The International Monetary Fund (IMF) believes that eurozone countries need to take precautionary measures in case economic growth stagnates. This risk has increased due to problems in the industrial sector, trade, and because the European Central Bank has limited capacity to stimulate the economy, according to reports from the IMF and ECB in their quarterly statements.
Weakness in trade and industry could spread to other sectors. The IMF sees not only risks of economic decline but also expects lower economic growth: 1.2 percent instead of 1.3 percent. The lower growth is mainly caused by the faltering German economy. Germany is suffering from the ongoing trade war between the United States and China, Brexit, and the slowdown of the Chinese economy.
The Dutch and German governments should therefore spend more to stimulate economic growth. Now that interest rates are so low, governments should take the lead, according to the IMF. It is not surprising that the IMF’s report specifically focuses on the Netherlands and Germany. Financial markets have long pressured both countries to borrow and invest significantly. The national debt in the Netherlands is low compared to other EU countries.
Promotion
“The Netherlands should invest much more in infrastructure, education, or innovation with its budget surplus. By loosening the purse strings a bit, The Hague could stimulate economic growth,” said Christine Lagarde, president of the European Central Bank, in October, just before she was appointed to her new role.
The European Commission warns of “turbulent” economic times ahead. In its forecasts, it lowers growth expectations for the eurozone for 2019 and the coming two years. According to Vice-President Valdis Dombrovskis, international trade conflicts, rising geopolitical tensions, a persistently weak industrial sector, and Brexit threaten the European economy.
The European Commission has long been concerned about the potential consequences of U.S. trade policies and Britain’s departure from the EU. Brussels suspects a prolonged period of moderate economic growth in the EU. For this year, the Commission expects an average growth of 1.1 percent for the eurozone, down from 1.2 percent in earlier forecasts.
Commissioner Dombrovskis called on member states to take action. He urged countries with high government debt to reduce it, and those that can to use their budgetary room. There is satisfaction within the EU about the further decline in unemployment in the eurozone, expected to average 7.4 percent next year.