Euro Area Policies: 2020 Consultation on Common Euro Area Policies-Press Release; Staff Report; and Statement by the Executive Director for Member Countries

IMF Staff Country Reports, December 22, 2020

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The COVID-19 pandemic has led to severe socio-economic dislocations and hardship.
Supported by an unprecedented policy response and by the easing of lockdown measures as the infection rate moderated, the euro area economy initially recovered strongly from the pandemic’s first wave.
A large second wave and reimposition of containment measures suggest much slower growth momentum in the near term.
The outlook is for a subdued economic recovery and low inflation, with a significant permanent output loss relative to the pre-crisis trajectory.
Output growth is expected to be much lower through 2021Q1 than projected in 2020 October World Economic Outlook (WEO) but may rebound beyond then in light of recent promising news on vaccine development.
Uncertainty remains extremely high, mainly due to different pandemic scenarios, including regarding the availability and effectiveness of potential vaccines and therapies and behavioral changes.

Persistent high uncertainty driven by:
- Divergent pandemic scenarios.
- Unknown availability and effectiveness of vaccines and therapies.
- Potential behavioral changes affecting economic activity.
Downside scenario:
- If adverse developments materialize, sizable further stimulus would be needed.

The key policy challenge is to continue countering the pandemic while facilitating a robust and inclusive recovery.
Priority policy actions identified:
- Address the health crisis.
- Contain economic scarring.
- Support resource reallocation and transformation to greener and more digital economies.
- Limit the crisis’s impact on inequality and poverty.
Fiscal and other policy support should remain responsive to changing pandemic and economic developments; additional stimulus may be required under downside scenarios.