IMF outlook Europe: Growth to fall sharply before starting to recover in late 2009

21 October 2008

Beyond immediate crisis management, Europe will need to rethink its financial stability arrangements, the IMF states. This includes stepping up joint financial oversight and improving cross-border crisis resolution frameworks.

A confluence of multiple adverse shocks has depressed economic activity in Europe. Gradual recovery is expected late next year, the IMF says in its latest regional outlook. Restoring financial stability is the main policy priority, requiring a comprehensive and coherent global approach.

 

The outlook says that Europe is facing its worst financial crisis in decades. Credit growth is slowing and domestic demand is weakening across the continent. At the same time, past commodity price increases have boosted headline inflation, depressing consumption.

 

Beyond immediate crisis management, Europe will need to rethink its financial stability arrangements. This will require action on a range of fronts, including stepping up joint financial oversight, introducing mechanisms to strengthen market discipline, and improving the cross-border crisis resolution frameworks.

 

In advanced Europe, a mild recession is expected in the near term. Real GDP growth is projected to drop to 1.3 percent in 2008 and 0.2 percent in 2009, down from 2.8 percent in 2007. Decisive measures taken by a number of European governments should help contain the crisis and output growth is expected to start recovering in the second half of 2009.

 

Press release

 

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