The IMF Projects Weak Growth Across the Euro Zone

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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.