The IMF’s economic outlook for Europe forecasts a 7% decline in Europe's GDP in 2020 and an uneven and partial recovery from this crisis as the second wave of infection intensifies, announced Alfred Kammer, Director of European Department at the IMF at the launch of Europe’s Regional Economic Outlook report on Wednesday, October 21st in Washington, DC.
“7% decline in Europe's GDP in 2020. The recovery from this crisis will be uneven and partial by real GDP is projected to rebound by 4.7% in 2021. It would still be lower by 6.3% in 2021 relative to our pre-pandemic projections. This implies a GDP loss of almost €3 million, and much of this loss will not be recouped over the medium term,” said Kammer
Kammer recommended that income support and top job retention programs should remain in place as the pandemic evolves and the economy starts to recover.
“Our report finds that in advanced economies, around one-third of the pandemic induced solvency shortfall could be addressed by announced policies such as wage subsidies, grants, or tax rebates. In emerging Europe, it is only around one quarter. Thus, policies need to be put in place that facilitate speedy debt restructuring in or outside of bankruptcy or in some cases make equity available to viable firms,” said Kammer.
He also stressed that the road to Europe’s recovery to 2019 levels of GDP is going to be very long and uneven.
“This is indeed going to be a very long ascent into recovery. And the estimate for Europe, it will take until 2022- 23 for most countries to return to 2019 levels of GDP. So that is a long return to the very good already in 2019. As I said, the key priority needs to be that we support lives and livelihoods and therefore we need to keep the support policies in place throughout the second wave. Until we have controlled the pandemic and until we have fully entrenched the recovery,” said Kammer.
The IMF is projecting that, given the low-income environment, debt levels after this crisis will start falling over the medium term as a percent of GDP. But that doesn't mean that nothing needs to be done.
“We have been advocating that countries should put in place plans for the medium term on how they will reestablish fiscal buffers so that we are ready for another crisis, that we have fiscal room in order to respond to any shocks to the economy. So, in addition to putting debt on a downward trajectory, we also need to build buffers so that the economies in the future, again, can respond to a crisis,” said Kammer.
To read the full report, click here.