ECB: Medium-Term Outlook for Contact-Intensive Services Uncertain
8 November 2021
By David Barwick – FRANKFURT (Econostream) – Contact-intensive services contributed significantly to the euro area’s economic expansion recently, but prospects beyond the near term are less certain, the European Central Bank said on Wednesday.
In a pre-release from the seventh economic bulletin of the year, the ECB said that following a difficult 2020, contact-intensive services had been driving GDP growth for much of the current year and 3Q should see this continue.
Still, there remains ‘ample slack’, with value added in contact-intensive services estimated at 8% below pre-pandemic levels as of end-3Q, according to the report.
The materials shortages affecting manufacturing were not hampering services, the report said. Services were in an expansionary phase, with most contact-intensive service providers surveyed reporting ‘rising past and expected demand, suggesting an ongoing expansion’, the report said.
‘As the public health crisis abates and economies reopen further, activity in more contact-intensive services is expected to continue to expand, but the medium-term outlook remains uncertain’, the report said. ‘The need to replace obsolete productive capacity, expand labour input and reallocate resources across subsectors could durably alter the trend growth of more contact-intensive services.’
If public health measures stay in place unexpectedly long or policy support is removed too quickly, bankruptcies could rise, the report explained. ‘Moreover, changes in preferences, such as moving away from business travel and long-distance tourism towards hybrid working solutions and local vacation destinations, could cause permanent shifts in consumption patterns necessitating the sectoral reallocation of activity.’