strong but incomplete recovery in the third quarter, doubts about the short term.

This EUROFRAME Report presents an assessment of the economic outlook for 2020 and 2021 focused on the euro area based on a synopsis of the forecasts of EUROFRAME institutes. Perspectives for UK and CEEs countries are also included. The Covid-19 pandemic led to a historic contraction of economic activity in spring 2020 followed by a substantial but incomplete recovery in summer. With renewed containment measures in place during the fourth quarter and in the beginning of 2021, the short-term outlook for GDP has become less favourable. Going forward, EUROFRAME institutes expect that the currently still depressed activity will progressively recover in the course of this year and next, supported by the rollout of vaccines that has finally started. On average, euro area GDP is expected to rise by 4.9 per cent in 2021 and 3.1 per cent in 2022, following a dramatic fall of output by 7.4 per cent last year.

The Covid-19 crisis led to a sharp fall in hours worked, but comparatively modest rise in unemployment. The unemployment rate is expected to increase to 8.8 per cent in 2021, up from 7.3 per cent before the crisis, and to gradually decline to 8.2 per cent in 2022. Wage cost subsidies enabled a strong reduction in the number of hours worked per person employed and prevented a sharp rise in conventionally measured unemployment in Europe. The focus section of the report provides a review of labour market developments and labour market policy reactions to the crisis in the host countries of the EUROFRAME institutes. We find that wider measures of unemployment including workers on short-time work or furlough schemes suggest much higher rates of unemployment of up to 35 per cent in some countries at the height of the crisis. This measure, while having decreased substantially over summer, remained very much elevated and has increased again during the second wave of the pandemic.

The report can be downloaded here (PDF).