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Home Publications Blogs Beat the Press The IMF Projects Weak Growth Across the Euro Zone

The IMF Projects Weak Growth Across the Euro Zone

Friday, 26 July 2013 04:59

A Washington Post article noting the IMF's projections for weak growth and rising unemployment in the euro zone told readers:

"For 2014 as a whole, growth of 0.9 percent is forecast.

That is not only weak, it also masks the continued wide divergence in outcomes among the euro countries, with some nations likely to remain in recession and some growing at a faster pace. The gap in performance — between Germany’s globally competitive export sector and the stalled economies of southern Europe — is one of the region’s chief problems."

Actually, there is not much of a difference in projected growth across countries for 2014. Germany's economy is not exactly booming. The IMF projects that it will grow just 1.5 percent in 2014. That is compared to projected growth of 0.7 percent in Spain and 0.5 percent in Italy. The real gap is that Germany has managed to sustain growth since 2009, whereas the economies of Italy and Spain and other peripheral countries have stagnated or shrank.

It is also worth noting that the IMF's growth projections for the peripheral countries have consistently proved to be overly optimistic because it has underestimated the negative impact that fiscal contraction has on growth.

Comments (2)Add Comment
German Growth is the Problem
written by Paul Mathis, July 26, 2013 8:18
Fully half of German production is exported because German domestic consumption is so weak. Germany is just exporting its unemployment to the rest of the world while it does nothing to bolster domestic demand. The U.S. is one of Germany's main victims, but southern Europe is also being badly damaged by German export policies. The IMF should call out Germany for its bad behavior.
written by Ralph Musgrave, July 27, 2013 4:26

Paul Mathis,

You certainly have a point. But I’m not sure that “calling out” would have much effect.

If one country insists on running a continuous surplus, it must necessarily invest in deficit countries. If those investments are worthwhile investments, then no problem. But if they’re bum investments, like Greek government debt or Detroit bonds, then our attitude to relevant creditors (banks or whoever) should be “get lost – if you’re bust then you’re bust. See if we care.”

Unfortunately those German banks turn up at the German Treasury, crocodile tears running down their cheeks, and claiming that depositors will be ruined unless German taxpayers rescue said banks. One solution is to insist that where bank depositors want their money put into anything remotely risky, then those depositors carry the risk, not taxpayers. John Cochrane had a good article on this in the WSJ recently:


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.