News Column

Eurozone Will Stay in Recession in 2013

Jan. 24, 2013

Frank Fuhrig, dpa

The eurozone will remain in recession in 2013 with the currency area's economy contracting by 0.2 per cent this year, the International Monetary Fund said Wednesday.

"Is Europe on the mend? I think the answer is yes and no," IMF chief economist Olivier Blanchard said. "Something has to happen to start growth."

IMF economists lowered their forecast by 0.4 percentage points from October's projection of 0.2-per-cent growth for 2013 in the crisis-plagued eurozone, which slipped into recession last year.

"The euro area continues to pose a large downside risk to the global outlook," the Washington-based crisis lender said in a quarterly update of its World Economic Outlook. "In particular, risks of prolonged stagnation in the euro area as a whole will rise if the momentum for reform is not maintained."

Euro area bailout recipients Greece, Portugal and Ireland, as well as struggling economies including Spain and Italy, where governments are trying to fix large budget deficits, must continue to push through both fiscal and structural reforms, the IMF said.

Economic activity in the still-contracting eurozone periphery was "even softer than expected, with some signs of stronger spillovers of that weakness to the euro area core," the IMF said.

In 2014, the eurozone can expect to recover from the current recession at a pace of 1 per cent.

The weaker economies on the eurozone periphery "must be supported by the centre" through the European Union's firewalls along with continued steps toward full banking union and budget integration, the IMF update said.

Globally, growth will increase to 3.5 per cent this year, led heavily by emerging and developing economies.

Eurostat, the European Union's statistics office, said Wednesday that government debt in the 17-member eurozone crept up as the region lurched into recession in the third quarter of 2012.

The average ratio of government debt to gross domestic product in the bloc nudged up from 89.9 per cent to 90 per cent in the July-September period. The debt ratio was up from 86.8 per cent a year earlier despite moves by eurozone member states over the last 12 months to trim their debt-and-deficit levels.

Nations at the centre of the debt crisis posted the highest debt levels, with debt hitting 152.6 per cent in Greece and 127.3 per cent in Italy. The debt-to-GDP ratio in Portugal stood at 120.3 per cent and 117 per cent in Ireland.

Spain's debt stood at 77.4 per cent, which was lower than many other eurozone states including the region's two biggest economies Germany and France.

The world's advanced economies as a group will grow by 1.4 per cent in 2012, down 0.2 percentage points since the IMF's October projection, due to the worsening outlook in Europe, the IMF said.

Global growth is "not enough to make a dent in the unemployment rates" in rich countries, Blanchard said. Joblessness in advanced economies is likely to continue to average around 8 per cent.

The United States is projected to expand by 2 per cent, speeding up to 3-per-cent growth in 2014. Growth in 2012 "surprised on the upside" in the US, reaching 2.3 per cent, the IMF said.

The US was able to dodge the worst of the so-called fiscal cliff when the Congress passed legislation to avoid most of the scheduled 2013 tax hikes and postpone major spending cuts. Politically divided Washington still needs to devise a medium-term solution to its debt problems, the IMF urged.

Noting the policy progress made by politicians in the US and Europe, where steps were taken last year toward a banking union to enhance the stability of the financial system, Blanchard said: "We may have avoided the cliffs, but we still face high mountains."

The IMF sees Japan quickly escaping its latest downturn, growing 1.2 per cent this year on the back of a large stimulus package and slashed interest rates. But it has an increasingly pressing need for medium-term deficit control and structural reforms to hike growth potential, the IMF noted.

As a group, emerging and developing economies are forecast to build on 2012's 5.1 per cent growth to 5.5 per cent this year.

"But weakness in advanced economies will weigh on external demand," including through lower prices for commodity exporting countries.

The IMF projected China to maintain around 8 per cent growth, while India can expect expansion to pick up from 4.5 per cent last year to 5.9 per cent in 2013.

The Middle East and North Africa can expect growth to slip from last year's 5.2 per cent to 3.4 per cent, in part from easing energy prices. Sub-Saharan African growth should quicken to 5.8 per cent, up 1 point from 2012.

Brazil, which was hampered last year by supply bottlenecks and policy uncertainty, grew by 1 per cent in 2012 but should see a jump to 3.5 per cent this year, the IMF said.

Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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