Research Briefing | May 27, 2021

Eurozone | Recovery shouldn’t mean an end to all fiscal stimulus

Ipad Frame_Eurozone-Recovery-shouldn’t-mean-an-end-to-all-fiscal-stimulus

Our baseline forecast sees a strong rebound in eurozone economic activity as vaccinations bring the pandemic under control, but this shouldn’t imply a rapid reversal in supportive fiscal policy. Rather, it should aim to support weak spots of the economy and focus on maintaining the recovery’s momentum beyond 2021 to prevent lasting damage and uneven sectoral recovery.

What you will learn:

  • It’s very unlikely that eurozone countries will add US-style blanket fiscal stimulus due to a combination of self-imposed political constraints and institutional arrangements such as the EU fiscal rules. 
  • Consumers will power the recovery as they unwind their excess savings. But those are held mainly by higher-income households.
  • The partial rebound in Q3 2020 serves as a guide: Retail sales and consumption of durable goods reached pre-pandemic levels, but services, particularly social consumption, remained depressed despite a solid rebound.

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