ECB’s Lane: Pandemic Delaying Recovery; Much Recovery Later in 2020

27 January 2021

By David Barwick – FRANKFURT (Econostream) – The economic difficulty due to the pandemic’s worsening is a near-term problem that it is delaying the recovery, European Central Bank Executive Board member Philip Lane said on Wednesday.

In an interview with SKAI TV, a transcript of which was posted to the ECB’s website, Lane, who is also chief economist, predicted ‘a lot of recovery’ in late 2021 and in 2022, when output would return to pre-pandemic levels.

‘There’s no doubt that in the near term it’s a difficult situation’ he said. However, since the lockdown measures in place throughout much of Europe are ‘maybe more delaying the recovery rather than posing a major long-term problem’, he said, ‘we still think that by the middle of next year, so maybe towards the end of the summer of 2022, we will have returned to 2019 levels of GDP.’

As more of the population is vaccinated against Covid-19, ‘we think the economy can grow quite quickly’, he said. ‘So there will be a lot of recovery later this year and next year’, even if some economic sectors will see scarring for ‘another year, year-and-a-half’, he said.

The ECB expected the recovery to have ‘a lot of momentum, so we will see a strong growth rate later this year and next year because essentially the pandemic is an artificial type of recession’ reflecting the forced suspension of economic activity, he said.

Lane downplayed the potential for financial damage from the pandemic, conceding that the rate of non-performing loans would increase, but arguing that ‘so much has been done’ to prevent damage, including the favourable financing conditions ensured by the ECB.

Observing that public debt was everywhere rising, Lane noted as a counterpoint that ‘the ability to service this debt – we think even at high debt levels – is much easier than before.’ Although debt levels must be watched, ‘they will be more easily managed over the long term because the more quickly the economy grows, the more reforms are introduced over time to support a fast-growing economy.’