In the baseline scenario of the Eurosystem June staff projections, output declines by a staggering 13% quarter-on-quarter in the second quarter. As lockdown measures are being eased across euro area countries, a cautious recovery in activity is currently taking place. But adverse effects on household income and production can be expected to persist for a considerable period of time. Such protracted effects are clearly visible in the most recent Eurosystem staff projections. Given the current exceptional degree of uncertainty, these projections were organised around three scenarios that differ with respect to the severity of the economic fallout from the pandemic in the euro area (see left chart on Slide 2). All scenarios assume that the substantial support from monetary, fiscal and labour market policies is sufficient to avert adverse financial amplification channels. While the severity of the contraction differs substantially across scenarios, none of the three trajectories is in line with a full recovery of real GDP by the end of 2022 to the levels projected by staff in March. In the severe scenario, our staff projections suggest that the level of real GDP at the end of 2022 could remain 9.6% below the March 2020 staff projection path. In effect, both the nature of the shock and the length of the ensuing downturn make it likely that the economy will experience important structural shifts. Disentangling the effects of these shifts on demand and supply, and hence on medium-term inflation, is inherently difficult.
5 See ECB (2020), “ECB announces € billion Pandemic Emergency Purchase Programme (PEPP)”, 18  March. 6 See Schnabel, I. (2020), “How long is the medium term? Monetary policy in a low inflation environment”, speech  at the Barclays International Monetary Policy Forum. 7/7  BIS central bankers' speeches