Euro area outlook: scarring effects from the recession

Deep recessions can have lasting adverse effects on the long-term outlook for an economy. A change in the expectations of macro-economic tail risks is one potential scarring factor that c an weigh on growth in a persistent way . One lesson companies and households have learn ed from the pandemic is that the economy can deteriorate much more than one would have expected based on the experience of the last recessions, including the financial crisis. This will remain true even once the pandemic has passed and a vaccine has been found. We thus expect investment spending to develop less dynamically than it would have been the case otherwise.