Newsletter: IMF economic outlook and lessons learned to fight Coronavirus

Newsletter: IMF economic outlook and lessons learned to fight Coronavirus

Monday, 19 October 2020

Funcas Europe

IMF economic outlook and lessons learned to fight Coronavirus

The IMF is bringing a more positive perspective for 2020 for most advanced economies. Global output would fall by 4.4% compared to 5.2% as anticipated during the summer. Interestingly, the IMF is not broadly embracing austerity as the right answer, as it did 10 years ago. The shock for the eurozone in 2020 is now expected to be 1,9% milder, but the perspective for Spain is not getting any better (the IMF expects a decline of 12,8% GDP.) We hope you enjoy the video.

Analysis of the European Commission’s guidelines on the recovery fund by Miguel Carrión

Note: the risk premium is the interest rate differential with German 10-year bonds.

A lot has been said about the desired content of EU member states’ recovery and resilience plans, and the structural reforms that countries must undertake using the billions from the #NextGenerationEU recovery plan. There is a sense that the fund is a sort of open bar. To the contrary, there is a long list of existing framework documents that national recovery plans must conform to. This was made clear in guidelines issued by the European Commission a month ago, interpreting the draft Recovery and Resilience Facility regulation.

However, approval of this regulation is bogged down by budget negotiations in the Council and Parliament. Lacking a legal basis, therefore, the plans submitted to the commission last week can only be informal drafts. The Commission hopes the recovery plan and the multiannual financial framework will be approved soon, and encourages the member states to prepare final recovery plans for official submission by the end of the year.

Because of the tight calendar for drafting recovery and resilience plans, we expect member states mostly to accelerate their existing national energy and climate plans, and to accompany this by reforms addressing country-specific recommendations pending from the past two years. They will then need to address any gaps in their coverage of the seven flagship policies contained in the Commission’s Annual Sustainable Growth Strategy, also issued last month. Therefore, there will be limited space remaining for governments to include favourite investments or structural reforms. These must also further some of the four general goals of the EU’s recovery plan: cohesion, resilience, Covid-19 mitigation, and sustainable growth and job creation.

Access here Miguel Carrion’s full article.

What we are reading

Global economy: The week that austerity was officially buried 
Good read to complement this week’s video-talk. The IMF and World Bank are urging richer countries to spend their way out of the pandemic, although some developing nations face cuts. Countries that were unable to control their outbreaks have tended to suffer the most economic pain.

Lockdown vs Economic Growth? 
“No, control the virus and your economy does better”, explains Ian Bremmer commenting on a very worthy FT graphic.

Brexit and COVID are a toxic mixt
The second wave of COVID-19 is arriving just before the UK leaves the single market. The pandemic will make it harder for the economy to adjust to Brexit.

What should Europe expect from American trade policy after the election?
If Biden wins, a return to the EU – US free trade talks is unlikely, argue Uri Dadush and Guntram B. Wolff. However, there would be areas of EU / US cooperation, not least about World Trade Organization reform.

Have a nice week!

Raymond Torres
Funcas Europe Director


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