In its latest economic bulletin, the ECB states that “the substantial fiscal support has mitigated the significant negative impact of the pandemic crisis on the real economy.” However, it also admits the fiscal cost of the economic crisis resulting from Covid-19 has been very relevant and varies greatly amongst the countries of the euro area.
The institution predicts that the effects of the pandemic will cause a fiscal hole of 28% of GDP in Spain between 2020 and 2022, followed by Italy (24%) and France (21%). According to these calculations, Spain would have ended the year 2020 with a deficit over 12% and would finish 2021 with a deficit above 8%. So Spain would become the fourth country in the euro area with the highest public debt, exceeding levels of 120% of GDP and only coming behind Greece, Italy and Portugal.
Meanwhile, the ECB forecasts a decline in the Eurozone’s activity in Q4 due to the resurgence of Covid-19. In fact, the impact of the virus will be greater than estimated in the coming months, especially in the services sector. However, it has improved its GDP forecast for 2020 to -7.3% compared to -8% previously , while revising estimates for 2021 downwards to growth of 3.9% compared with the previous 5%. For 2022, the central bank foresees growth of 4.2% (vs. 3.2% previously) and for 2023 2.1% (no previous estimate). On the inflation side, estimates are 0.2% in 2020 (vs the prior 0.3%), 1% in 2021 (vs 1% previously), 1.1% in 2022 (vs earlier 1.3%) and 1.4% in 2023 (no estimate above).