The impact of the COVID-19 shock on euro area potential output: a sectoral approach

Nicolò Bandera, Katalin Bodnár, Julien Le Roux and Béla Szörfi

No 2717, Working Paper Series from European Central Bank

Abstract: The COVID-19 crisis has affected economic sectors very heterogeneously, with possible risks for permanent losses in some sectors. This paper presents a sectoral-level, bottom-up method to estimate euro area potential output in order to assess the impact of the crisis on it. The estimates are based on a supply-demand shock decomposition and are meant to quantitatively support the estimation of scarring effects stemming from the pandemic. The results show that sectors of “trade, transport and accommodation”, “other services” and “industry” may suffer a loss in trend output of around 1.4-1.6% by 2025. Aggregate potential output in 2025 might be about 0.8% lower than it would have been without the crisis, and importantly, without support from the Next Generation EU (NGEU), signalling somewhat larger losses than embedded in the Autumn 2021 forecast of the European Commission (which takes the NGEU into account). JEL Classification: C32, D24, E32, E37

Keywords: COVID-19; forecasting; potential output; production function; sectoral approach (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-eec and nep-eff
Note: 2881411
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222717

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