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IMF praises eurozone policy but warns on future

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Pedestrians walk past the International Monetary Fund (IMF) building in Washington, D.C., U.S., on Wednesday, April 2, 2008.

[WASHINGTON] The International Monetary Fund said on Thursday the eurozone is in the midst of a recovery, boosted by a weaker currency, low oil prices, and the central bank's loose monetary policy.

Even risks from Greece and its possible exit from the currency bloc "appear manageable," at least in the short term, the IMF said in its yearly check-up on the eurozone's health.

Greece and its international lenders, the IMF and the European Union, continued to wrangle over a cash-for-reforms deal on Thursday amid increasing nervousness that Athens could default on its payment to the IMF on June 30. "Beyond the near term, the risks surrounding Greece can be managed as long as there are concerted efforts to accelerate and deepen integration within the monetary union to make it more resilient," the IMF said in a statement on the eurozone.

But the global lender said many of the factors supporting European growth could evaporate in the future and leave the continent stranded with growth that is too low unless it pursues deeper reforms and integration in the bloc. "Potential growth, estimated at around 1 per cent on average over the medium term, is well below what is needed to reduce unemployment to acceptable levels in many countries," the IMF said. "As the one-off factors driving the cyclical recovery fade, the risk remains that the economy will return to low growth and be vulnerable to shocks given the limited policy space." In its last global forecasts in April, the IMF predicted the eurozone's economies would expand by 1.5 per cent this year, and 1.6 per cent in 2016.

The IMF also said the euro's depreciation has helped economies recover, but the currency is now "moderately weaker" than its fundamental level.

It urged Europeans to clean up bank balance sheets, strengthen a common fiscal backstop, boost investment, and speed up reforms to labour and product markets.

REUTERS