The euro-area economy may expand by more than the 4% currently projected by the European Central Bank this year as savings are unleashed and consumption rebounds, according to Governing Council member Klaas Knot.

The Dutch policy maker argued that service-sector activity is reviving in line with the experiences of other countries that were faster at rolling out vaccinations, and that the bloc will likely follow a similar path now that it is catching up.

ECB’s Knot Signals Upward Revision to 2021 Growth Forecast

“We can take comfort that the euro area in the coming months will take the exact same trajectory, services will also pick up, we expect more than 4% growth over the full year,” he said at an event late on Tuesday. “I would argue that there is still significant upside risk actually, and that has to do with pent-up demand.”

The ECB will update its economic projections next month, after last doing so in March. Since then, the speed of inoculations in the bloc has significantly accelerated, and the economy has shown resilience despite severe restrictions in countries that are battling a stubborn third wave of infections.

“Traditionally we have been very conservative within the ECB, assuming in our baseline projections that the savings rate would just return to its pre-corona level, that there would be no pent-up demand taking place,” Knot said. “I personally think that’s a bit of an overly conservative assumption.”

Bank of Spain Governor Pablo Hernandez de Cos said at a separate event that if the distribution of vaccines accelerates in the coming weeks, “it’s normal to expect that, indeed, the European, global and, of course, Spanish economies begin to see relatively strong economic growth in the coming quarters.”

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