The eurozone recovery is weak, its financial markets too fragmented, and the region risks falling into deflation, the International Monetary Fund has warned. The IMF urged members to shore up the single currency bloc, including repairing bank balance sheets and stepping up reforms to boost employment. It repeated a recommendation that the European Central Bank should be ready for quantitative easing should inflation stay too low. The Washington-based body concluded after its latest visit to the region that the euro area recovery was taking hold and action by national politicians and the ECB had helped boost investor confidence. But the euro-skeptic outcome of the European elections posed risks to the single market and the economic recovery was "neither robust nor sufficiently strong". "The recovery is weak and uneven. Inflation has been too low for too long, financial markets are still fragmented, and structural gaps persist: these hinder rebalancing and substantial reductions in debt and unemployment," said the report. It was completed in June, before troubles at one of Portugal's biggest banks sparked the latest bout of jitters in financial markets. The suspension of shares in Banco Espírito Santo last week prompted panic selling on both sides of the Atlantic amid concerns it would lead to a wider run on the eurozone's debt-ridden banking sector. While markets have recouped some of their losses following reassurances from policymakers that the problems are contained, analysts said last week's turbulence was a wake-up call over unresolved problems. The IMF highlighted "lingering damage" from the crisis, such as high unemployment, particularly among young people, and said that activity and investment were yet to return to pre-downturn levels. Growth was unevenly spread across countries and the flow of credit to businesses in stressed economies was contracting. "Weakness in banks' balance sheets and uncertainty about their quality are contributing to fragmentation, constraining the ability and willingness of banks to support credit and investment," the IMF said. The fund added that inflation was worryingly low and deflation a real risk, prompting a raft of policies from the ECB to avoid the region tipping into it. "Risks to growth are still tilted to the downside. With limited policy space in the near term, further negative shocks – either domestic or external – could undermine financial market sentiment, halt the recovery, and push the economy into lower inflation and even deflation," the IMF said. It painted a long road to full recovery. Growth was expected to accelerate only a little next year, to 1.5% from 1.1% in 2014 – a slight downgrade from April's prediction of 1.2% growth this year. That outlook compares with the IMF's forecast for the UK economy to grow 2.9% this year and for the US to expand 2%. Inflation in the eurozone was forecast to remain below the ECB's target of around 2%. The IMF predicts inflation of 0.7% this year and 1.2% in 2015. It recommended that policymakers focus on three areas to strengthen the recovery: supporting demand, repairing balance sheets and advancing structural reforms. "Such policies would help mitigate risks to the recovery and reduce spillovers from low growth and low inflation to the rest of the world," it added. It welcomed actions so far by the ECB and said it was reassuring the central bank had expressed willingness to do more if inflation remains too low. Such action should include asset purchases, known as quantitative easing, in the IMF's view.
"Buying sovereign assets, in proportion to ECB capital key, would reduce government bond yields, induce higher equity and corporate bond values, and ultimately raise demand and inflation expectations across the euro area," Monday's report said.... what misleading drivel….the euro zone is not weak…it is bankrupt insolvent skint…how exactly does a bank repair their balance sheet…apart from making profit…and how can they earn their way to profitability when in the real economy millions upon millions of eu citizens are jobless homeless or up to their eyeballs in debt….and most banks are stuffed up to the gills in toxic bonds from greece italy slovenia spain portugal ireland bulgaria …and most eu states have national debts fast approaching 100% of gdp if not greater than 100%..it is misleading because the article can't be referring to earning their way to better books of account so the article must be referring to other ways of improving balance sheets and that is is where it is misleading…..printing money….quantative easing…creating loans out of fresh air….are all just a dishonest kicking the can down the road...
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