Written by Marcin Grajewski,
Taking the already excellent relations between the International Monetary Fund (IMF) and the European Parliamentary Research Service (EPRS) to an even higher level, the IMF chose to launch its ‘European Regional Economic Outlook’ during an EPRS event on the direction of Europe’s economy in a global context on 6 November 2019. This first joint EPRS-IMF policy roundtable was also a new opportunity for the IMF to make a first presentation of a flagship, market-moving publication on EPRS premises, and took place in the European Parliament’s Library Reading Room. The event, entitled ‘Where next for the European Economy: The latest IMF European Regional Outlook in a global context’, discussed the short and medium-term future of the European economy in a global context, which is marred by a trade conflict between China and the United States, as well as uncertainty about the world’s rules-based economic and political order.
According to the IMF report, as in the rest of the world, European trade and manufacturing have weakened, with signs that the slowdown is spreading to the rest of the economy. The optimistic signal is that services and consumption remain relatively resilient in line with strong labour markets and looser financial conditions that support domestic demand. However, investment is starting to lose steam. The IMF therefore predicts that growth will moderate from 2.3 % in 2018 to 1.4 % in 2019, its lowest rate since 2013. In 2020, growth is projected to recover modestly, to 1.8 %, as international trade is expected to rebound. Nevertheless, if trade disputes remain unresolved, the outlook could darken.
‘We are currently in a synchronised global slowdown and Europe is no exception. Manufacturing and trade have weakened considerably … Consumption remains relatively resilient’, noted Poul Thomsen, Director of the European Department at the IMF, presenting the report.
The IMF advises those countries who can afford to do so to implement fiscal stimuli, while highly indebted countries should move towards the EU-mandated Medium Term Objectives, which encourage them to adjust their structural budgetary positions at a rate of 0.5 % of GDP per year as a benchmark. The European Central Bank policy should remain accommodative, although caution is required thanks to strong labour markets and wage growth in some countries.
Othmar Karas, Vice-President of the European Parliament, in charge of relations, among others, with the IMF, opened the conference with a scene-setting speech, while Anthony Teasdale, ERPS Director-General, moderated the event. Other members of the panel included Robert Holzmann, Governor of the Austrian Central Bank, and Maria Demertzis, Deputy Director at the Bruegel think tank.
Vice-President Karas acknowledged that the European economic situation is not rosy. ‘The trade conflict, from which the USA has not spared Europe, lowers productivity by disrupting supply chains, causes turmoil on financial markets and reduces investment due to uncertainty. Foreign direct investment abroad by advanced economies came almost to a standstill’, he said. However, he noted that the EU is now stronger and more resilient than in the wake of the financial crisis, when some said that the euro area was in an existential crisis. ‘Our economy has grown for seven consecutive years, creating 14 million jobs. We mobilised considerable investment resources through the “Juncker Fund”‘ he said. Karas added that, in his role of Vice-President responsible for information policy, press and relations with citizens, he plans to organise a series of public seminars in national capitals, with the participation of organisations such as the IMF and the World Bank, to raise awareness of the common challenges and facilitate cooperation among governments.
Commenting on the IMF presentation, Robert Holzmann, offered an insightful analysis of the ECB’s monetary policies, and Bruegel’s Maria Demertzis pointed to several conundrums in the European economy. She explained that those countries that should stimulate their economies fiscally, cannot afford to do so; while those who do, should not do so in the short-term to avoid pro-cyclical policy. However, they could devise mid- or long-term investment plans. The impact of the ECB’s unconventional monetary measures, on the other hand, have not been studied enough. ‘In fiscal policy we do not have much space, and on monetary policy, if you decide to do some more, you will have to do it basically with your eyes closed’, according to Demertzis. Creating a substantial fiscal capacity at the level of the euro would be a good idea, but there is little political appetite for the move.
The next joint EPRS-IMF event is planned for the first semester in 2020.