IMF Sees continued recovery in Europe, risks remaining

Europe continues to recover from its deepest recession in the postwar period with GDP projected to expand by 2.3 percent in 2010 and 2.2 percent in 2011, after a 4.6 percent contraction in 2009, the International Monetary Fund (IMF) said today.
In its latest Regional Economic Outlook (REO) for Europe, the IMF said that the recovery has been boosted by the resurgence of the world economy, with export growth especially strong in countries that export capital goods. However, the recovery is sluggish and projected growth rates are low by historical standards.

In advanced Europe, where policy actions helped contain sovereign debt troubles in early 2010, growth is projected at 1.7 percent in 2010 and 1.6 percent in 2011. Despite recent strength, however, the upswing is projected to remain weak compared with previous recoveries and also with advanced economies in other regions. In part, these growth differentials are due to the lingering impact of the crisis and the accelerating fiscal adjustment in 2011. But they also reflect well-known structural rigidities in the labor, product, and services markets that will limit the euro area’s potential growth.
The REO also noted that significant risks remain, and urged policymakers to implement appropriate policies. Fiscal consolidation, while inevitable, should be undertaken in a way that minimizes the negative impact on growth and unemployment; if growth threatens to slow appreciably more than we expect, countries with fiscal room could postpone some of the planned consolidation. Monetary policy must steer carefully between the need to normalize policies on the one hand and the necessity to mitigate sovereign market volatility and ensure bank liquidity on the other; and the recent checkup of European banks should be followed by rapid action to eliminate remaining weaknesses in balance sheets while continuing to safeguard lending capacity.

News source: IMF link: article