Happy New Year, everyone.
My name is Peter Schaffrik, and I welcome you to our first edition of our series European Markets in 2021.
Today, I want to look at the current situation of the COVID crisis, I want to look at the path forward, and I want to take a look at the year 2021, and how we think it will unfold. I'm speaking to you today from my home in London, being locked down like so many of you probably are.
The first chart that you're looking at shows COVID cases in the UK compared to the rest of Europe. Now, what you can see is there's quite a different dynamic owing to the new, more transmissible strain that has broken out here.
The second chart that you're looking at shows hospitalizations. And also here, unfortunately, the UK shows quite a bit of different dynamic to some of the other continental European countries. And as consequence, we have the lockdown and the economic restrictions that we're currently facing. Having said all that, I don't think that this will remain unique to the UK. It's very plausible that the new strain is already in most countries in the continent of Europe as well, and probably beyond that, too. So, it's quite conceivable that going forward in the weeks and months to come, you'll also see the numbers over there increasing. And the economic restrictions being made either harsher or longer, or in fact both. So, it's quite possible that we see these restrictions lasting maybe all the way to the beginning of April.
The third chart that you're currently looking at shows our predictions for Euro area GDP that we did back at the beginning of December. So, not too long ago. But most likely, given the new situation, this is too optimistic and has to come down. And the point that the arrow is indicating is almost certainly going to be weaker than we anticipated back then. In short, the situation in the near term is much grimmer than anticipated just a few weeks back. Having said that, it doesn't mean that the outlook for 2021 as a whole needs to be very bleak. Quite to the contrast. We had anticipated a rebound after the winter, and that basic narrative hasn't changed. Even if we start from a much lower base than previously expected.
Let's revisit some of the assumptions. First of all, once the weather turns we expect a global, synchronized upswing. Europe's going to play its part by reopening its economies, and we have seen last year how powerful that can be. On top of that, there's most likely going to be some pent up savings. And even not all, but some of them are most likely going to be spent. Furthermore, Europe as very trade oriented and open economies, tend to benefit if the globe recovers. And so we think it will be in 2021 as well.
Secondly, we have argued before that the fiscal picture is very, very different from previous experiences. The chart that you're currently seeing shows the expected budget deficits in Europe, and on top of that comes the so-called next generation EU or European recovery fund. And as you can see, we are really looking at an almost unprecedented budget deficit for the European economies and for the EU as a whole. This should be really supporting the economic recovery going forward.
Thirdly, monetary policy is going to stay extremely ample. We have made the case that we think the Bank of England for instance, will reduce interest rates even further. And over the course of 2021, we think that the ECB will follow where the fed was leading and introduce more or less an average inflation target. Which should cement low interest rates for years to come. And on the back of all of that, we think that the outlook for the economy after the winter looks significantly better. And that should be supporting riskier assets in particular. So, as a summary, the short term looks pretty grim. Probably much grimmer than we anticipated just before Christmas. However, the path looking forward hasn't changed, and we still expect a very sizeable recovery going forward. In our 2021 outlook, you can find more detail about that view and also how to implement it in markets.
And with that, I thank you for watching and hope to see you again next time.