IMF hikes eurozone growth estimates, warns on bank strains
Eurozone economy
(BRUSSELS) - The IMF raised its growth forecasts for the debt-stricken eurozone on Monday but also warned that "continued strains" in the banking sector threatened the economy's expansion.
The eurozone economy will expand by 1.6 percent this year and 1.8 percent in 2012, the IMF said in its spring World Economic Outlook, a 0.1 percentage point improvement from a January forecast.
"A gradual and uneven recovery is under way in Europe," the report said.
"The recovery in Europe has been gaining traction, despite renewed financial turbulence in peripheral countries of the euro area during the last quarter of 2010," it said.
However, the IMF added: "In the near term, continued strains in more vulnerable euro area sovereigns and banks pose a significant threat to financial stability and growth.
"This is mainly due to continuing weakness among financial institutions in many of the region's advanced economies and a lack of transparency about their exposures," it said.
The eurozone needs to restore "greater trust" in banks by launching "ambitious stress tests and restructuring and recapitalisation programmes," the IMF said, warning of a "lack of transparency" about their exposure.
The European Banking Authority (EBA) said last week it would conduct stress tests on 90 banks and apply tougher criteria.
Assessments done last year were roundly criticised because they gave most banks -- including those in bailed-out Ireland -- a clean bill of health.