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Three things are holding Europe back: the absence of a capital markets union, investments not going to the most productive firms and energy costs, the managing director of the IMF told Euronews.
Despite a positive global outlook, the horizon for the global economy is riven with uncertainties, but the EU should stick fast to improving its single market to boost competitiveness, the managing director of the International Monetary Fund (IMF) told Euronews in Davos.Kristalina Georgieva started with some good news at the World Economic Forum in Davos, Switzerland – during a special edition of the Europe Conversation – the world economy is on the rise and inflation is going down. “The world economy is growing steadily. We predict 3.3% growth this year, 3.3% growth next year. Inflation is going down. Not yet to target, but close. And that has been done with interest rates going up and yet the economy not falling into recession,” Kristalina Georgieva told Euronews in Davos. ‘Sleeping beauty’But “tremendous divergence in economic fortunes” can be seen when scratching beneath the surface: the US is doing “very well” whereas “Europe is stalling”, she said. Another fly in the ointment, she said, is that longer term growth prospects are meagre – below the average from before the pandemic – and as a result countries should focus on productivity.“The US is going up, driven by high productivity. Everywhere else, productivity is like the sleeping beauty: nowhere to be seen”, said Georgieva.Three things are holding Europe back: the absence of a capital markets union, investments not going to the most productive firms, and energy costs she says. CompetitivenessIf Europe wants to become more competitive, it has to “focus on the single market”, according to the managing director of the IMF. As long as “the savings of the European people fly to the United States, because they’re more profitable there” and “as long as domestically savings do not get allocated to the most dynamic firms, it will be really hard for Europe to achieve that objective of high competitiveness”, she warned.Donald TrumpWhen looking at President Donald Trump’s electoral promises, she identified four blocs in policy reforms oriented towards competitiveness and national security – trade, tax and public spending, deregulation and immigration – whose impact on the global economy remain to be seen. Trump has for instance threatened to hit the European Union with tariffs and to hike existing tariffs on China. The impact of such measures on the global economy will also depend on how countries respond, she said. “There is almost a 75% probability within one year when a protectionist measure is imposed from one country on another, that this other country reciprocates,” Georgieva said. Concerns about national security are also on the rise. “These two objectives – national security and economic competitiveness – they need to go hand in hand. If Europe is economically stronger, it is also in a better position to have a strong defence to protect its citizens,” she said.
