Europe can return to path of economic growth if vaccine drive runs smoothly: IMF

Europe faces greater risks to its economic recovery due to COVID-19 variants and delays in vaccination programmes, which threaten to prolong the health crisis, the IMF says. Europe's economic growth will rebound by 4.5 per cent in 2021, the International Monetary Fund said on April 14. The economic growth is projected to increase by 3.9 per cent in 2022.

The IMF has forecasts vaccines will be available in large numbers by mid-year. Kammer said that the priority of Europe should be to boost vaccine production. However, the major problems are new virus variants and vaccine delays. Financial conditions can tighten, resulting in risk repricing.

Vulnerabilities in financial systems are being exposed. Long-term output losses related to the pre-COVID times projects GDP at about 1.5 per cent. According to IMF, the policymakers should continue supporting the economic recovery. The fiscal policy has an important role to play for economies where a monetary policy with lower interest rates becomes less effective, said Alfred Kammer, director of the IMF's European department in a blog about the outlook. 

Vaccinations will be a game changer, but more efforts are needed to produce and distribute vaccines. Policymakers need to continue to provide emergency support to households and firms, IMF  said.

Several central banks like Iceland, Moldova etc cut policy rates further except Russia which has hiked rates. Turkey had also hiked rates in response to foreign exchange. The European Central Bank increased the pandemic emergency purchase program by €500 billion to €1.85 trillion. It also extended the target for longer-term refinancing operations to mid-2022. 

IMF also suggested that Fiscal support should be redeployed to expedite the transformation of the economy. The European Union has created the Next Generation EU plan that will provide centralized support to all member states in the form of grants. IMF recommends that if the EU works well on vaccine production and distribution, Europe can achieve back its economy.  

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