The warning comes after the latest data showed greater
resistance in the eurozone economy. Brexit could aggravate the situation.
The International Monetary Fund warned Europe about the
preparation of emergency plans for an economic recession, as risks to the
region's outlook expand and monetary policy has almost exhausted its arsenal.
"Given
the high downside risks, contingency plans should be ready for implementation
if these risks materialize, among other things because the scope of effective
monetary policy action has diminished", the IMF said in its Perspective of
the Regional Economy for Europe. "A synchronized fiscal
response" may be necessary, the fund said in the report, highlighting the
dangers of trade protectionism, a chaotic Brexit and geopolitics.
The strong warning comes after the latest economic data
showed that the eurozone economy is stronger than anticipated, driven by robust
expansion in countries such as France. Even so, Germany probably entered into a
technical recession during the last quarter, while the labor market in the main
economy of the continent began to deteriorate.
If the United Kingdom leaves the European Union in
January, without an orderly withdrawal agreement, the country's economic
production would be 3.5% lower in two years, according to the IMF forecast. The
EU economy would be 0.5% lower in that scenario.
Adding
to the uncertainty of brexit, “weakness in trade and manufacturing could be
extended to other sectors, particularly services, faster and to a greater extent
than is currently expected”, said the IMF. The report also warns of
rising asset prices in several countries, including real estate, which make
banks more vulnerable to impacts, such as steep drops in appetite for risk and
hardening conditions. Financial
The IMF named Germany and the Netherlands among those who
should loosen the ropes to stimulate growth. Such “moderate fiscal expansion”
could have positive indirect effects, stopping the slowdown and, at the same
time, reducing external imbalances.
Even countries with high deficits and debts should
consider a “temporarily slower fiscal consolidation rate or a temporary
expansion” if negative scenarios materialize, according to the fund. Meanwhile,
governments should consider “debt management options” to take advantage of
ultra-low returns and thus improve their financing needs in the coming years.
Despite the side effects of the ultra-loose monetary
policy on asset prices, the IMF recommends that central banks maintain their
accommodative stance to stop the slowdown. The report is the most recent
ammunition charge for the European Central Bank, which is struggling with a
persistent reaction against its renewed stimulus measures.
SOURCE: El Espectador
