Tue. Jan 28th, 2020

The IMF warns of risks for the European economy and asks for emergency plans

The European Monetary Fund (IMF) warned on Wednesday that the economy of Europe as a whole faces downward risks from "brexit" and trade tensions, so it recommends that countries develop contingency plans in case they end up translating into a severe shock

"In view of the downside risks, we ask to have plans in case a negative shock materializes," the IMF director for Europe, Poul Mathias Thomsen, explained during the presentation of the Regional Economic Outlook for the institution's continent, based in Washington.

The report – which does not change the estimates presented by the IMF in October – reflects that the growth of the European economy will slow down from 2.3% in 2018 to 1.4% in 2019, which means its lower growth since 2013, for then rebound to 1.8% in 2020.

The economic slowdown in Europe responds mainly to external factors, in particular the weakness of trade and the manufacturing sector, although the IMF already appreciates signs of a relaxation of domestic demand, especially of investment.

The institution warns that the risks for the entire continent are downward in an environment of "great uncertainty." In the short term, the main risk is the possibility of a UK exit from the European Union without agreement, which would have an "important" impact on the region.

On the other hand, an increase in commercial tensions could undermine investment, while the weakness in trade and manufacturing "could be extended to other sectors, especially services, faster and to a greater extent than is currently expected. ", according to the IMF.

Given these "high risks", the institution asks countries to develop medium-term contingency plans that allow them to take fiscal measures to face a severe shock, especially since the room for maneuver to respond with monetary policy "has decreased."

"We do not ask that these plans be taken out of the drawer, but it is important that if they are necessary, they be made in a medium-term context, so that they do not generate questions about the medium-term sustainability of fiscal goals," Thomsen said.

Apart from these plans, the IMF recommends that, from a fiscal point of view, those countries with budgetary space, such as Germany and the Netherlands, take measures that enhance growth, while calling on those with high levels of debt to follow Consolidating your finances

Finally, call "reinvigorate" structural reforms.

. (tagsToTranslate) IMF (t) risks (t) European economy (t) (t) emergency

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