IMF boosts eurozone growth outlook

BRUSSELS (APP): The IMF on Tuesday slightly upgraded its growth outlook for the eurozone in 2018, saying that demand was stronger than expected as it continues its economic recovery despite the shock of Brexit.

The International Monetary Fund’s latest quarterly World Economic Outlook predicted growth of 2.4 percent this year for the 19-country area that uses the euro single currency, up 0.2 points from its January estimate. It kept its 2019 prediction unchanged at 2.0%.

The outlook reflected “stronger-than-expected domestic demand across the currency area, supportive monetary policy, and improved external demand prospects,” it said.

The Washington-based institution said the favourable monetary environment would last until inflation increases long-term towards the European Central Bank’s target of 2.0 percent. It estimated inflation would hit 1.5 percent in 2018 and 1.6 percent in 2019.

In the medium term the IMF said growth would likely fall to 1.4 percent because of “low productivity amid weak reform efforts and unfavourable demographics”.

It said reducing non-performing loans in particular was “essential for shedding crisis legacies.”

The eurozone has only recently begun to emerge from the doldrums after a crippling debt crisis which saw several countries bailed out including Greece.

The IMF called on Spain to overhaul its labour market and on Italy to reform its wage deals, while urging Germany to deregulate its services sector.

It upgraded growth estimates for 2018 for Germany (2.5 percent, up 0.2 points), France (2.1 percent, up 0.2), Italy (1.5 percent, up 0.1) and Spain (2.8 percent, up 0.4).

Outside the eurozone — and, from March 2019, outside the EU — Britain also saw its growth estimate for this year expand to 1.6 percent, up 0.1 point.

But British growth is likely to slow again to 1.5 percent in 2019 “with business investment expected to remain weak in light of heightened uncertainty about post-Brexit arrangements”.

In the medium term it expects British growth to hit 1.6 percent, “reflecting the anticipated higher barriers to trade and lower foreign direct investment following Brexit”.