European countries will need to respond aggressively to the coronavirus crisis in order to boost economic growth and avert long-term economic damage, the International Monetary Fund (IMF) said on Monday.
“Covid-19 has struck Europe with stunning ferocity. While we do not know how long the crisis will last, we know that the economic impact will be severe,” Poul M Thomsen, director of the IMF’s European Department, said in a blog post.
“In Europe’s major economies, nonessential services closed by government decree account for about one third of output. This means that each month these sectors remain closed translates into a 3 per cent drop in annual GDP, and that’s before other disruptions and spillovers to the rest of the economy are taken into account. A deep European recession this year is a foregone conclusion.”
The scope for responding to the crisis differs markedly across Europe, he said, outlining different measures each country should undertake to speed up the economic recovery.
Mr Thomsen said policymakers in the advanced economies have made good use of their policy space and institutions, putting in place large monetary and fiscal expansions to blunt the impact of the crisis.
“Fiscal rules and limits are rightly being suspended to enable large-scale emergency support, and fiscal deficits are being allowed to surge. Similarly, central banks also have launched massive programmes for asset purchases and financial regulators have eased requirements to allow banks to continue to support customers in distress and the economy more broadly,” he added.
Emerging market economies that are members of the European Union but not part of the Eurozone are expected to benefit significantly from having reduced their fiscal and external deficits and debt in recent years, and from having strengthened their banking systems, according to the blog.
“Substantial effort has gone into building buffers in these countries, and now is the time to use them.”
The main concern at this juncture is with regard to smaller countries outside the EU who “all lack the depth of financial markets and the EU linkages that contribute importantly to policy space”.
“With limited access to external capital and smaller and less developed banking systems, many of these countries will find it difficult to finance large increases in their fiscal deficits. Not surprisingly, these countries are now turning to the IMF for financial assistance,” Mr Thomsen said.
Excluding Russia and Turkey, most of the nine non-EU emerging economies in Central and Eastern Europe have already applied for emergency assistance via the IMF’s rapid financial support facilities, according to the IMF.
They join more than 70 other member countries throughout the world that have already sought access—totalling some $50 billion (Dh183.6bn)—to rapidly-disbursing, low-conditionality IMF emergency facilities to meet the immediate pressures arising from the Covid-19 crisis.
“We are dramatically streamlining our internal rules and procedures so as to be able to respond with the speed, agility and scale called for by this unprecedented peacetime challenge.”
Europe is badly affected by the coronavirus spread, with more than 10,000 deaths in Italy, more than 7,340 deaths in Spain and at least 2,500 deaths in France, according to Johns Hopkins University, which is tracking the outbreak.