IMF warns of slower recovery for eurozone economy

The eurozone economy will suffer a historic crash in 2020, but not as badly as first expected, International Monetary Fund (IMF) data showed on Tuesday, October 13, as it warned of a slow recovery.

The IMF said the eurozone economy would contract by a staggering 8.3% this year, a free fall not seen since the 1930s Great Depression.

However this was an improvement on the 10.2% drop predicted in June and before the European economy stirred back into action over the summer months.

With as yet no medical solution to the pandemic, the IMF warned that the economy would only expand by 5.2% in 2021, weaker than the 6% predicted in June.

The data for this year was better than the European Union (EU)'s own July forecast that said the eurozone economy would plunge by 8.7% in 2020. 

The EU was far more optimistic for 2021, seeing a 6.1% expansion, nearly a full point stronger than the IMF's forecast. 

In Europe, Spain would suffer the most with gross domestic product sliding by 12.8% this year. Italy would crash by 10.6% and France by 8.3%.

Germany, the continent's export powerhouse, would see growth suffer by 6% this year, the IMF said, as demand from Asia remained sustained.

Non-EU Britain would see its economy shrink by 9.8% in 2020, with a 5.9% recovery in 2021, the Fund said. 

It noted that a failure to forge a trade deal by December 31 "would increase business costs and could disrupt long-standing cross-border production arrangements."

'Aggressive' policy

The IMF said the situation could have been worse and commended European countries for a spending bonanza to blunt the economic shocks of the pandemic.

It singled out the EU's 750-billion-euro recovery package as the kind of measure that sends the right signal that the economy could be helped. 

It also noted the historic measures taken by the European Central Bank, which have boosted the stock markets and crucially kept the borrowing costs of massively-indebted countries like Italy at historic lows.

"These aggressive policy countermeasures have played a vital role in supporting sentiment and preventing further amplification of the COVID-19 shock through the financial system," the IMF said.

It also underlined the strength of the euro, especially against the globally dominant dollar. 

In the April to September period, "the euro appreciated by close to 4% on improving economic prospects and slower increases in COVID-19 cases." 

The dollar weakened by about the same amount in the period, though a new peak of cases across Europe could change the dynamic. 

The IMF said the slump in growth for Europe will be deeper than that of the United States, where the recession will only fall to 4.3% this year, with growth of 3.1% next year.

The downturns in Asia would be even more moderate in comparison, the IMF said. – Rappler.com