Economy in Europe at present on sound footing

The IMF’s only concern for a bright economic future of the EU could be a disruptive Brexit

EUROPE’S economy is now hitting its stride, the International Monetary Fund (IMF) said yesterday, but a disruptive Brexit could result in “appreciably” lower growth for both Britain and the euro zone.

The IMF’s latest Regional Economic Outlook, which looks at more than 40 countries from Germany and the UK to Turkey and Russia, said the current recovery looks increasingly assured.

It is partly driven by central bank stimulus and low interest rates, but also by improving fundamentals, as evidenced by a pick-up in investment across a broad range of economies.

“This recovery looks increasingly durable,” the deputy director of the IMF’s European Department, Joerg Decressin, said at a presentation of the report published yesterday.

“Growth in the euro area has been positive for 18 quarters, lately around 2.5 percent. Many countries in eastern Europe have seen growth around or above 3 percent for some time already. So this recovery has not only become broader but also stronger.”

The IMF’s World Economic Outlook, published at the September meetings in Washington, forecasts region-wide growth of 2.4 percent this year and 2.1 percent next year, but much has shifted in the background since then.

Decressin said it supported the European Central Bank’s careful approach to cutting its stimulus.

He also said inflation justified the Bank of England’s raising its interest rates for the first time since the financial crisis.

The main uncertainty on the horizon remains Brexit and what kind of trade relationship Britain can set up when it leaves the EU with the 27 remaining countries.

Decressin said the IMF’s expectation remained that a deal with a transition period would be struck. Its economists have not run any “no deal” forecasts, he said, but a “disruptive” Brexit is likely to have a damaging impact.

“Under such circumstances, our concern is that economic growth will suffer, especially in the UK, but also the euro area,” he said.

“We are then possibly looking at appreciably lower growth than we presently project.”

For now, though, he flagged how much more positive the mood was than just one or two years ago, when worries were still rife in the euro zone that Greece would be forced out.

French President Emmanuel Macron’s proposals to accelerate euro zone integration have been an important part of that, Decressin said.

He also gave the IMF’s clearest backing yet for plans to convert the European Stability Mechanism into IMF-style crisis lender. – Reuters