Economic Bulletin
Overview
At its monetary policy meeting on 10 December 2020, the Governing Council decided to recalibrate its monetary policy instruments. While the rebound in economic activity in the third quarter was stronger than expected and the prospects for the roll-out of vaccines are encouraging, the coronavirus (COVID-19) pandemic continues to pose serious risks to public health and to the euro area and global economies. The resurgence in COVID-19 cases and the associated containment measures are significantly restricting euro area economic activity, which is expected to have contracted in the fourth quarter of 2020. While activity in the manufacturing sector continues to hold up well, services activity is being severely curbed by the increase in infection rates and the new restrictions on social interaction and mobility. Inflation remains very low in the context of weak demand and significant slack in labour and product markets. Overall, the incoming data and the Decemb
The scarring effects of past crises on the global economy
Prepared by Natalia Martín Fuentes and Isabella Moder
The coronavirus (COVID-19) pandemic is an unparalleled shock to the global economy. First, the shock is multilayered, with the public health emergency compounded by an induced supply shock (i.e. following the adoption of stringent lockdown measures) and a demand shock as a consequence of increased unemployment and heightened uncertainty. Second, it has triggered a multifaceted and sizeable policy response, which has alleviated the adverse effects on economic activity but could exacerbate existing imbalances in the global economy and raise concerns about public and private debt overhangs and future deleveraging needs. Finally, certain sectors have been hit particularly hard by the lockdown measures and behavioural changes on the part of consumers, which are likely to remain in place at least until an effective medical solution has been implemented.