The International Monetary Fund (IMF) is pessimistic about the health of European economies this year and next, pointing to sluggish growth and still very high inflation, with the risk of energy shortages which could worsen the situation.
“The European outlook has darkened considerably,” the institution said in its regional forecast released on Sunday.
The IMF presented its global economic forecasts on October 11, during its annual meetings organized with the World Bank in Washington, and then published regional reports, such as this one.
“Europe was on course to emerge from the pandemic at the end of 2021, with a broadly appropriate policy mix […]while the rise in inflation was about to subside”, but “Russia’s war in Ukraine and its fallout have completely changed this outlook”, detailed the IMF in this regional report.
Growth on the European continent, excluding Turkey and countries in conflict, is now expected at 3.2% in 2022 and 0.6% in 2023, i.e. respectively 0.7 and 1.1 points less than what was anticipated when previous forecasts, published in July.
As for inflation, it should slow down in 2023, but remain very high: the IMF expects 6.2% in advanced European economies, and 11.8% in emerging European economies, respectively.
The picture is bleak, and “one of the main near-term risks is further energy supply disruption which, combined with a cold winter, could lead to gas shortages, rationing and deeper economic hardship,” warned the IMF.
“Social tensions could intensify in response to the cost of living crisis”, pushing governments to have “a more expansionary fiscal policy which could force central banks to tighten their monetary policy further”.
“Faced with a combination of weak growth and high inflation which could worsen, European decision-makers are faced with severe trade-offs and difficult policy choices”, further noted the IMF.
“Technical recessions – at least two consecutive quarters of negative GDP growth – projected in parts of Europe could turn into even deeper recessions across the continent,” the international lender warned.
Globally, the IMF maintained its growth forecast for 2022 at 3.2%, and lowered that for 2023 to 2.7%.