Europe’s already in a ‘deep’ recession

Dubai: Europe has gone into deep recession as the coronavirus outbreak continues to shut down major economic sectors, the International Monetary Fund (IMF) said on Monday.

“While we do not know how long the crisis will last, we know that the economic impact will be severe,” Poul M. Thomsen, Director of IMF’s European Department, said in a statement, received by “Gulf News”.

In Europe’s major economies, nonessential services closed by governments as part of the pandemic containment measures account for about one-third of the continent’s output. “This means that each month these sectors remain closed translates into a 3 per cent drop in annual GDP,” he said, adding that “a deep European recession this year is a foregone conclusion”.

Led by Italy with 98,000 confirmed cases and more than 10,000 deaths, Europe accounts for nearly two-thirds of COVID-19 cases in the world. Most European countries have shut down their air, land and sea borders and imposed curfews in cities to contain the spread.

Exposing chinks

The IMF said although Europe’s “generally strong welfare systems and social market model” will ease the delivery of assistance to businesses and households, “there should be no doubt about the complexity of this task: these systems were not constructed to meet demands of the [pandemic] magnitude now confronting Europe’s policymakers.”

All countries in Europe will need to respond aggressively to the crisis, Thomson stressed, “in a manner that is both bold and commensurate to its scale. If there ever was a time for using available buffers and policy space, this is surely it.”

The European Central Bank (ECB) earlier this month announced an economic stimulus programme worth 750 billion euros ($870 billion), which includes a temporary asset purchase to address the downturn across the eurozone.

“Extraordinary times require extraordinary action,” the ECB chief Christine Lagarde tweeted on March 19. The programme is expected to last until the end of this year.

Called the “Pandemic Emergency Purchase Programme” (PEPP), the central bank will buy both public and private securities in a “flexible manner.”

Meanwhile, over the weekend, the European Commission said it would propose a new stimulus package, including changes to the EU budget, in order to help the bloc recover from the economic crisis.