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IMF says eurozone economy will crash in 2020

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(FILES) In this file photo taken on January 17, 2020, Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva speaks in Washington, DC. – The global coronavirus pandemic is causing an economic crisis unlike any in the past century and will require a massive response to ensure recovery, IMF chief Kristalina Georgieva said on April 9, 2020. The warnings about the damage inflicted by the virus already were stark, but Georgieva warned that the world should brace for “the worst economic fallout since the Great Depression.” (Photo by JIM WATSON / AFP)

The IMF drastically slashed its growth estimates for the eurozone on Tuesday, as virus lockdowns decimated the European economy.

The IMF said the eurozone economy would crash by a staggering 7.5 percent this year, a free-fall not seen since the 1930s Great Depression.

The IMF also projected Britain — which left the EU in January and was never part of the eurozone — would see its economy contract by 6.5 percent.

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The European region overall was predicted to have the worst performance of any region in the world.

In a note of optimism, however, the IMF said the economic destruction wrought by the pandemic in the eurozone would fade in the second half of 2020, as a gradual lifting of containment measures gained momentum.

The 19 countries that use the euro currency would then recover, but at a far slower pace, with the IMF predicting a growth of 4.7 percent in 2021.

Before the emergence of the COVID-19 outbreak, the IMF said the eurozone was going to grow by a slow but respectable 1.3 percent.

But with tens of thousands dead due to the novel coronavirus across Europe and the economy in shutdown, the impact was going to be painful.

French debt to soar
The IMF said the French economy would see its economy shrivel by 7.2 percent instead of a 1.3 percent expansion.

But France’s finance minister, Bruno Le Maire, forecast an even worse contraction of eight percent because of an extension of his country’s lockdown announced on Monday. President Emmanuel Macron said restrictions would now be extended nearly a month longer, to May 11.

Export-powerhouse Germany, which was suffering sluggish growth from the US-China trade war, would see its economy contract by 7.0 percent, the IMF said.

The IMF praised the already sizeable fiscal responses by both countries, which together make nearly half of the eurozone economy, though France will see its debt level soar to levels not seen in the modern era.

Italy, one of the hardest-hit countries by the outbreak, would suffer badly economically, the IMF said.

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Italy’s economy was on course to slump by 9.1 percent in 2020, followed by an expansion of just below 5 percent the following year.

Divisions
The IMF said certain eurozone countries were better equipped to face the challenge of the crisis than others.

This was as an implicit reference to the current row brewing in Europe.

Richer countries in the north, such as Germany and the Netherlands, are resisting calls for unprecedented levels of European solidarity to confront the crisis.

But Italy, Spain and France are calling for new ways of thinking including common borrowing among the EU 27 that would fund a massive recovery plan and relaunch the post-pandemic economy.

The IMF urged for “meaningful European support” to be targeted at countries particularly hard-hit by what is a “purely exogenous common shock”.

It observed that “advanced economies with relatively stronger health care capacity, better access to international liquidity … and comparatively lower borrowing costs will be better equipped to combat the health crisis.”

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