Our forecast that the euro-zone economy rebounds strongly hinges on Covid-19 restrictions being lifted by the middle of the year. Unfortunately, vaccine supply shortages, distribution problems and concerns about variants could force governments to keep restrictions in place for longer, or remove them more slowly, than we have assumed. If so, Mediterranean countries are at greatest risk given that international travel will be among the last areas to be liberalised. Meanwhile, January’s unexpectedly large increase in consumer prices will be partly reversed in February. Inflation may be higher than we had anticipated this year, but this is not a sign of rising underlying price pressures. We still think the ECB will continue to undershoot its near-2% inflation target in the medium term.
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