Tuesday

26th Oct 2021

EU and US risk 'negative shocks' to economy, IMF warns

  • Donald Trump's "protectionist rhetoric" on trade "has increasingly turned into action", the IMF said (Photo: Andre Skibinski)

France and Germany will be among the hardest hit by a global slowdown caused by US protectionism, the International Monetary Fund (IMF) has warned.

Germany, the economic engine of the eurozone, would grow above 2 percent of GDP this year and next year, but growth would fall to 1.9 percent in 2019 and 2020, the Washington-based lender said in its "economic outlook" on Monday (8 October).

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • Donald Trump (r) with Italian prime minister Giuseppe Conte in Washington earlier this year (Photo: governo.it)

French growth would shrink by a similar degree, it said, while the US itself would suffer a 0.4 point drop.

Meanwhile, the British economy would grow by 1.1 percent this year, not 1.3 percent, as the IMF had previously forecast, due to uncertainty on Brexit.

The international lender seldom takes political sides.

But it singled out US president Donald Trump for blame after he imposed tariffs on EU steel and aluminium and on hundreds of billions of dollars of Chinese trade.

"Protectionist rhetoric has increasingly turned into action, with the United States imposing tariffs on a variety of imports," the IMF said.

"Intensification of trade tensions, and the associated rise in policy uncertainty, could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade," it said.

"Unsustainable" borrowing by some wealthy states, which put sovereign solvency at risk, made the outlook even more worrisome, Maurice Obstfeld, the IMF's chief economist, added.

"The likelihood of further negative shocks to our growth forecast has risen," he said.

Wide-open

The survey comes amid US and EU talks on a free-trade deal.

The new accord could be in place by the end of 2019, Gordon D. Sondland, the US ambassador to the EU, told press in Brussels last week.

When Trump met European Commission president Jean-Claude Juncker in Washington in July, the US president also offered him a "wide-open" trade accord with no tariffs, barriers, or subsidies of any kind, but Europe was not ready for that, Sondland said.

"I was there [at the Trump-Juncker] talks. I heard the discussion," he said.

"I don't think the political will is there yet on the side of the EU to do a deal like that, because there are too many industries [in Europe] that have fences built around them," Sondland said.

He described the value of an EU-US trade bloc in adversarial terms, despite the IMF's warning on "rhetoric" and "tensions".

A Western trade bloc would help US strategy to curb Chinese growth and expansionism, Sondland said.

"The sooner we conclude our business [EU-US trade talks] ... the sooner we can seize the opportunity to make China act like a good global citizen," he said.

The IMF warning on sovereign borrowing also comes amid Italy's plan to overspend on EU fiscal limits, putting its future solvency in doubt.

Italy and Greece

Markets have punished Italian bonds and bank shares, as well as Greek bank shares in a knock-on effect of the dispute, which has descended into name-calling.

"The enemies of Europe are those sealed in the bunker of Brussels," Italy's populist interior minister and deputy prime minister, Matteo Salvini, said on Monday.

"I would not wish that, after having really been able to cope with the Greek crisis, we'll end up in the same crisis in Italy," Juncker said one week ago.

"One such crisis has been enough," he said.

His comparison of a potential Italian crisis to the Greek one failed to note the difference in scale.

The Greek bailouts gobbled up €300bn, but Italy's economy and banking sector are vastly larger than those of Greece, making it too expensive to save.

Good times

Monday's IMF survey came on the heels of another warning, last week, that the world economy was also at risk of another 2008-type financial meltdown due to reckless behaviour by private banks.

It said global debt levels were higher than in 2008, meaning that if one big bank were to fail, the way Lehman Brothers did 10 years ago, the ensuing market panic could be more severe than before.

"Risks tend to rise during good times," the IMF said.

Luxembourg tax scandal may prompt EU action

An investigation into Luxembourg's tax regime has uncovered how the Italian mafia, the Russian underworld, and billionaires attempt to stash away their wealth. The European Commission has put itself on standby amid suggestions changes to EU law may be needed.

Vietnam jails journalist critical of EU trade deal

A journalist who had demanded the EU postpone its trade deal with Vietnam until human rights improved has been sentenced to 15 years in jail. The EU Commission says it first needs to conduct a detailed analysis before responding.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew report reveals bad environmental habits
  2. Nordic Council of MinistersImproving the integration of young refugees
  3. Nordic Council of MinistersNATO Secretary General guest at the Session of the Nordic Council
  4. Nordic Council of MinistersCan you love whoever you want in care homes?
  5. Nordic Council of MinistersNineteen demands by Nordic young people to save biodiversity
  6. Nordic Council of MinistersSustainable public procurement is an effective way to achieve global goals

Latest News

  1. How to break the political deadlock on migration
  2. Hedegaard on the hazards of stalling climate action
  3. Belarus exiles in EU fear regime-linked murderers
  4. No place for Polish 'war' rhetoric, Commission says
  5. Nine countries oppose EU gas market reform
  6. EU-UK impasse on top court in post-Brexit customs talks
  7. Erdoğan orders out US and EU ambassadors
  8. EU banks play 'major role' in deforestation, report finds

Join EUobserver

Support quality EU news

Join us