Covid-19 could cut eurozone GDP by 5%, 8% or 12% in 2020 – ECB

European Central Bank staff have compiled three alternative scenarios analysing the impact of Covid-19 on the eurozone economy.

“Strict containment measures are expected to severely affect economic activity in the euro area well beyond the short-term horizon,” says the research, compiled by ECB staff. “The high uncertainty surrounding the economic impact of the Covid-19 pandemic warrants an analysis based on alternative scenarios.”

In the mild scenario, the eurozone economy would shrink by 5% of GDP in 2020. In this scenario, “strict lockdown and further containment measures, as well as rapid advances in medical treatments, entail relatively short-lived strict lockdown periods ending in May 2020”, it says. This would be followed by a gradual return to normal activity and only temporary losses.

In the medium scenario, the economy would decline by 8%. In this case “a short-lived strict lockdown period, also finishing during May 2020, is followed by relatively stringent and protracted containment measures,” say the authors. This would imply a delayed return to normality, and persistent output losses.

In the severe scenario the eurozone would decline by 12%. A longer-term strict lockdown period would end in June 2020, with only limited success in containing the virus. This would require new containment measures during the year even after lifting some lockdowns.