The euro area is poised to begin its economic recovery. In the first quarter, economic output is expected to have fallen by a further 0.4 percent compared with the previous quarter, when it shrank by 0.7 percent. This is the consensus of three research institutes: ifo in Munich, KOF in Zurich, and Istat in Rome. The second quarter is expected to see a growth of 1.5 percent over the first quarter, followed by 2.2 percent in the third.

“We should start to see a recovery soon provided the coronavirus doesn’t throw another wrench in the works,” says ifo researcher Pauliina Sandqvist.
The researchers also expect inflation to rise to 1.1 percent in the first quarter – up 0.3 percent compared with the same quarter in 2020 – and to 1.8 percent in the second quarter. In the third quarter, inflation is expected to increase by as much as 2.1 percent compared with the same period 12 months earlier.

After a sluggish start to the year, investment and consumer spending by private households should also start to pick up as of the second quarter, while industrial manufacturing is already growing across the board.

However, the forecast is very uncertain and depends on how the coronavirus pandemic develops. Vaccines are coming along, but the vaccination campaign is proceeding more slowly than hoped in the euro area. Infection rates are on the rise again, and sectors are closing as a result. At the same time, however, manufacturing operations are continuing and the Chinese and US economies are strong.

Source: ifo Institute