Europe is going through a deep recession, driven by a collapse in confidence and global demand, and by adverse feedback effects between its financial system and the real economy. Unprecedented policy actions have brought about a measure of stability and cushioned the downturn. However, establishing a solid economic recovery will require additional and effectively coordinated policy interventions. The crisis provides an opportunity to strengthen economic and financial integration in Europe, including by strongly supporting emerging economies, that should not be missed.
On the heels of the global financial crisis, active fiscal policy is back on the agenda of the advanced European economies. Indeed, a fiscal expansion could be particularly effective in the near-term economic environment: the recent tightening of credit constraints could make spending more sensitive to current income and, thus, taxes and subsidies. Given the increased integration of European economies, policy coordination is nonetheless key to magnifying the effects of national fiscal expansions. While it is important for countries to support their economies in the face of this unprecedented slowdown, a clear and credible commitment to long-run fiscal discipline is now more essential than ever: any loss of market confidence may raise long-term real interest rates and debtservice costs, partly offsetting the stimulus effects of measures taken to deal with the crisis and further adding to financing pressures. Hence, it is particularly crucial that any short-term fiscal action be cast within a credible medium-term fiscal framework and envisage a fiscal correction as the crisis abates.
A short period of apparent resilience to the global financial turmoil has given way to a deep crisis in several European emerging markets, though with substantial differentiation across the region. The crisis has put an increased premium on sound macroeconomic and macroprudential policies: countries with lower inflation, smaller current account deficits, and lower dependence on bank-related capital inflows in recent years have so far fared better. While the external environment and structural reform efforts will matter, the banking sector, which has played a central role in the run-up to the crisis, holds a key to the speed of recovery from the crisis. In the short term, bank recapitalizations seem unavoidable to prevent recessions from becoming protracted. In the medium term, recovery efforts need to be supported by a strengthening of financial stability arrangements, including for cross-border activities, and the introduction of more forward-looking provisioning policies.
Rédigées par la branche Stratégie du Département Afrique du FMI et publiées deux fois l'an en anglais et en français, les « Perspectives économiques régionales : Afrique subsaharienne » analysent les résultats économiques et les perspectives à court terme des 44 pays couverts par le département. Thèmes évoqués dans les éditions précédentes : réactions aux chocs exogènes ; résultats en matière de croissance et politiques porteuses de croissance ; efficacité des arrangements commerciaux régionaux ; implications macroéconomiques de l'expansion de l'aide ; développement du secteur financier ; décentralisation budgétaire. Des données détaillées sur les pays, groupés selon qu'ils sont exportateurs ou importateurs de pétrole et selon leur sous-région, sont présentées dans un appendice et un appendice statistique, et une liste des publications pertinentes du département Afrique est également fournie. ISSN 0258-7440.
Prepared by the Policy Wing of the IMF African Department, and published twice a year in English and French, Regional Economic Outlook: Sub-Saharan Africa analyzes economic performance and short-term prospects of the 44 countries covered by the Department. Topics examined in recent volumes include responses to exogenous shocks, growth performance and growth-enhancing policies, the effectiveness of regional trade arrangements, macroeconomic implications of scaled-up aid, financial sector development, and fiscal decentralization. Detailed country data, grouped by oil-exporting and -importing countries and by subregion, are provided in an appendix and a statistical appendix, and a list of relevant publications by the African Department is included.
Europe is in a deep recession. Adverse feedback between the financial and real sectors and across borders is likely to delay the recovery and create downside risks. Unprecedented policies have been undertaken to address the crisis-but are they likely to be successful and sufficiently coordinated for a tightly integrated region? To restore trust and confidence in financial markets, additional and forceful action will be essential. Maintaining fiscal support should help soften the downturn, in particular if sustainability is supported by solid medium-term strategies and fiscal frameworks. To be effective, these policies require coordination across advanced and emerging economies. The report's analytical work underpins the link between fiscal sustainability, coordination, and effectiveness, and stresses that emerging markets have been affected differently by the crisis, with the quality of policies and external vulnerabilities being key factors.