The vaccine rollout is likely to make enough progress for most pandemic-related restrictions to be lifted in the spring. If so, we think euro-zone GDP will regain its pre-pandemic level by the middle of next year, with Germany getting there sooner and Spain much later. The economic recovery will be slower than in many other economies in part because policy support has been smaller. There are also multiple risks surrounding the pace at which the vaccines are rolled out and restrictions lifted. Meanwhile, inflation will rise as last year’s plunge in oil prices drops out of the year-on-year comparison, but it will stay even further below target than the ECB expects. The Bank will persist with its version of yield curve control and will leave the deposit rate at -0.5% for the foreseeable future.
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