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ECB Predicts Deeper Euro-area Recession

European Central Bank (ECB) is now predicting that the recession in the euro-area will be very hard.


The ECB had hoped for coordinated massive fiscal and monetary stimulus across the euro-area and the rest of the EU, however that was dashed by the outcome of the EU finance ministers meeting last week. The central bank had previously injected unprecedented levels of monetary stimulus into the euro-area economies by buying up debt, as well as giving incentives to banks to borrow in order to maintain credit lines for households and businesses.

The ECB wanted EU finance ministers to follow their lead and agree to inject over a trillion euros to support member states' economies affected by the coronavirus pandemic, however, ministers only agreed to €540 billion after much nationalistic squabbling.

The central bank is now drawing attention to the deepening crisis for the economies of the 19-state euro-area as governments extend the lockdowns designed to slow the progress of the pandemic.


The French economy has already contracted by about 6 per cent in the first quarter, while the euro-area's powerhouse, Germany, could contract by up to 10 per cent within this period.


Although in line with the International Monetary Fund's (IMF) forecast on global economic recovery, the ECB expects euro-area economies to start improving in 2021, there are concerns that any recovery will not make up for the losses sustained during the lockdowns.

It is likely that governments will revisit the fiscal stimulus decision taken by finance ministers last week, acknowledging that the amount isn't enough to address the challenges and therefore take remedial action.


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