First, the pandemic has hit the European economy harder than previously expected, even if a cautious rebound is now beginning. In the euro area, gross domestic product is forecast to shrink by 8.7% this year and to increase by 6.1% in 2021. For the EU as a whole, the economy is forecast to contract by 8.3% in 2020 and grow by 5.8% in 2021. The contraction in 2020 is thus set to be around one percentage point worse than projected in the Spring Forecast. Growth in 2021 will also be slightly less robust than anticipated in the spring.
The hit to economic activity was so strong that a partial rebound in the second half of the year would not be able to lift the annual growth rate in a significant way. The chart shows how far we will have moved away from the growth path that we had expected before the pandemic occurred. In terms of annual output, real GDP in 2021 will remain below the level recorded in 2019 and further below the level we had expected before the pandemic.
Overall, real global GDP (excluding the EU) is forecast to contract by around 4% in 2020 before recovery of 5% in 2021. It implies that by the end of next year, global GDP would recover above the 2019 level, but remain substantially below the pre-pandemic global growth trajectory.
Euro area headline inflation is forecast to average 0.3% in 2020 and to increase to 1.1% in 2021.