WASHINGTON (AFP) – The International Monetary Fund stepped up its warnings over a possible eurozone recession Thursday, pressing governments like Germany to spend more for reverse a stall.
Worries about the eurozone stagnating were at the forefront as the annual IMF-World Bank meetings on the global economy kicked off.
Despite the general recovery from the financial crisis that began six years ago, red flags were out for a number of dangers – the West African Ebola epidemic, the Ukraine crisis, the conflict in the Middle East, and the potential global whiplash from the coming policy tightening by the US Federal Reserve.
IMF Managing Director Christine Lagarde pointedly warned that the eurozone could fall back into recession if action is not taken to prevent it.
“We are not suggesting that the zone is heading toward recession, but we are saying that there is a serious risk that that happens if nothing is done,” she said.
Lagarde said that the IMF puts the chance of the euro area slipping back to a prolonged contraction at 35-40 per cent “not insignificant,” she added.
“If the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable.”
Lagarde emphasized that world economic growth overall was a firm 3.3 per cent this year, and speed up to 3.8 per cent in 2015.
But she called that “mediocre”, and while much better than just a few years ago, what it means for people in many countries could be flat incomes and not enough job generation to lower high rates of unemployment.
Moreover, a number of emerging economies face deeper malaise, and the huge eurozone economy is especially worrisome.
“The main subject is that of growth, globally, but the principal focus here is the question of European growth,” said French Finance Minister Michel Sapin.
The issue is what tools are available to avoid “what is described as a risk of recession,” he said.
The IMF earlier this week cut its baseline forecast for growth in the 18-nation euro area to 0.8 per cent this year and 1.3 per cent next year. But with deflation a growing threat and demand and industrial output falling even in eurozone powerhouse Germany, a worse outcome is possible.
Lagarde said only a “very modest part” of the European slowdown can be blamed on the Ukraine crisis and the economic sanctions western Europe and the United States have placed on Russia.