The International Monetary Fund is likely to revise down its growth forecasts for the euro zone as the area faces higher risks from trade, Britain’s talks to leave the bloc and market jitters over fiscal easing in Italy and other states.
When the fund publishes its new forecasts on the global economy in July, it is likely to slightly revise down its growth estimates for the 19-country euro zone but does not expect “a sharp slowdown,” the fund’s managing director Christine Lagarde told a news conference in Luxembourg on Thursday.
“We will probably update and revise our growth forecasts for the euro area modestly, but we will revise it down a little bit,” she said, adding that the expected slowdown was partly softened by the monetary policy of the European Central Bank.
She said the main reasons for the likely revision were the risks of a global trade war, inconclusive Brexit talks and markets’ abrupt reactions to Italy and other countries’ plan to increase public expenditure without proportionate revenues.
She said “trade tensions initiated by tariff increase on steel and aluminum” by the United States were the first reason for concern, especially in case of future escalation.
Brexit is the second major risk that the euro zone’s economy faces, Lagarde said, citing the lack of progress on the divorce talks and Britain’s unclear position as a possible cause for an “abrupt Brexit.”
The third major risk for the euro zone came from Italy and other euro zone countries which could revert from a disciplined fiscal policy.
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