Slow Economic Growth, Continuing COVID Outbreaks Could Impact EU’s Public, Private Sectors, IMF Says

The International Monetary Fund (IMF) said Monday (Nov. 30) in a statement that the second wave of the coronavirus is stifling an economic rebound in the eurozone and additional funding could be necessary.

“Rising infections and re-imposed lockdowns have damaged confidence and lowered mobility,” according to the statement.

A second wave of the coronavirus has triggered partial or total lockdowns in several eurozone economies, including Germany, France, Italy and Spain. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

The fourth quarter of 2020 and the first quarter of 2021 are expected to be weaker than forecasted unless “pandemic dynamics change significantly,” the IMF stated, indicating fiscal and monetary stimulus could be necessary in order to help support the region.

“A prolonged health crisis and a slow recovery … would lead to tighter financial conditions and increased private and public sector vulnerabilities, while significant labor market hysteresis would increase inequality and poverty,” the IMF said. “Taken together, these ‘scarring’ effects would also depress the growth potential of the euro area.”

The IMF pointed to the 390 billion euro ($465.8 billion) Next Generation EU recovery package (NGEU) — which was agreed upon in July — as being able to boost euro area growth “if it is implemented effectively.”

The statement further emphasized the need for a more “broad-based” approach to support national fiscal policies “for longer than initially envisioned.” The IMF said that national fiscal policies have been responsible for reducing the overall impact of the pandemic.

“ … as the recovery gains traction, the focus should gradually shift to facilitating reallocation of labor and capital, sustainably boosting inclusive growth, and reducing fiscal vulnerabilities,” the statement read.

In October, the IMF asked that more government assistance be provided to women and younger workers affected by the virus, based on Vodafone statistics. The analysis shows that lockdowns negatively affects women’s mobility more than men’s.

In November, the IMF called on the G20 to financially support their local economies amid the ongoing pandemic.