Europe Must Stay Vigilant to Avoid Future Crisis: IMF

Europe’s recovery is on track, but reform of the financial services sector and strong policy action to improve the fiscal health of EU member states is needed in order to prevent future crises, the International Monetary Fund has said.

Jeff Titcomb | Photographer's Choice | Getty Images

The IMF’s Regional Economic Outlook for Europe projects that growth in Europe will accelerate to 2.6 percent in 2012, after remaining stable at 2.4 percent in 2011.

Growth in advanced Europe will remain at 1.7 percent during 2011 and rise to 1.9 percent in 2012, the fund said. 2011 will be the first time since the 2008-09 crisis that all countries in the emerging Europe group will return to positive gross domestic product growth.

Higher commodity prices and the strengthening economic recovery should push inflation to 3.8 percent in 2011, although this will fall back to 3 percent in 2012, according to the IMF, which is assuming that food and fuel price rises are temporary. Unemployment and increasing wage inequality are causes for concern, the report said.

Europe must also deepen its financial and economic integration and build stronger institutions to deal with crises in the financial sector, the fund said. Restoring faith in the banking system in advanced Europe is “a prerequisite to turning the page on the crisis,” the report said.

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, Antonio Borges, director of the European department, said in a press statement.

“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,” Borges said.

The export performance of some of the core euro zone countries has been “remarkable”, he said. “Europe is of course benefiting from the general recovery that is underway. But it also proves an important point: European integration is delivering efficiency gains, which some countries are taking advantage of to become more competitive.”