28th July 2015

Economic Policy: IMF: Euro area vulnerable to negative shocks, prolonged low growth


On July 24, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Euro Area.

"The recovery is strengthening, driven by rising domestic demand and supported by lower oil prices, the ECB’s quantitative easing under the expanded asset purchase program, and a weaker euro. The improving sentiment, rising inflation expectations, and easing credit conditions suggest that the recovery is likely to continue in the near term. In this context, euro area GDP is expected to accelerate from 1.5 percent this year to 1.7 percent next year. Headline inflation is expected to remain close to zero this year and rise to 1.1 percent next year, reflecting a still large output gap

Risks to growth are now more balanced than in recent years when they were clearly to the downside. On the upside, low oil prices, quantitative easing, a weaker euro, and rising confidence could bring larger-than-anticipated benefits. Downside risks include lingering weakness and low inflation, a potential slowdown in emerging markets, geopolitical tensions, and financial market volatility, whether from asymmetric monetary policies or contagion from events in Greece.

But the medium-term outlook is subdued, as a chronic lack of demand, impaired corporate and bank balance sheets, and weak productivity continue to hold back employment and investment. Potential growth, estimated to average around only 1 percent over the medium term, is well below what is needed to reduce unemployment to acceptable levels in many countries...." Read more.

Members of the American Chamber of Commerce in the Czech Republic