ECB sees big 2020 recession, partial rebound next year

FILE PHOTO: European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany, March 7, 2018. REUTERS/Ralph Orlowski

FRANKFURT (Reuters) - The European Central Bank expects the euro zone to suffer a deep recession this year, with losses only partly made up in 2021 as pandemic-related restrictions weigh on output for an extended period.

In what ECB President Christine Lagarde described as a baseline scenario, the ECB sees the bloc’s economy shrinking by 8.7 percent this year after much of Europe was shut down for over two months this spring to halt the coronavirus outbreak.

It then sees the economy expanding by 5.2% in 2021 and 3.3% in 2022, although Lagarde said risks to the baseline scenario were tilted to the downside. The ECB will publish forecasts under two further scenarios later on Thursday, Lagarde said.

She said the extent of the contraction and the recovery would depend on “the duration and the effectiveness of the containment measures, the success of policies to mitigate the adverse impact on incomes and employment, and the extent to which supply capacity and domestic demand are permanently affected”.

Although the ECB’s previous forecasts, released in March, did not take into account the impact of the shutdown, Lagarde had recently predicted a GDP drop in the range of 8% to 12% for this year.

The ECB also revised its inflation projections sharply lower after oil prices crashed and taking into account the impact of the coronavirus lockdowns. It now sees consumer price growth of 0.3% this year, well below its previous forecast of 1.1% and far from its target of almost 2 percent.

Reporting by Balazs Koranyi; Editing by Catherine Evans and Carmel Crimmins