24th Aug 2019

EU needs to invest, IMF warns on eve of jobs summit

  • EU ministers are gathered in Milan for an employment summit on Wednesday. (Photo: Valentina Pop)

The eurozone and Japan are the economies most vulnerable to a protracted period of stagnation and need to increase public investment, the International Monetary Fund (IMF) has warned.

The Washington-based Fund published its annual economic outlook report on Tuesday (7 October), forecasting that the eurozone would grow by 0.8 percent in 2014, rising to 1.3 percent next year. The projections compare to an average growth rate of 3.3 percent across the rest of the world, with the United States and UK set to expand by 2.2 percent and 3.2 percent, respectively, this year.

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Japan, like the EU, has endured a protracted period of low economic growth.

The IMF believes that the eurozone is in danger of "secular stagnation", in which investment remains stubbornly low despite near-zero interest rates, warning that a triple-dip recession in the single currency area was one of the main short-term risks facing the world economy.

"Protracted low inflation or outright deflation, particularly in the euro area, could pose a risk to activity and debt sustainability in some countries," it added.

"These worse prospects are in turn affecting confidence, demand, and growth today,” says Olivier Blanchard, economic counsellor and head of the IMF’s research department.

Blanchard also became the latest international economist to urge eurozone countries to beef up their investment in public infrastructure which, he said, "could provide a boost to demand in the short term and help raise potential output in the medium term in those countries with clearly identified infrastructure gaps (such as structure maintenance/upgrading in United States and Germany)".

"The legacies of the pre-crisis boom and the subsequent recession, notably high debt burdens and unemployment, still cast a shadow on the recovery,” he added.

The warning comes as EU ministers gather in Milan on Wednesday (8 October) for an "employment summit" in Milan as they seek to tackle stubbornly high levels of unemployment across the bloc, particularly in the southern Mediterranean countries.

At their own gathering in Rome on the eve of the summit, European trade unions called on ministers to adopt “an extraordinary European investment plan for sustainable growth and employment” and to bring an end to austerity reforms which, they claim, "generate poverty pay, precarious employment, and more inequality."

Bernadette Segol, general secretary of the European Trade Union Confederation said that the change of tack was needed because “Europe is not recovering". "We want a plan of investment in quality jobs and sustainable growth at European and national level, mobilising public and private funds,” she added.

Jean-Claude Juncker, the European Commission's president-elect, has promised to put in place an investment programme worth €300 billion within the first year of his term, made up of a mixture of public and private sector money.

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