WASHINGTON: Europe faces more risks to its economic recovery due to Covid-19 variants and delays in vaccination campaigns that threaten to prolong the health crisis, the IMF said on Wednesday.
“Reflecting the periodic infection waves and the pace of vaccinations, the economic recovery in Europe is still halting and uneven,” Alfred Kammer, director of the International Monetary Fund’s European department, told reporters.
The European economy is expected to grow of 4.5 percent this year, 0.2 points lower than the October forecast, followed by a 3.9 percent expansion in 2022, according to the IMF’s latest Regional Economic Outlook.
That would take the economy “back to its pre-pandemic level but not to the path expected before the pandemic.”
But the IMF forecasts assume vaccines will be “widely available” by mid-year, and Kammer said “the number one priority is to boost vaccine production.”
A slower recovery could create “social unrest and more medium-term scarring of economies if the crisis lingers,” the report warned, and policymakers “need to continue to provide emergency support to households and firms.”
However, Kammer said, “This is not a call for a package that boosts spending indiscriminately and permanently, but for a well-targeted and temporary shot in the arm of both demand and supply.”
Additional spending of three percent of GDP through next year could lift GDP by about two percent by the end of 2022 and cut the impact of scarring by more than half, he said. “The costs would pale in comparison to the benefits,” he added.
While the current level of support provided by European governments “looks sufficient,” he cautioned that “we don’t know how long (the recovery) is going to take” so fiscal support will need to continue in 2021 and 2022. The Washington-based crisis lender said pandemic spending were “unprecedented lifelines” that helped tens of millions, but said those funds should shift to retraining programs to help workers find jobs in emerging industries.
“The faster the recovery, the less scarring people and businesses will suffer,” the IMF said.
The IMF official also stressed that it was difficult to know to what extent consumption would support growth after countries, such as France, had to re-impose restrictions due to a new wave of infections.
“And government should be ready to provide accurate demand support when and if needed,” he said.