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IMF chief: eurozone showing symptoms of Japan’s chronic economic ills IMF chief: eurozone showing symptoms of Japan’s chronic economic ills
(about 2 hours later)
Christine Lagarde, the head of the International Monetary Fund, has warned that the eurozone is displaying the symptoms of Japan’s long-standing economic problems and needs fresh moves to avert the threat of recession. Christine Lagarde, the head of the International Monetary Fund, has warned that the eurozone is displaying the symptoms of Japan’s longstanding economic problems and needs fresh moves to avert the threat of recession.
With the IMF’s annual meeting in Washington likely to be dominated by the failure of Europe to emerge from the financial crisis of six years ago, Lagarde dropped a broad hint that she expected Germany to run down its budget surplus to boost growth. She said there was a “serious risk” of a recession in the eurozone if nothing was done to avert a new downturn. With the IMF’s annual meeting in Washington likely to be dominated by the failure of Europe to emerge from the financial crisis of six years ago, Lagarde dropped a broad hint that she wanted Germany to run down its budget surplus to boost growth. She said there was a “serious risk” of a recession in the eurozone if nothing was done to avert a new downturn.
Her comments came after bad economic news from Germany and as the UK chancellor, George Osborne, said the stalling of the eurozone economy was already having an adverse impact on Britain.Her comments came after bad economic news from Germany and as the UK chancellor, George Osborne, said the stalling of the eurozone economy was already having an adverse impact on Britain.
Asked if the eurozone was the new Japan, a country which has never fully recovered from the financial crash at the end of the 1980s, Lagarde said: “We have alerted to the risks of persistently low inflation, which was one of the attributes of Japan.” Asked if the eurozone was the new Japan, a country that has never fully recovered from the financial crash at the end of the 1980s, Lagarde said: “We have alerted to the risks of persistently low inflation, which was one of the attributes of Japan.”
The IMF chief said measures had already been taken by the European Central Bank to “resist and reverse” the slide towards deflation, but she added: “More, we hope, will be done.”The IMF chief said measures had already been taken by the European Central Bank to “resist and reverse” the slide towards deflation, but she added: “More, we hope, will be done.”
Speculation is growing that the ECB will adopt quantitative easing – the money creation programme used by the US Federal Reserve, the Bank of England and the Bank of Japan – over the next few months. Speculation is growing that the ECB will adopt quantitative easing – the money-creation programme used by the US Federal Reserve, the Bank of England and the Bank of Japan – over the next few months.
But Lagarde said she wanted to see fiscal policy used to supplement the ECB’s efforts. But Lagarde said she wanted to see fiscal policy used to supplement the ECB’s efforts. She said: “We have also alerted to the risk of recession in the eurozone. That has been identified by us at between 35-40%, which is not insignificant.
She added: “We have also alerted to the risk of recession in the eurozone. That has been identified by us at between 35-40%, which is not insignificant. “We are not saying that the eurozone is heading towards recession, but we are saying that there is a serious risk of that happening if nothing is done.”
“We are not saying that the eurozone is heading towards recession but we are saying that there is a serious risk of that happening if nothing is done.” A sluggish recovery in the eurozone came to a halt in the second quarter of this year and the latest news from Germany – the single currency’s powerhouse economy – has shown industrial output in August down 4% month on month and exports down 5.8%. Both were the weakest figures since the depths of the global slump in 2009.
A sluggish recovery in the eurozone came to a halt in the second quarter of this year and the latest news from Germany – the single currency’s powerhouse economy – has seen industrial output in August down 4% month on month and exports down 5.8%. Both were the weakest figures since the depths of the global slump in 2009. Germany is coming under pressure from within the eurozone and from the US to run down its sizeable budget surplus. The IMF believes Germany has scope to invest in long-term infrastructure projects that would help growth prospects across the eurozone.
Germany is coming under pressure both from within the eurozone and from the US to run down its sizeable budget surplus. The IMF believes Germany has scope to invest in long-term infrastructure projects that would help growth prospects across the eurozone. “If the right policies are decided, if both surplus and deficit countries do what they have to, recession is avoidable”, Lagarde said. The IMF chief bracketed Japan and the eurozone together as parts of the developed world that were struggling.
“If the right policies are decided, if both surplus and deficit countries do what they have to, recession is avoidable”, Lagarde said.
The IMF chief bracketed Japan and the eurozone together as parts of the developed world that were struggling.
“In advanced countries, the recovery is being driven by the US and the UK. The eurozone and Japan are lagging behind.”“In advanced countries, the recovery is being driven by the US and the UK. The eurozone and Japan are lagging behind.”
Japan has slipped in and out of recession frequently over the past quarter of a century and has experienced persistent deflation. Japan has slipped in and out of recession frequently over the past 25 years and has experienced persistent deflation.
The IMF expects eurozone GDP to increase by just 0.8% this year. German growth is forecast to be 1.4%, stronger than the 0.4% pencilled in for France. Italy, the eurozone’s third biggest economy, is expected to contract by 0.2%. The IMF expects eurozone GDP to increase by 0.8% this year. German growth is forecast to be 1.4%, stronger than the 0.4% pencilled in for France. Italy, the eurozone’s third biggest economy, is expected to contract by 0.2%.
For 2015, the IMF expects eurozone growth to pick up to 1.3%, although some analysts believe the latest economic data puts that forecast at risk. For 2015, the IMF expects eurozone growth to pick up to 1.3%, though some analysts believe the latest economic data puts that forecast at risk.
Richard Grieveson, of the Economist Intelligence Unit, said: “Germany’s ever-growing importance to aggregate eurozone growth [with the exception of Q2] indicates that things could get very messy in the bloc in the next few quarters. Pressure for monetary and [German] fiscal action to alleviate the downturn will increase, but politically we think the ECB has reached its limit, and higher public spending or investment in Germany will be strongly resisted domestically.” Richard Grieveson, of the Economist Intelligence Unit, said: “Germany’s ever-growing importance to aggregate eurozone growth (with the exception of the second quarter) indicates that things could get very messy in the bloc in the next few quarters. Pressure for monetary and [German] fiscal action to alleviate the downturn will increase, but politically we think the ECB has reached its limit, and higher public spending or investment in Germany will be strongly resisted domestically.”
Lagarde said only some of the eurozone’s problems were the result of tension between Russia and Ukraine.Lagarde said only some of the eurozone’s problems were the result of tension between Russia and Ukraine.
“Developments in Ukraine are very unfortunate,” she said, adding that developments in the region were one of the geopolitical risks identified by the IMF as threatening the global economy.“Developments in Ukraine are very unfortunate,” she said, adding that developments in the region were one of the geopolitical risks identified by the IMF as threatening the global economy.
“Modest growth in the eurozone is partly but only partly attributable to geopolitical risks.”“Modest growth in the eurozone is partly but only partly attributable to geopolitical risks.”