European recession to last well into 2010: IMF
In 2010, the IMF said the euro zone is likely to contract by 0.4 percent, with Germany shrinking by another 1 percent.
By Agencies |
LONDON: Europe's severe economic downturn is likely to last until the second half of 2010 and could persist for longer if governments across the continent don't do more to shore up fragile financial institutions and coordinate their response to the recession, the International Monetary Fund said Tuesday.
In its latest update for Europe, the IMF continues to forecast that the 16 nations that use the euro currency will shrink by 4.2 per cent this year alone, with Germany _ the euro zone's biggest economy _ contracting by a massive 5.6 percent alone as demand for its high-value exports collapses.
In 2010, the IMF said the euro zone is likely to contract by 0.4 percent, with Germany shrinking by another 1 percent.
The IMF said Europe's emerging economies _ primarily those of the former Soviet bloc _ will likely shrink by 4.9 per cent this year with a return to growth of 0.7 percent in 2010.
However, the IMF said the risks around its forecasts ``remain tilted to the downside'' especially if global demand does not pick up.
``The measures taken to counteract the deep recession in Europe have provided a good foundation for a gradual recovery, but further actions by policy makers, particularly in the financial sector, are needed to restore market trust, and accelerate the recovery,'' said Marek Belka, director of the IMF's European department.
Potential measures identified include the continued provision of liquidity, recapitalization of institutions by both the public and private sectors, and moving impaired assets from financial institutions balance sheets into a ``bad bank'' backed by the state.
Belka also said Europe should coordinate its response to the recession better so both fiscal and monetary policy efforts work more effectively.
``Europe is the most economically integrated market economy in the world, and yet the policies to address the crisis have been undertaken at the national level,'' said Belka.
``Europe is facing the economic storm of a lifetime and it urgently needs to weatherproof its institutions,'' he added.
Figures on Friday will likely show that the recession in the first quarter became even more pronounced. Most analysts expect official figures to show that the euro zone shrank by 2 percent in the January-March period from the previous three month period _ even more than the 1.6 percent contraction posted in the fourth quarter of 2008.
In its latest update for Europe, the IMF continues to forecast that the 16 nations that use the euro currency will shrink by 4.2 per cent this year alone, with Germany _ the euro zone's biggest economy _ contracting by a massive 5.6 percent alone as demand for its high-value exports collapses.
In 2010, the IMF said the euro zone is likely to contract by 0.4 percent, with Germany shrinking by another 1 percent.
The IMF said Europe's emerging economies _ primarily those of the former Soviet bloc _ will likely shrink by 4.9 per cent this year with a return to growth of 0.7 percent in 2010.
However, the IMF said the risks around its forecasts ``remain tilted to the downside'' especially if global demand does not pick up.
``The measures taken to counteract the deep recession in Europe have provided a good foundation for a gradual recovery, but further actions by policy makers, particularly in the financial sector, are needed to restore market trust, and accelerate the recovery,'' said Marek Belka, director of the IMF's European department.
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Potential measures identified include the continued provision of liquidity, recapitalization of institutions by both the public and private sectors, and moving impaired assets from financial institutions balance sheets into a ``bad bank'' backed by the state.
Belka also said Europe should coordinate its response to the recession better so both fiscal and monetary policy efforts work more effectively.
``Europe is the most economically integrated market economy in the world, and yet the policies to address the crisis have been undertaken at the national level,'' said Belka.
``Europe is facing the economic storm of a lifetime and it urgently needs to weatherproof its institutions,'' he added.
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Figures on Friday will likely show that the recession in the first quarter became even more pronounced. Most analysts expect official figures to show that the euro zone shrank by 2 percent in the January-March period from the previous three month period _ even more than the 1.6 percent contraction posted in the fourth quarter of 2008.
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