The EU economy will contract 0.1% this year, dragged down by an economic decline of 0.5% in the euro area, according to estimates presented Tuesday by the International Monetary Fund (IMF), which worsened its global economic forecast. The IMF has revised the growth of 1.1% to 0.5% contraction forecast for the euro area this year, while the European Union expects a contraction of 0.1% compared to previous estimate of a 1.4% increase, according to latest World Economic outlook report.
Central and Eastern Europe will experience the strongest impact of the crisis in euro area as a result of strong trade links with the eurozone economies. IMF analysts expect an increase of 1.1% against 2.7% as previously anticipated, before recovering to 2.4% next year. Crisis worsening in the euro area pulls down the world economy, the IMF warned as it reduced the growth forecast for the global economy from 4% to 3.3%. The global economy slows, but does not collapse, according to IMF analysts. However, global GDP growth could be around two percentage points below the estimate, if EU leaders fail to limit the crisis.
For the first time since the sovereign debt crisis in the monetary union, two years ago, the IMF warned that the eurozone will enter probably a mild recession this year. “Global recovery is threatened by increasing pressures in the euro area and the fragility of other regions. The most urgent challenge for politicians is to restore confidence and stop the crisis in the euro area by supporting growth, further reducing indebtedness and provide additional liquidity and monetary relaxation”, the report reads.
Germany and France, the two largest economies in the euro area will have a very low growth of 0.3% and 0.2%, while Italy and Spain, economies that are on the third and fourth places in the EU will record contractions of 2.2% and 1.7%. IMF has maintained forecast of 1.8% economic growth in the U.S., but revised downward from 2.3% to 1.7% the estimate for Japan. Activity in advanced economies will grow on average by 1.5% in 2012 and 2013, but insufficient to drop the high unemployment rates.
United States and other developed economies will not escape untouched in case of an escalation of the European crisis, the IMF notes. Prospects for emerging economies worsened and the growth estimate was reduced from 6.1% to 5.4%. IMF lowered the forecast of GDP growth in China this year, from 9% to 8.2%.
