IMF tells Eurozone to get on with reforms to boost growth as lending picks up

Chris Papadopoullos
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Christine Lagarde, head of the IMF, wants to promote competition in the Eurozone (Source: Getty)

The International Monetary Fund (IMF) warned today that the Eurozone’s economy was at risk of tipping back into stagnation.

Read more: 2015 IMF growth forecast: UK pulling ahead but global economy downgraded

“A moderate shock to confidence—whether from lower expected future growth or heightened geopolitical tensions—could tip the block into prolonged stagnation,” said Mahmood Pradhan, the IMF’s mission chief for the euro area.

It expects the economy to grow by 1.5 per cent this year and 1.7 per cent next year, but said high youth unemployment and high levels of corporate debt clouded the outlook for growth over the next five years.

The IMF wants member states to get on with reforms to make hiring and firing easier and to promote competition.

The IMF’s gloomy outlook was in contrast to more optimistic figures released by the European Central Bank today. The annual growth rate of loans to households climbed to 1.7 per cent in June from 1.4 per cent in May. Lending to companies rose at a slower rate of 0.1 per cent.

Economists expect these to increase after a bank lending survey published this month said demand for borrowing was climbing. Timo del Carpio from RBC Capital Markets said these were “continued signs that the credit environment in the Eurozone is continuing its steady process of healing.”

Lending growth is helping to fuel growth in the Eurozone’s M3 money supply – which counts the euros in the bank accounts of Eurozone households and businesses as well as euro notes and coin – rose to €10.6 trillion in June, marking annual growth of five per cent.

It also being boosted by the Eurozone’s quantitative easing programme, where new money is created to fund €60bn of asset purchases a month. April’s M3 growth of 5.3 per cent was the highest since 2009. Carpio said these the figures were “consistent with the tentative return of domestically generated inflationary pressures.”

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