The private investment rate is forecast to drop this year after trending upwards since 2013, and next year it is expected to remain below the level recorded in 2019 (Chart 3). The fiscal response to the COVID-19 crisis (including short-time work schemes, public credit guarantees in many countries and other direct and indirect support for firms and households) is helping to cushion the impact of the shock: the euro area general government balance is projected to reach a deficit of 8.5 percent of GDP this year (Chart 4). Chart 2 Euro area household saving ratio  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  2/14  5/19/2020  Pandemic central banking: the monetary stance, market stabilisation and liquidity  (percentage of gross disposable income)  Source: European Commission Spring Forecast (2020). Chart 3 Euro area private investment rate (percentage of gross domestic product)  Source: European Commission Spring Forecast (2020). Chart 4 Euro area general government balance  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  3/14  5/19/2020  Pandemic central banking: the monetary stance, market stabilisation and liquidity  (percentage of gross domestic product)  Source: European Commission Spring Forecast (2020). In the context of the current unprecedented macroeconomic shock, monetary policy has three key roles: first, it must ensure that the overall stance is sufficiently accommodative; second, it has a market stabilisation function to ensure the smooth transmission of monetary policy to the economy; third, ample central bank liquidity is required, especially in order to maintain credit provision.

In terms of quarterly performance, a significant rebound is expected over the summer in line with the removal of the most severe lockdown measures. However, the scenarios differ in terms of the duration and severity of virus-related restrictions on economic activity and the behaviour of households and firms in the rest of 2020 and throughout 2021. In all scenarios, a deep recession is envisaged: in the severe scenario, real GDP would fall by 12 percent in 2020. Chart 1 Euro area real GDP under the mild, medium and severe scenarios  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  1/14  5/19/2020  Pandemic central banking: the monetary stance, market stabilisation and liquidity  (index, 2019 Q4 = 100)  Source: ECB calculations. Note: For details on the scenarios, see Battistini, N. and Stoevsky, G (2020), “Alternative scenarios for the impact of the COVID-19 pandemic on economic activity in the euro area”, Economic Bulletin, Issue 3, European Central Bank. Chart 2 shows the household savings rate, as projected in the European Commission Spring Forecast that was published a couple of weeks ago. The household savings rate is forecast to jump by a remarkable 6 percentage points to around 19 percent for 2020, and is expected to remain elevated even in 2021. Although “forced saving” during the lockdown is surely contributing to the increase in household saving, it is plausible that the precautionary motive will remain significant so long as virus-related uncertainty persists. Elevated uncertainty may also hamper investment prospects for an extended period of time.