What threatens European economy: forecasts and warnings from the IMF

Author : Yuriy Panchenko

Source : 112 Ukraine

The most problematic member of the European Union has still not managed to get out of a deep economic crisis
10:05, 18 April 2016

Read the original text at Evropeiska Pravda.

Ukrainian economy demonstrates the end of the recession, but what’s next?

The international organizations do not expect a quick recovery of our economy. For example, the World Bank predicts that this year Ukraine's GDP will grow by 1%, and the next one – by 2%.

Of course, this is a very small figure after a decline by 9.9% in 2015. With growth rates of 1-2%, we cannot expect to return to the level of 2013, not to mention the 2007-th, the last pre-crisis year.

There is no hope for the domestic market, so the key importance is on exports, much of which falls on supplies to the EU.

However, the European economy itself ultimately failed to get out of a deep crisis. And the probability of a new economic crisis in the EU is becoming increasingly real.

Related: Ukraine received $788 million from export of agricultural production to EU

This follows from the last review of the IMF World Economic Outlook, presented this week.

First, the IMF lowered global forecasts. Global growth in 2016 was estimated at 3.4%, now it is 3.2%. The Fund expects that the driver of economic growth is developing countries.

At the same time, and it is crucial for Ukraine, the general economic growth in Europe is reduced to 2%.

The key EU economies show steady growth. Germany's GDP growth this year will remain at last year level –  1.5%, and the year will accelerate to 1.6%. The French economy will grow this year by 1.1% (the same as in the past), and in 2017-m it is expected to grow by 1.3%.

Related: Ukraine to export dairy products to EU

Equally important for Ukraine is the situation in Poland. Despite the change in government and economic policy adjustment, the growth rate of the Polish economy unchanged - 3.6%.

In yet another EU country, Italy, which is among the main buyers of Ukrainian products, GDP growth in general should increase from 0.8% to 1%.

At first glance, the only serious factor of instability for the EU is Greece.

The most problematic member of the European Union has still not managed to get out of a deep economic crisis.

In addition, another political crisis and another outbreak of populism in Greece (referendum on cooperation with the creditors) led to a deepening crisis.

In 2015 the Greek economy has nearly completed decline (down 0.2%), this year the IMF expects a new drop of 0.6%.

In this situation, the forecast for 2017 - an increase of 2.7% - is an unrealistic goal.

However, if Greece is still the only EU economic problem, it is likely that any other might appear soon.

IMF says that obstacle to further economic recovery may be a number of political risks. Each of them has not yet been taken into account in the baseline scenario, but in the near future, any can become serious factor affecting the global picture.

One of the key risks for Europe is that Great Britain might come out of the EU.

In 2016, the IMF expects growth inhibition in the UK from 2.2% to 1.9%. Thus the mere likelihood of withdrawal from the EU has reduced forecast.

Related: Ukraine's import and export after launching the FTA with the EU

The effects of Brexit will be much more serious, and not just for the UK but also for Europe.

Continued migration crisis, which could lead to the rise of nationalism, is another threat for EU.

In Monetary Fund has not said that the economic consequences can bear reintroduction of border controls within the EU, but recognize that this step to avoid the impact on the economy will not work.

"The ongoing conflict in different countries, particularly in Syria, yet undermine their economies, forcing millions of refugees go to neighboring countries and to Europe. This is a humanitarian disaster. it questioned the ability of the EU to keep internal borders opened, the acts of terrorism has become more frequent, and difficulties only increased," noted in the IMF report.

In such a situation, new problematic areas could appear among the EU.

Related: Israeli government resumes import of Ukrainian eggs

For example, Finland. Following the results of 2015, the country's GDP grew by only 0.4%. This is the worst figure in the EU after Greece. No accident that in Finland there are serious problems with the reception of refugees, and the situation may be further complicated if a crisis protracts. However, the IMF expects a small acceleration of growth of the Finnish economy - to 0.9%.

Maintaining a high level of unemployment still threatens Spain - the third euro zone economy. IMF expects in 2016 braking of the economy from 3.2% to 2.6% and in 2017 - to 2.3%.

Another risk for Europe is a change of economic policy in the United States that "freezes" talks on an FTA with the EU. Adapting standards and the removal of barriers should be a stimulus for the economy as the United States and Europe (including indirectly, for Ukraine), but now a rapid signing of this historic agreement became difficult.

What does all this mean for Ukraine?

Most likely, a sharp increase in our exports to the EU would not take place. This is hampering our internal problems and the slow recovery of the European economy.

Related: In 2015, Ukraine cut food import rate by 41.5 percent

And these problems can be considered as a "window of opportunity" for Ukraine. The country may benefit from the weakness of the developed EU markets, having more investment and increasing exports.

Unfortunately, such forecasts seem to be too optimistic. And the main problem is not the turmoil in the markets of the EU, but the lack of progress within Ukraine.

Related: World Bank: Ukraine’s economy contracted by 10%, 1% increase expected in 2016

Related: Ukraine lost more than 9 million U.S. dollars due to economic crimes in Donbas

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