In its update to the World Economic Outlook, the IMF says growth will strengthen gradually in 2013, as the constraints on economic activity start to ease this year. But the recovery is slow, and the report stresses that policies must address downside risks to bolster growth.
The IMF downgraded its near-term forecast for the euro area, with the region now expected to contract slightly in 2013. The report observed that even though policy actions have reduced risks and improved financial conditions for governments and banks in the periphery economies, those had not yet translated into improved borrowing conditions for the private sector. Continuing uncertainty about the ultimate resolution of the global financial crisis, despite continued progress in policy reforms, could also dampen the region’s prospects.
The report noted that the euro area continues to pose a large downside risk to the global outlook. While a sharp crisis has become less likely, “the risk of prolonged stagnation in the euro area would rise if the momentum for reform is not maintained”, the IMF said. To head off this risk, the report stressed, adjustment programmes by the periphery countries need to continue, and must be supported by the deployment of “firewalls” to prevent contagion as well as further steps toward banking union and fiscal integration.
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Video: Lagarde's New Year Press Briefing, 17.1.13
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