{
  "title": "IMF Executive Board Concludes 2020 Discussions on Common Euro Area Policies with Member Countries",
  "publication": "IMF News, December 22, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/12/21/pr20384-imf-exec-board-concludes-2020-discussions-on-common-euro-area-policies-with-member-countries",
  "canonical": "https://www.imf.org/en/news/articles/2020/12/21/pr20384-imf-exec-board-concludes-2020-discussions-on-common-euro-area-policies-with-member-countries",
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  "summary": "Euro area real GDP declined sharply in the first half of 2020; unprecedented policy responses at national and EU levels helped cushion the impact and supported a strong rebound in the third quarter.",
  "publishDate": "2020-12-22",
  "sections": [
    {
      "heading": "COVID-19 impact and near-term developments",
      "content": "- Euro area real GDP declined sharply in the first half of 2020; unprecedented policy responses at national and EU levels helped cushion the impact and supported a strong rebound in the third quarter.\n- Recent second wave and containment measures are expected to weigh on economic activity in the near term.\n- Inflation has descended into negative territory in recent months, mainly reflecting temporary factors, and is expected to only gradually increase and remain below the ECB’s medium-term aim throughout most of the forecast horizon.\n- Vaccine developments provide significant upside further out, but a prolonged health crisis and slower recovery could depress investment and increase private and public sector vulnerabilities.\n- Potential scarring: significant labor market hysteresis, increased inequality and poverty, and lower growth potential if downside scenarios materialize.\n- Ongoing negotiations regarding the U.K.’s future relationship with the EU and potential escalation of trade tensions add to uncertainty."
    },
    {
      "heading": "Executive Board assessment and recommendations",
      "content": "- Directors commended the authorities’ unprecedented policy response to cushion the pandemic’s severe socio-economic impact.\n- Directors noted the pandemic’s second wave has slowed the economic recovery and concurred that the outlook remains extremely uncertain.\n- Directors praised the Next Generation EU package and stressed effectiveness will hinge on quick implementation, quality of spending, and capacity to catalyze structural reforms.\n- To meet EU emission reduction goals, Directors said more comprehensive carbon pricing and nonprice policies would be needed.\n- Fiscal policy:\n  - Directors emphasized that the pandemic’s resurgence requires further national fiscal support and warned against premature withdrawal.\n  - Directors concurred that any further deterioration in the outlook would require additional fiscal support.\n  - Once the recovery gets underway, Directors recommended policies that facilitate resource reallocation, support sustainable growth, and achieve sound medium-term fiscal positions.\n  - Directors favored maintaining the fiscal rules’ escape clause active until the recovery is firmly entrenched and encouraged exploring options to enhance the current fiscal rules.\n- Monetary policy and financial stability:\n  - Directors commended the ECB’s monetary policy response, including this month’s recalibration of measures, and noted further accommodation could be necessary if downside risks materialize.\n  - Given that prolonged accommodation could raise financial stability risks, Directors called for continued monitoring and appropriate use of macroprudential tools to address emerging vulnerabilities.\n  - Directors welcomed the ECB’s Strategy Review and broadly agreed with staff’s recommendation to adopt a well-communicated symmetric point inflation target.\n- Financial sector:\n  - Directors welcomed recent financial sector measures and recommended that capital relief and conservation measures for banks be maintained until the recovery is well underway.\n  - If the recovery stalls, more targeted borrower support should be made available.\n  - Directors noted that credible medium-term strategies to reduce nonperforming loans and stronger insolvency regimes would support swift balance sheet repair.\n  - Directors favored expanding the macroprudential perimeter to include nonbank financial institutions and called for closing gaps in the EU’s crisis management framework and advancing financial sector architecture reforms.\n- Labor and distributional policies:\n  - As recovery takes hold, policies should facilitate labor and capital reallocation toward viable firms and sectors.\n  - Noting pernicious distributional effects, Directors called for targeted policies to safeguard vulnerable regions and address rising inequality.\n- External relations and climate:\n  - Directors praised the European authorities for continued support and promotion of a global rules-based trading system and for leadership in fighting climate change."
    },
    {
      "heading": "Key projections and indicators (Euro Area: Main Economic Indicators, 2017–25)",
      "content": "- Real GDP (2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025):\n  - 2.6; 1.9; 1.3; -8.3; 5.2; 3.1; 2.2; 1.7; 1.4\n- Private consumption (selected values shown):\n  - 1.8; 1.5; -9.2; 5.5; 3.2\n- Gross fixed investment (selected values shown):\n  - 3.8; 5.8; -12.0; 7.6; 5.0; 3.4; 2.4\n- Final domestic demand (selected values shown):\n  - 2.1; -7.4; 4.9; 2.9; 1.6\n- Stockbuilding (contribution to growth):\n  - 0.2; 0.1; -0.5; -0.2; 0.0\n- Exports (includes intra-euro area trade; selected values shown):\n  - 3.6; 2.5; -12.9; 8.3; 4.3; 3.3\n- Imports (selected values shown):\n  - 3.7; 3.9; -11.6; 7.8; 5.7; 4.2\n- Potential GDP:\n  - -3.2\n- Output gap (selected values shown):\n  - -0.4; -5.1; -1.6; -0.6\n- Employment (selected values shown):\n  - -1.7; 0.6\n- Unemployment rate (percent; selected values shown):\n  - 9.1; 8.2; 8.9; 8.4; 7.9; 7.7\n- GDP deflator and Consumer prices: (rows present in table; specific numeric series not fully shown in page extract)\n- General government balance (percent of GDP; selected values shown):\n  - -0.9; -10.1; -5.0; -2.7; -2.1; -1.8\n- General government structural balance (percent of GDP; selected values shown):\n  - -5.3; -3.1\n- General government gross debt (percent of GDP):\n  - 87.7; 85.8; 84.0; 101.1; 100.0; 98.4; 97.0; 95.6; 94.3\n- Current account balance (external sector): (row present; specific numeric series not fully shown in page extract)\n- Interest rates (end of period):\n  - EURIBOR 3-month offered rate: -0.3\n  - 10-year government benchmark bond yield: (row present; specific numeric series not fully shown in page extract)\n- Exchange rates (end of period):\n  - U.S. dollar per euro: 1.18; 1.14; 1.11\n  - Nominal effective rate (2005=100): 106.1; 107.8; 105.7; 113.9\n  - Real effective rate (2005=100, ULC based): 87.2; 86.8; 85.4; 89.3"
    },
    {
      "heading": "Footnotes and data sources (as presented)",
      "content": "- Projections are based on aggregation of WEO Oct 2020 projections submitted by IMF country teams.\n- Contribution to growth noted for stockbuilding and foreign balance entries.\n- Exports and imports include intra-euro area trade.\n- Some series are expressed in percent or percent of GDP as indicated in table notes.\n- Sources: IMF, World Economic Outlook, Global Data Source; Reuters Group; and Eurostat.\n- Latest monthly available data for 2020 used for certain series.\n\nPress Release No. 20/384 — December 22, 2020. IMF Communications Department\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- IMF COVID-19 Hub\n- Policy Tracker\n- Financial Assistance\n- Questions & Answers\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/12/21/pr20384-imf-exec-board-concludes-2020-discussions-on-common-euro-area-policies-with-member-countries"
    }
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    "Published: December 22, 2020",
    "Euro area real GDP declined sharply in the first half of 2020; unprecedented policy responses at national and EU levels helped cushion the impact and supported a strong rebound in the third quarter.",
    "Recent second wave and containment measures are expected to weigh on economic activity in the near term.",
    "Inflation has descended into negative territory in recent months, mainly reflecting temporary factors, and is expected to only gradually increase and remain below the ECB’s medium-term aim throughout most of the forecast horizon.",
    "Vaccine developments provide significant upside further out, but a prolonged health crisis and slower recovery could depress investment and increase private and public sector vulnerabilities.",
    "Potential scarring: significant labor market hysteresis, increased inequality and poverty, and lower growth potential if downside scenarios materialize.",
    "Ongoing negotiations regarding the U.K.’s future relationship with the EU and potential escalation of trade tensions add to uncertainty.",
    "Directors commended the authorities’ unprecedented policy response to cushion the pandemic’s severe socio-economic impact.",
    "Directors noted the pandemic’s second wave has slowed the economic recovery and concurred that the outlook remains extremely uncertain.",
    "Directors praised the Next Generation EU package and stressed effectiveness will hinge on quick implementation, quality of spending, and capacity to catalyze structural reforms.",
    "To meet EU emission reduction goals, Directors said more comprehensive carbon pricing and nonprice policies would be needed.",
    "Fiscal policy:",
    "Monetary policy and financial stability:",
    "Financial sector:",
    "Labor and distributional policies:",
    "External relations and climate:",
    "Real GDP (2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025):",
    "Private consumption (selected values shown):",
    "Gross fixed investment (selected values shown):",
    "Final domestic demand (selected values shown):",
    "Stockbuilding (contribution to growth):",
    "Exports (includes intra-euro area trade; selected values shown):",
    "Imports (selected values shown):",
    "Potential GDP:",
    "Output gap (selected values shown):",
    "Employment (selected values shown):",
    "Unemployment rate (percent; selected values shown):",
    "GDP deflator and Consumer prices: (rows present in table; specific numeric series not fully shown in page extract)",
    "General government balance (percent of GDP; selected values shown):",
    "General government structural balance (percent of GDP; selected values shown):",
    "General government gross debt (percent of GDP):",
    "Current account balance (external sector): (row present; specific numeric series not fully shown in page extract)",
    "Interest rates (end of period):",
    "Exchange rates (end of period):",
    "Projections are based on aggregation of WEO Oct 2020 projections submitted by IMF country teams.",
    "Contribution to growth noted for stockbuilding and foreign balance entries.",
    "Exports and imports include intra-euro area trade.",
    "Some series are expressed in percent or percent of GDP as indicated in table notes.",
    "Sources: IMF, World Economic Outlook, Global Data Source; Reuters Group; and Eurostat.",
    "Latest monthly available data for 2020 used for certain series.",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
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    "[Financial Assistance](https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker)",
    "[Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19)",
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    "[PRESS CENTER](http://presscenter.imf.org/)",
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