IMF belittles growth forecast in euro zone

The IMF on Tuesday revised down its growth forecasts for the euro area in 2019 and 2020, due to the situation in Germany, which is very affected by the trade tensions and the setbacks of its car industry.

The International Monetary Fund now expects growth of 1.2% in 2019 and 1.4% in 2020 in the 19 countries that have adopted the single currency. Last July, in its latest forecasts, it still forecast growth of 1.3% in 2019 and 1.6% in 2020.

For Germany, the correction is even stronger: the IMF now forecasts 0.5% growth in 2019 and 1.2% in 2020. Last July, it expected a GDP increase of 0.7% in 2019 and 1.7% in 2020.

The euro zone, along with emerging countries, is one of the causes of the global economic slowdown, and this situation could deteriorate next year, according to the IMF.

Especially since the divorce of the United Kingdom with the EU, always at the center of laborious discussions, weighs on these prospects.

"Increased trade barriers and geopolitical tensions, including Brexit risks, could further disrupt supply chains and hinder confidence, investment and growth," said Gita Gopinath, the chief economist of the country. IMF, cited in the report.

"In the euro area, the slowdown in growth in external demand and the reduction in corporate inventories (a reflection of the weakness of industrial production) have limited growth since mid-2018," says the IMF.

In Germany, the automotive sector, the mainstay of the industry with giants like BMW, Daimler or Volkswagen, is more and more a figure of Archille heel. Particularly vulnerable to commercial conflicts, it also appears ill-prepared for the electric revolution, which nevertheless requires massive investments.

For the United Kingdom, whose exit from the EU is currently scheduled for 31 October, the IMF has very slightly lowered its growth forecast for 2019 to 1.2% (against 1.3% in the July forecast) but maintained its forecast at 1.4% for 2020.

According to the IMF, the additional public spending envisioned by the Boris Johnson government "should soften the cost of Brexit for the British economy". Uncertainty nevertheless remains high as the negotiations between Brussels and London to reach an agreement on an orderly exit from the United Kingdom of the EU are in their last straight.

In the eurozone, the IMF once again recommended Germany to invest more, given "fiscal space".

On the other hand, "in heavily indebted countries, particularly France, Italy and Spain, it would be necessary to gradually rebuild reserves while protecting investment," he said.