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IMF: Growth to ease in 2008 as Europe weathers credit storm

Europe’s economy is well-prepared to weather the financial turbulence brought on by the subprime mortgage crisis in the United States but growth is still likely to ease in most European countries in 2008, the International Monetary Fund said Monday.

While there was a significant “downside risk” to its outlook from the global credit crisis, the IMF said in its Regional Economic Outlook report that Europe had so far emerged “largely unscathed. Nonetheless, risks for emerging Europe have also risen, especially for countries that have been funding large current account imbalances with foreign bank borrowing,” the Washington-based crisis lender warned.

The IMF said that sound economic policies, as well as greater trade and financial integration had led to a “buoyant regional economy with clear growth dividends,” but Europe still had a series of tough reforms to go through - especially to address an aging population and fiscal deficits - if it hoped to keep that robust economy going. Defaults in subprime mortgages - home loans to people with poor credit - in the United States have sparked a global credit crisis and a downturn in global financial markets. If weathered, the IMF said the credit crisis could also have positive benefits for Europe by way of encouraging fiscal discipline. “The financial turbulence may herald a healthy correction to past exuberance, bringing risk spreads closer to fundamentals, improving credit discipline, and helping to reduce external imbalances in emerging countries,” the report said. (m&c.com)