Stagnation Risk
Article

Stagnation Risk

Huidan Lin
Finance & Development , 2016
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Recommendation

In this concise article on the myriad problems facing the euro zone, economist Huidan Lin argues that monetary policy has lost its stimulatory punch. Low investment, deep indebtedness and elevated unemployment contribute to prolonging the economic malaise, leaving the region vulnerable to shocks, including the risk of political crisis in the European Union. Lin argues that public policies to jump-start the area’s economies need to focus on debt reduction and structural changes to enhance productivity. getAbstract recommends this relevant and accessible article to policy makers and executives concerned about European economic inertia.

Summary

In general, the developed economies are experiencing feeble economic growth – so much so that the International Monetary Fund is forecasting below-capacity output through 2020. The euro zone is especially fragile. Economic development there has not kept pace with population growth, resulting in output per person of only $40,000, well below the comparable statistic of $56,000 in the United States. Against this backdrop, zero-interest-rate monetary policy has reached the limits of its capacity to jolt growth.

The euro area suffers from high joblessness – particularly among...

About the Author

Huidan Lin is an economist at the International Monetary Fund.

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