Thank you Paschal. Thank you also to the German Presidency for hosting us, to Olaf Scholz and all his team. It's a pleasure to be here with you all again after so many months of virtual press conferences.
This was our first occasion to take stock of the economic situation since July, when we discussed the Commission's summer forecast. The GDP figures for the second quarter published by Eurostat this week confirmed that we are in a deep economic contraction in the euro area, with output dropping by 11.8%. But they also confirmed that this contraction is deeply uneven, with the quarterly falls in GDP ranging from around 4% to around 18% in different countries. The risk of fragmentation that we were considering when we decided the recovery strategy is, in fact, there.
Employment also dropped by a record 2.9% in the euro area in the second quarter, though the labour market situation would certainly have been worse had it not been for the deployment of short-term work schemes, which we are about to start supporting through the European mechanism SURE.
As the lockdowns eased, we saw a strong rebound in activity in June and July, but indicators point to activity slowing again in recent weeks, as countries have grappled with new flare-ups of the virus. We expect that most Member States will not have reached their pre-crisis levels of GDP by the end of 2021, with an average gap of 2.5%.
In short, the road to recovery is still paved with uncertainty. So, we need to do everything we can to sustain confidence and support growth, as Paschal already said.
That's the context in which we this morning discussed the political economy of reforms, and how to make a success of the great opportunity offered by Next Generation EU. We are working on guidance for the Member States for the Recovery and Resilience Facility to help with the preparation of national plans, which should reflect both national prriorities in line with the European Semeter recommendations, and the digital and green transitions. The Commission will present a communication on this topic shortly.
Concerning the fiscal stance for 2021, given the current high level of uncertainty, would it be riskier to withdraw fiscal support too early or too late? In our view, the former is the primary source of concern. A premature withdrawal of support would put the fragile recovery in jeopardy. At the same time, it would be reasonable to expect a shift from emergency measures to improving the fundamentals of our economies. Of course we must not forget the need to ensure sustainability in the medium-run and the need to set a path for adjustment at some point. As I told ministers this morning, if we miscalculate the timing of this landing, we risk damaging the European economy.
Moreover, if we limit ourselves to returning to the previously existing situation, without making the necessary changes to our common framework, we would not have drawn the lesson of the COVID crisis. In short, the transition from an exceptional situation to a new normality is a challenge requiring very careful management.
Finally, we appreciate the discussion on the ESM Treaty and the related matter of bringing forward the entry into force of the backstop for the Single Resolution Fund. I just want to welcome your efforts Paschal to get these talks moving again and to bring them to a swift and successful conclusion.