ECB Says Economy Could Stay Below Last Year’s Level Through 2022
The European Central Bank headquarters stand in Frankfurt, Germany. (Photographer: Alex Kraus/Bloomberg)

ECB Says Economy Could Stay Below Last Year’s Level Through 2022

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(Bloomberg) --

The euro-area economy could shrink as much as 12% this year and fail to return to its pre-coronavirus size until the end of 2022, according to the European Central Bank.

In a range of scenarios published on Friday, a day after it announced more measures to help banks fund companies and households, the ECB predicted an uncertain recovery from the crisis. Gross domestic product might rebound by only 4-6% next year.

The report is the latest to show how early predictions of a strong rebound in the second half of the year have given way to uncertainty over the timing of the recovery, as countries plot different paths to ease lockdowns.

“Ultimately, rapid and decisive containment and economic policy measures -- besides an effective medical solution -- will be crucial to ensuring a robust recovery of economic activity,” the central bank said in a pre-release of its May Economic Bulletin.

ECB Says Economy Could Stay Below Last Year’s Level Through 2022

ECB Chief Economist Philip Lane warned in a blog post on Friday that the economic slump in the second quarter of 2020 will be “much more pronounced” than at the start of the year because lockdowns were in full force by April. Measures of consumer and business sentiment point to “protracted adverse demand in the coming months.”

The central bank published mild, medium and severe scenarios in its analysis. The best outcome would see the economy shrinking 5% this year and recouping all of that in 2021.

Harsher scenarios assume that the “uncertain epidemiology of the virus, the expected diverse effectiveness of containment measures and the assumed persistent economic damage” continue to weigh on growth.

Each extra month of lockdown is seen as knocking between 2% and 2.5% off output.

Lane reiterated that the ECB is ready to increase or extend its 750 billion-euro ($815 billion) emergency bond-buying program if needed. He also echoed President Christine Lagarde’s remarks a day earlier in saying the action of governments will be “pivotal” in determining how bad the virus impact is n the economy.

So far, most government action has been at the national level. Leaders have asked the European Commission to devise a broader proposal by May 6, though politicians are split on whether aid should take the form of grants or loans. Likewise, Germany and the Netherlands have led opposition to joint debt over fears they’ll end up with much of the bill.

©2020 Bloomberg L.P.

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