IMF Says Europe’s Higher Fiscal Deficits ‘Entirely Appropriate’

(Bloomberg) --

The International Monetary Fund said all European countries can and should react “forcefully” to the economic crisis unleashed by the coronavirus pandemic, endorsing governments’ efforts to increase spending.

“Fiscal deficits in Europe are said to increase by about 6% of GDP in 2020. This is large, but it’s entirely appropriate in the current crisis,” European Department Director Poul Thomsen said in a press conference Wednesday. “All countries have the space needed to react forcefully and appropriately to the pandemic.”

The IMF on Tuesday warned of the worst global recession in almost a century, and predicted the euro area will be particularly hard-hit. Output in the bloc is seen shrinking 7.5% this year, compared to a global contraction of 3%. While the fund expects a recovery in 2021, it cautioned that much depends on the longevity of the crisis and how it affects business activity.

European Central Bank officials speaking earlier on Wednesday expressed hope that negative effects as a result of wide-ranging lockdowns will be short-lived.

France’s Francois Villeroy de Galhau said “if we manage the exit from the crisis well, it will be a very severe but temporary shock.” ECB Vice President Luis de Guindos gave similar views in a Spanish radio interview.

The IMF predicts the euro-area economy will grow 4.7% in 2021.

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