Arthur J. Villasanta – Fourth Estate Contributor
Washington, DC, United States (4E) – The International Monetary Fund (IMF) warns Europe that its growth propects are at risk because of a more turbulent external environment exacerbated by trade tensions and tighter financial conditions.
The IMF’s latest regional outlook downgraded its growth forecasts for Europe for 2018 and 2019. It reported “the external environment has become less supportive and is expected to soften further in 2019 owing to slowing global demand, trade tensions and higher energy prices.”
“Tighter financial conditions in vulnerable emerging market economies and maturing business cycles are also weighing on activity.”
Because of this, growth is projected to decline from 2.8 percent in 2017 to 2.3 percent in 2018 and 1.9 percent in 2019. On the other hand, growth is expected to remain above potential in most European countries. Driving this growth is domestic demand, which has been bolstered by stronger employment and wages.
The latest forecast is a downgrade from the IMF’s last regional outlook for Europe in May. The previous report predicted “growth to stay strong,” reaching 2.6 percent in 2018 and 2.2 percent in 2019.
Contributing to the bleaker forcast are the tightening of global financial conditions; political upheavals in Europe, slow progress on structural reforms and the intractable Brexit negotiations.
“In the short term, escalating trade tensions and a sharp tightening in global financial conditions could undermine investment and weigh on growth,” wrote the IMF.
Medium term risks stem from delayed fiscal adjustment and structural reforms, demographic challenges, rising inequality, and declining trust in mainstream policies.
IMF said a “no-deal” Brexit will lead to high trade and non-trade barriers between the U.K. and the rest of the European Union with negative consequences for growth. A “no-deal” Brexit means ther UK will leave the EU without a trade deal, and revert to WTO rules.
The European Commission yesterday reported growth in the bloc might stall due to “many interconnected downside risks.” It forecast growth of 1.9 percent in 2019 (similar to the IMF’s) and 1.7 percent in 2020.
Europe is expected to see growth moderate along with most major economies. The IMF World Economic Outlook report released in October cut global growth forecasts, forecasting 3.7 percent in 2018 and 2019, or 0.2 percentage points lower than an earlier forecast.
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