IMF: Resilient Europe faces further test

21 April 2008

Financial market strains, spillovers from the U.S. slowdown, and the global reassessment of risks will adversely affect Europe in 2008, the IMF says in its Regional Economic Outlook. The euro's appreciation and the increase in commodity prices are adding to these troubles.

 

"There is no escaping the fact that we have a global shock to the financial system, and it is bound to affect Europe as well," said Michael Deppler, Director of the IMF's European Department.

 

So far, Europe's financial systems have weathered the financial turbulence relatively well. But the test is not over, the IMF says. The widening of the crisis beyond the sub-prime mortgage market may hit European financial institutions further, and spread into emerging Europe.

 

The immediate task for policymakers in advanced economies is to restore confidence in the financial system and minimize the impact of the turmoil on the real economy. At the same time, they need to anchor inflation and safeguard long-term fiscal sustainability.

 

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© Graham Bishop