Half of eurozone countries heading for recession, IMF chief predicts

Europe’s economic system is projected to be badly hit by the power disaster triggered by Russia’s warfare in Ukraine, with not less than half of the 19 nations that use the euro heading for a recession, the managing director of the Worldwide Financial Fund (IMF) has stated.

“The horizon has darkened considerably over the past 12 months,” Kristalina Georgieva advised Euronews on Thursday.

“One 12 months in the past, we had been recovering from COVID and we completed with over 6% international development. After which two shocks: Omicron and Russia’s warfare in Ukraine haven’t solely interrupted the restoration however reversed it.”

Georgieva sat down with Euronews Enterprise Editor Sasha Vakulina after talking on the “Making Markets Work For Folks” occasion in Brussels.

“The primary precedence [is] to combat and win in opposition to inflation. What does that imply? Tightening monetary situations. Rates of interest are going up,” she famous.

“When central banks are stepping on the brakes, finance ministries can’t press the accelerator.”

The IMF chief didn’t mince her phrases: the image she painted of the worldwide economic system was unmistakably darkish, with a worsening cost-of-living disaster and momentum slowing down in Asia and America.

For Europe, the outlook is even bleaker.

“Europe is affected extra severely by the rise of power costs. The warmth on European economies is such that we really anticipate half of the nations within the eurozone to expertise not less than two quarters of adverse development. In different phrases, a recession,” she stated, with out naming the nations.

A recession is usually outlined as two consecutive quarters of adverse GDP development.

“Simply to present you a way as to how important the hit on Europe is, our pre-pandemic projections and our present projections differ by half a trillion euros,” she stated.

“In different phrases, the loss to the European individuals is sort of, fairly dramatic.”

In its newest outlook, the IMF estimated the eurozone to develop by 3.1% in 2022 however simply by a meagre 0.5% in 2023. Subsequent 12 months, Germany and Italy are projected to submit -0.3% and -0.2% charges, respectively. 

‘2023 will likely be more durable than 2022’

Georgieva praised EU policymakers for offering “focused, well timed and short-term” assist for households and corporations beneath monetary stress, and stated the primary focus ought to stay on power financial savings to rebalance the supply-demand mismatch.

However nice challenges lie forward.

“I’m not going to sugar-coat it: 2023 will likely be more durable than 2022. Subsequent winter for Europe could also be even harsher than this winter,” she declared.

“Why? As a result of European policymakers acted very swiftly to fill gasoline storage. If situations stay as they’re with Russia not offering gasoline to Europe, how is that this gasoline storage going to be stuffed subsequent 12 months?”

The EU has surpassed 93% of capability in its underground storage services. The purchasing spree, whereas profitable, introduced gasoline costs to all-time highs in August.

However Georgieva did strike a be aware of optimism, arguing the present power disaster will likely be a serious enhance for inexperienced applied sciences in the identical method the pandemic accelerated the digital transition.

“It’s heartbreaking to see a warfare on our territory once more, refugees once more, and the large struggling of individuals beneath siege once more. We thought that this could by no means be repeated. And I’m, in my thoughts, nonetheless wrestling with this picture of Europe at warfare once more,” she stated.

“The important thing query immediately in Europe is: Can Europe keep united and may the general public be introduced on board for this tough time?”

Talking concerning the Russian economic system, Georgieva projected contractions in each 2022 and 2023, along with mid- and long-term damaging implications.

“One, [Russia] is dropping entry to expertise that may have helped the nation to modernise and diversify its economic system. Two, it’s dropping individuals. The outflow of Russians, particularly highly-qualified Russians, due to the warfare is hurting Russia,” she stated.

“And three, it’s dropping its function within the international economic system.”