Washington/Brussels: The International Monetary Fund (IMF) has warned of a major slide in the European economy owing to the trade war at the international level, No Deal Brexit and the increasing debt burden on countries like Italy. The IMF, issuing this warning, in its report released on Thursday, has pointed out that the growth rates of the European countries have already started showing a decline.
In the last decade, the economic recession originating from the United States had severely hit Europe. While recovering from the recession, the European economy was faced with a massive challenge of increasing the debt burden. The European economy could come out of this, only after bailout and harsh measures like expenditure cuts. But the European countries have still not recovered fully from this, and the immigrant influx has increased the challenges.
Against this background, the new report of the IMF becomes important. The IMF has said that the Eurozone can be hit by three factors and has mentioned them as a ‘Triple Threat’. The IMF has clearly warned that these factors can cause a major slide in the European economy. The report points to the International trade war, No Deal Brexit and policies of countries like Italy increasing the debt burden, as the Triple threat.
The IMF pointed out the threats posed by the trade war and No Deal Brexit saying ‘A long-lasting trade war can affect the demand for goods, from foreign countries. The threat of No Deal Brexit is still looming large. Even if the financial institutions have made preparations for the eventuality, companies from other sectors can be severely hit by this.’
The IMF claimed that the third threat is the countries with substantial debt burdens, and these countries have failed to create the necessary buffer to absorb the economic shocks. These countries have failed even to implement the required constructive reforms. The report expressed fear that therefore, these countries will be very vulnerable if the recession sets in.
While drawing attention to the possible recession, the IMF has noted that the economic growth rates of the European countries have started declining from the last year itself. The economic growth rate of the Eurozone had begun to decline in the second half of 2018. The IMF claimed that falling demand for goods and some other local issues were responsible for the decline. The report targets the Italian economy and blames that the Union failed to take proper steps to inculcate economic discipline in this country.
In the last few months, US President Donald Trump has started targeting the European Union in the trade war, along with China. Trump has threatened to impose taxes on the Union if the European Union did not take proper steps to reduce the trade gap. Although selected Items have been subjected to marginal tax, no major action has been taken. But given the strained relations between the US President and the European leaders, an announcement may be coming soon. In that case, the challenges faced by the European economy will intensify further. The IMF report is indicating the same thing.