IMF slightly raises growth projection for euro zone for 2020

Written by on July 23, 2019 in Europe - Comments Off on IMF slightly raises growth projection for euro zone for 2020

The International Monetary Fund said in its July 2019 update of its World Economic Outlook that it was raising its projection for growth in the euro zone to 1.6 per cent in 2020, 0.1 percentage point higher than its projection in April.

The IMF left its projection for growth in the euro zone in 2019 unchanged at 1.3 per cent.

The forecast for 2019 is revised down slightly for Germany (due to weaker-than-expected external demand, which also weighs on investment), but it is unchanged for France (where fiscal measures are expected to support growth and the negative effects of street protests are dissipating) and Italy (where the uncertain fiscal outlook is similar to April’s, taking a toll on investment and domestic demand).

Growth has been revised up for 2019 in Spain, reflecting strong investment and weak imports at the start of the year.

“Euro area growth is expected to pick up over the remainder of this year and into 2020, as external demand is projected to recover and temporary factors (including the dip in German car registrations and French street protests) continue to fade,” the IMF said.

The United Kingdom is set to expand at 1.3 percent in 2019 and 1.4 percent in 2020 (0.1 percentage point higher in 2019 than forecast in the April WEO). The upward revision reflects a stronger-than-anticipated first quarter outturn boosted by pre-Brexit inventory accumulation and stockpiling.

“This is likely to be partially offset by payback over the remainder of the year. Monthly GDP for April recorded a sharp contraction, in part driven by major car manufacturers bringing forward regular annual shutdowns as part of Brexit contingency plans.

“The forecast assumes an orderly Brexit followed by a gradual transition to the new regime. However, as of mid-July, the ultimate form of Brexit remained highly uncertain,” the IMF said.

It said that its subdued outlook for emerging and developing Europe in 2019 largely reflects prospects for Turkey, where—after a growth surprise in the first quarter from stronger-than-expected fiscal support—the contraction in activity associated with needed policy adjustments is projected to resume.

“Several other countries in central and eastern Europe are experiencing strong growth on the back of resilient domestic demand and rising wages.”

The region is expected to grow at one per cent in 2019 (0.2 percentage point higher than in the April WEO, buoyed by robust first quarter growth). Growth is expected to improve to 2.3 percent in 2020 (0.5 percentage point lower than in the April WEO, largely reflecting the projected growth slowdown for the remainder of 2019 in Turkey).

The July 2019 update of the IMF’s World Economic Outlook revises downward the projection for global growth to 3.2 percent in 2019 and 3.5 percent in 2020.

While this is a modest revision of 0.1 percentage points for both years relative to the IMF projections in April, it comes on top of previous significant downward revisions. The revision for 2019 reflects negative surprises for growth in emerging market and developing economies that offset positive surprises in some advanced economies.

Growth is projected to improve between 2019 and 2020. However, close to 70 percent of the increase relies on an improvement in the growth performance in stressed emerging market and developing economies and is therefore subject to high uncertainty, according to the IMF.

(Photo: Piotr Lewandowski/sxc.hu)

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