BRUSSELS (Reuters) – Euro zone countries should privide an additional fiscal stimulus of 3% of GDP in 2021-2022 to boost economic growth by 2% of GDP by the end of next year and reduce the negative effects of the pandemic, the International Monetary Fund said.
In its regional outlook for the euro zone, the IMF said the extra fiscal boost could then be followed by stronger consolidation once excess capacity has been reduced.
“Such additional support to the tune of 3 percent of GDP over 2021−22 could lift output by about 2 percent by the end of 2022 and more than halve the medium-term scarring due to robust supply-side effects,” the IMF said in the report.
“This would have greater benefits for households with low incomes and fewer side effects than additional monetary stimulus. It would also bring inflation closer to target in many countries and help rebuild monetary policy space,” it said.
Euro zone countries provided more than 3 trillion euros in national fiscal stimulus and liquidity schemes last year to keep their economies going and some, like Italy, are announcing new support measures as the third wave of the pandemic triggers new lockdowns across the bloc.
(Reporting by Jan Strupczewski; Editing by Nick Macfie)