IMF warns Europe to ‘prepare for a rainy day’

14 Nov 17

European economies are recovering but governments should “prepare for a rainy day”, the International Monetary Fund has said.

Policymakers should take advantage of the economic recovery and make room in the budgets for “manoeuvre” in “worse times”, the IMF said in its Economic Outlook for Europe released on Monday.

This comes as the GDP for both the euro area and the EU28 increased by 0.6% during the third quarter of 2017, figures from the Statistical Office Of The European Communities, Eurostat, showed. This is up 2.5% compared with the third quarter of 2016.

The IMF economic outlook said: “Imminent growth prospects for Europe are positive, but challenges remain over the longer term. Many European countries still have only a thin cushion accumulated for a rainy day, weak productivity growth, and bad loans inherited from the financial crisis of 2008.”

Because of this, all European governments should take advantage of the economic upswing to ensure their economies adjust to potential changes, the outlook, which looked at more than 40 countries, said.

Advanced economies with high public debt, such as Belgium, France, Italy, Portugal, Spain and the UK should work towards lowering their debt without “jeopardising the economic uptick”.

Countries with more “wiggle room” in their budgets, such as Germany, the Netherlands and Sweden, should increase public investment in infrastructure, the integration of immigrants and housing to lift their potential growth.

According to the European Union data, Germany’s GDP growth accelerated to 0.8% while Italy picked up to 0.5%.

Earlier this month, Eurostat figures showed the eurozone grew at the fastest pace since 2001, with a growth of 0.7% in the second quarter of 2017.

In emerging economies, budget deficits are still significant, the IMF said, and such countries, including Hungary, Poland, Romania, and countries in the western Balkans and in the Commonwealth of Independent States, should improve the quality of their public expenditure and modify their revenue compositions.

The real gross domestic product growth is projected at 2.4% in 2017, up from 1.7% in 2016. The growth was mostly driven by domestic demand, including a pickup in investment, according to the outlook.

But the UK’s growth slowed, as a result of the weaker pound after the Brexit vote, the IMF said.

Unemployment also decreased throughout the region, with wages in central and south eastern Europe growing strongly in the past several years, mainly in the services sector. 

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