Europe need to take comprehensive and bold policy action to restore fiscal health, address remaining weaknesses in the financial sector, and implement reforms to restore competitiveness and growth, the International Monetary Fund (IMF) said on Thursday.
The economic outlook in the European region "is expected to solidify," but fiscal challenge remain tough, according to a statement released by the Washington-based international lender.
"In advanced Europe, policy makers need to take steps to restore confidence -- structural reforms, fiscal consolidation, and strengthening of the financial system, most notably in the euro area periphery," said Antonio Borges, Director of the European Department of the IMF. "Emerging Europe has so far proved resilient to spillovers from the euro area periphery, but it will need to continue reducing its fiscal and financial vulnerabilities and reorient growth towards the tradable sector."
In the latest Regional Economic Outlook (REO) for Europe: Strengthening the Recovery, the IMF sees growth for all of Europe at 2.4 and 2.6 percent for 2011 and 2012, respectively, after 2.4 percent last year.
The IMF projects growth in advanced Europe to expand by 1.7 and 1.9 percent this year and next, compared with 1.7 percent in 2010. Growth in emerging Europe is expected to be stronger, at 4.3 percent in 2011 and 2012, after 4.2 percent in 2010, with all countries posting growth for the first time since the 20082009 crisis.
The IMF noted that to prevent new crises, more vigilance is called for, better institutions to deal with financial sector problems must be developed, and more, rather than less financial and economic integration is needed.
The main risk to the outlook for Europe arises from tensions in the euro area periphery. Other global worries also pose risks, but concerns about overheating in the continent's emerging economies are more muted than in other regions.
The IMF also warned that stepping back from financial integration would be wrong. It suggested that to prevent the next crisis, more vigilance is needed, both nationally and across borders, together with better pan-European institutions to deal with financial sector problems, and, correspondingly more, rather than less financial integration.