Thursday

1st Jun 2023

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.

ECB: eurozone home prices could see 'disorderly' fall

The European Central Bank in its Financial Stability Review warned EU home prices could see a 'disorderly' fall as high mortgage rates are making houses unaffordable for households and unattractive for investors.

Adapting to Southern Europe's 'new normal' — from droughts to floods

Extreme weather events in recent months have worsened agricultural production in southern Europe, prompting concerns for authorities in Portugal, Spain, France and Italy. As countries will likely face dryer conditions, experts urge adaptation measures for the 'new normal'.

EU: national energy price-spike measures should end this year

"If energy prices increase again and support cannot be fully discontinued, targeted policies to support vulnerable households and companies — rather than wide and less effective support policies — will remain crucial," the commission said in its assessment.

Opinion

EU export credits insure decades of fossil-fuel in Mozambique

European governments are phasing out fossil fuels at home, but continuing their financial support for fossil mega-projects abroad. This is despite the EU agreeing last year to decarbonise export credits — insurance on risky non-EU projects provided with public money.

Latest News

  1. MEPs pile on pressure for EU to delay Hungary's presidency
  2. IEA: World 'comfortably' on track for renewables target
  3. Europe's TV union wooing Lavrov for splashy interview
  4. ECB: eurozone home prices could see 'disorderly' fall
  5. Adapting to Southern Europe's 'new normal' — from droughts to floods
  6. Want to stop forced migration from West Africa? Start by banning bottom trawling
  7. Germany unsure if Orbán fit to be 'EU president'
  8. EU Parliament chief given report on MEP abuse 30 weeks before sanction

Stakeholders' Highlights

  1. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  2. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  3. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  4. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  5. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics
  6. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains

Stakeholders' Highlights

  1. InformaConnecting Expert Industry-Leaders, Top Suppliers, and Inquiring Buyers all in one space - visit Battery Show Europe.
  2. EFBWWEFBWW and FIEC do not agree to any exemptions to mandatory prior notifications in construction
  3. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  4. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  5. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence
  6. Nordic Council of MinistersCSW67: The Nordics are ready to push for gender equality

Join EUobserver

Support quality EU news

Join us