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MNI BRIEF: Pent-Up Demand Could Push Inflation Above 2% - ESM

MNI (Frankfurt)

Unleashed euro area savings could see economy return to pre-pandemic levels earlier than forecast, ESM economists say.

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The release of unprecedented levels of saving accumulated during the coronavirus pandemic, coupled with the progress of vaccination campaigns and the effects of Next Generation EU funding, could see the euro area return to pre-pandemic GDP growth levels sooner than forecasted, a blog published by the European Stability Mechanism Friday claim.

Levels of household savings reached unprecedented levels during the coronavirus pandemic, with the pace of the recovery heavily dependent on what savers do with their additional wealth, how quickly savings behaviour normalises, and how much pent-up demand is unleashed. Inflation is expected to move in line with the ECB's current baseline scenario in the most conservative 12 month scenario envisaged, and to stay at or slightly above 2% in 2021 and 2022 under the most optimistic.