Slow recovery

"The recovery is likely to be slow and its shape and timing highly uncertain," the International Monetary Fund said after annual consultations with the 16 European Union countries that have adopted the euro currency.

In a report released on Monday, the IMF said the current decline in activity would moderate throughout the remainder of the year and give way to a modest recovery starting in the first half of 2010.

The agency said that "tentative signs of improvement " from the crisis had "yet to germinate into a recovery" and warned that the banking sector still was exposed to pressure.

"Sizeable losses lie ahead as the recession unfolds. As a result, the financial sector is hamstrung in fulfilling its vital intermediation role."

While government action to battle the recession have helped to stabilize the banking system, the IMF called for more "decisive action, especially in the financial sector."

The report suggests that "a missing key element" was a more "proactive strategy" to bolster the financial sector with "more effective coordination of policy actions across areas and borders, including support for neighboring emerging economies."

To cope with the worst recession in decades, the European Central Bank has lowered interest rates considerably. The IMF described the ECB's actions as "impressive," but warned that a further cut in interest rates may be required in future.

The eurozone fell into recession in 2008 and is facing rising unemployment and plunging demand for European exports. In April, the IMF forecast that Europe's economy would contract by 4.2 percent in 2009.

ai/dpa/AFP/AP
Editor: Chuck Penfold