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Eurozone crisis

Stuck in stagnation

The global economy has embarked on a path of slow recovery, but in Europe the end of the protracted crisis is not yet in sight. The IMF sees even the core of the eurozone unable to exit the no-growth quagmire.

The world economy is to expand by 3.3 percent throughout the current year, followed by 4-percent growth in 2014. At least that's what the International Monetary Fund (IMF) predicts in its latest Economic Outlook which it released on April 14 in Washington.

Growth is expected to come from many corners of the world, but not from Europe. This is because the eurozone is the only region in the world still mired in recession. The single currency bloc is likely the see its collective economy shrink by 0.3 percent in 2013.

IMF Chief Economist Olivier Blanchard talked of a three-speed economic recovery. "Emerging and developing nations will continue to grow fast," he said. But he adds that developed nations do not provide a homogeneous picture, with the US in one corner and Europe on the other side of the growth scale.

The US economy is forecast to expand by 1.9 percent this year. "That's not enough to bring down unemployment significantly," said Blanchard, conceding though that it wouldn't be a bad result in light of current budget consolidation measures. He thinks US growth could be as high as 3 percent in 2014.

Growth drivers

epa03664155 IMF Economic Counsellor and Director of the Research Department, Olivier Blanchard 
EPA/SHAWN THEW +++(c) dpa - Bildfunk+++

Olivier Blanchard believes Europe is economically sick and needs a quick remedy

Even more impressive are the figures given for emerging and developing countries which are expected to grow by 5.3 percent this year, followed by 5.7 percent next year and thus almost completely returning to their old strength. For China, the IMF expects growth rates of at least 8 percent this year and next. For India, the figures are 5.7 percent and 6.2 percent respectively.

Sub-Saharan African nations will also be a global growth engine. "Those countries' economies already grew by close to 5 percent in 2012," IMF economist Abdul Abiad told Deutsche Welle. He said next year the respective growth rate would surpass 6 percent.

"That's because of strong domestic demand both for consumption and investments," Abiad explained. He expected growth to continue to be high in the years to come, higher in fact than before the start of the global financial crisis back in 2008.

For northern Africa, the Arab countries and Latin America IMF experts reckon with growth rates in line with the global average of 3 to 4 percent. Even Japan's economy, which has been stagnating for years, is likely to expand by 1.5 percent this year and to fare better than the euro area.

Eurozone core falters

European heavyweights Italy and Spain will see GDP decline by 1.5 percent each, the IMF predicted. Greece's economy will shrink 4.2 percent, Portugal's by 2.3 percent and Slovenia's by 2 percent. The IMF gave no figures for Cyprus.

IMF HQ in Washington
Photo: DW/Andreas Becker, April 2013

The IMF will have to ask itself about the impact of austerity measures

The eurozone's weak performance cannot only be attributed to the situation in its peripheral states. "The euro area's core is showing some weakness, too", Blanchard commented. "For France, we expect negative growth this year amid a combination of savings measures, weak exports and low confidence levels."

Even the German economy cannot really figure as a growth engine, with GDP expansion expected to reach only 0.6 percent this year. "Weak growth in the core of the eurozone is bad news in itself," Blanchard said, adding that it was particularly bad news for the nations on the periphery of the 17-member bloc which are dependent on a strong core.

Self-critical IMF?

Blanchard called Europe's weak development "alarming." He said the situation of banks continued to be uncertain and investments and private consumption were weak. "We have to think hard about how to foster private demand," Blanchard argued.

His statement could in a way also be understood as a self-critical remark about the IMF. After all, the body has played no small role in imposing austerity measures which have brought growth in many eurozone nations to a standstill.

Blanchard insisted savings measures had to be adapted in line with the countries' realities on the ground. He added that budget consolidation had to remain plausible, but should not have too grave an impact on growth prospects.

DW.DE

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