The International Monetary Fund has warned that the euro zone’s growth prospects were modest and that more money printing than planned may be needed.
The IMF, saying medium-term growth would be subdued, urged the European Central Bank to keep its money presses rolling, perhaps beyond the target late next year.
In its report on the euro zone, the IMF said that the bloc was getting stronger thanks to lower oil prices, a weaker euro and central bank action, but that medium-term prospects were for an average potential growth of just 1 percent.
The IMF said euro area gross domestic product should accelerate to 1.7 percent next year from 1.5 percent in 2015, with inflation of 1.1 percent from zero.
Mahmood Pradhan, deputy director of the IMF’s European department warned, however, that «a chronic lack of demand, impaired corporate and bank balance sheets, and weak productivity continue to hold back employment and investment.»
Potential growth, at an average of only 1 percent over the medium term, was well below what is needed to reduce unemployment to acceptable levels in many countries, it said, adding that the euro area was vulnerable.
Reforms were also needed to improve labour markets and productivity. «In the euro area, the important area is structural reforms. This is where the euro area, when compared to OECD countries, for example, is lagging behind,» Pradhan said.
«The important thing is that the ECB intends to stay the course until September 2016 and that, we think, will be necessary,» said Pradhan, referring to quantitative easing (QE).
Letting the 1 trillion euro (US$1.1 trillion) plus scheme to buy chiefly government bonds run longer could be better still, he suggested. «It may need to go beyond that,» he said.
Source: Buenos Aires Herald