Euro area recovering, but …..
The euro area recovery is strengthening, according to the International Monetary Fund (IMF), but a weak medium-term outlook calls for focus on four key areas: increasing demand, cleaning up bank balance sheets, stepping up structural reforms, and strengthening governance.
In its latest review of the currency union the IMF found that steady job growth and rising real wages have underpinned a rebound in consumption – among the large economies, Germany continues to grow slightly above 1.5% while Spain is rebounding strongly. Italy is emerging from three years of recession and activity in France picked up at the beginning of this year.
But medium-term prospects are less bright. “Several factors cloud the outlook for growth over the next five years” said Mahmood Pradhan, mission chief for the euro area. “These include high unemployment, especially among the youth; large corporate debt; and, rising non-performing loans in the banking system.” Slow progress on structural reforms has also dampened the business climate and reduced growth potential. As a result, the euro area remains vulnerable to shocks. “A moderate shock to confidence—whether from lower expected future growth or heightened geopolitical tensions—could tip the block into prolonged stagnation” said Pradhan.