Macro preview: settling down after a strong rebound
After a period of strong growth after lockdowns, economic growth in the euro zone is now expected to fade. This is only natural, as the rebound in activity was mainly related to the lifting of restrictions on daily activities. At this point, GDP has recovered to 98.7% below pre-crisis levels. For 2022, we forecast GDP growth of 3.9%, which remains well above the pre-crisis trend, but the quarterly pace is expected to slow significantly. Nonetheless, this will be enough to close the gap with pre-pandemic levels.
Over the next few quarters, we expect low unemployment levels and some consumer dissaving to still have a positive impact on growth, while business investment is also expected to contribute positively to GDP growth as high levels of capacity utilization and low interest rates provide an enabling environment for investment. At the same time, supply chain issues and input shortages are causing production misfires and putting upward pressure on already high inflation levels. Together with a possible resurgence of the virus and the restrictive measures that accompany it, these present some of the most significant downside risks to the outlook for next year.
We anticipate that the Pandemic Emergency Purchase Program (PEPP) will end by March of next year.
By country, we forecast that Germany will see its growth accelerate to 4.6% next year thanks to a recovering auto sector which is currently still plagued by production shutdowns due to semiconductor shortages. But we also expect the periphery to continue a strong catching-up performance with growth of 5.3% in Spain and 4% in Italy and Greece.
For the European Central Bank, this recovery continues with an inflation trend above 3% – and which should be around 2% for 2022 – should lead to a slightly more hawkish policy for next year than is expected. initially thought so. We expect the Pandemic Emergency Purchasing Program (PEPP) to end by March 2022, after which we expect purchases to decline to around € 50 billion per month in the second quarter. This should fall further to around 20-30 billion euros in the third. This would happen as part of the traditional asset purchase program, but could also see a new bridging program installed to address some particular issues related to fully returning to APP. This is a significant drop in asset purchases, reflecting improving economic conditions and increasing inflation expectations.