15 May 2018

Financial Times: IMF warns Brexit and Italian politics put European growth at risk

“External downside risks facing the entire region stem from a mix of financial vulnerabilities, possible inward-looking policies globally, and a range of noneconomic factors,” the Fund said.

In a thinly-veiled reference to events in Rome and London, the IMF said in its update on the region’s economic outlook: “A large and complex financial system exposes the United Kingdom and the global economy to risks associated with the transition to a new state of play. There are also policy uncertainties related to newly elected governments in major European countries.”

The Five-Star Movement and the League are in the final stages of forming a government, leaving Italy on the brink of becoming the first eurozone member state to vote in an avowedly Eurosceptic government.

Economists view the biggest risk as a reversal of some of the economic reforms that Italy has passed in recent years.

With rates still at record lows in the eurozone, economists are increasingly concerned that the eurozone lacks the firepower to deal with slower growth or another recession. The Fund calling on officials around the region to prepare their fiscal coffers and reform their economies ahead of the next downturn.

However, it views the recent slowdown in growth as temporary and is unlikely to downgrade its forecasts in the near future.

“With economic prospects continuing to improve in the short-term but medium-term prospects less bright, policymakers should seize the moment to rebuild room for fiscal manoeuvre and push forward with reforms to boost growth potential,” the Fund said in an update on the region’s economic outlook. [...]

Full article on Financial Times (subscription required)

Europe's Regional Economic Outlook: Managing the Upswing in Uncertain Times - May 2018

© Financial Times