Is the recovery everyone has been waiting for finally here? Encouraging signs from Europe—rising share prices, lower sovereign bond yields, and increased risk appetite—reflect an upturn in high-frequency indicators, the first signs of positive domestic demand in the euro area, and the prospect of less drag from fiscal consolidation.
At the same time, there are formidable headwinds to overcome. Debt owed by households and businesses remains high, making a rapid pick-up in consumption and investment unlikely. Contracting bank lending, as well as relatively tougher credit conditions in the countries most in need of support, are also holding back recovery. And reducing unacceptably high levels of unemployment depends on strong growth.
So, the recovery is real, but the pace is weak, and more policy actions are needed to boost growth and foster job creation.
For a more detailed assessment of European recovery prospects and policy prescriptions, click on the video below. And check out the recently released IMF book,Jobs and Growth: Supporting the European Recovery, particularly for specifics on growth-enhancing structural reforms.
This piece is cross-posted from iMFdirect with permission.