High inflation and interest rate hikes are expected to lead the Eurozone to stagnation in 2023, with its GDP forecast to grow just 0.5% from 3.1% this year, while major economies such as Germany and Italy they will go into recession.
Clear messages for the monetary and fiscal policy which should be applied to Europe and globally, amid the continued deterioration of the macroeconomic outlook, sent the International Monetary Fund, as part of its annual meeting held this week in Washington.
THE high inflation and interest rate hikes are expected to lead the Eurozone to stagnation in 2023, with its GDP forecast to grow only 0.5% from 3.1% this yearwhile large savings, such as the German and the Italian, will go into recession.
The risks to the Fund are on the downside, meaning it is more likely the slowdown of the European economy to be more than less from the main script. Whether these risks materialize will depend on the course of the energy crisis and mainly on the developments regarding natural gas.
For Greecethe IMF’s forecast is better than the Eurozone average as growth is forecast at 1.8% next year after a strong 5.2% this year, while inflation is forecast to moderate to 3.2% from 9.2% this year.
The overall picture for the global economy is bleak, with next year’s GDP growth slowing to 2.7% from 3.2% this year, the lowest in 20 years, excluding the initial period of the pandemic and the financial crisis of 2008/2009. The US economy is projected to grow by just 1% and China’s by 4.4% – a rate that is significantly lower than the average of the last few decades. According to the Fund, a third of the global economy will be in recession by 2023.
In this context of high inflation, rising interest rates and high uncertainty, thethe IMF sent clear signals to monetary and fiscal policy that they should converge to address inflation.
For central banks, the message is that they must continue to raise interest rates, even if there is a risk of a larger-than-necessary reduction in economic activity. According to the Fund, the priority is to ensure the eradication of inflation, as the blow from a longer duration will be greater for development and for citizens’ incomes.
In particular for the ECB, the head of the IMF’s directorate for Europe, Alfred Kammer, stated that it will probably have to continue raising interest rates in 2023, unless the deterioration of economic activity significantly limits the outlook for inflation in the medium term, i.e. in 1-2 years.
On fiscal policy, Kammer said it should also be restrictive in 2023 as it should align with monetary policy in the fight against inflation and at the same time rebuild the fiscal space that has been reduced due to extensive pandemic support measures .
The Fund said that measures to support high energy prices and inflation should target low- and middle-income households and be targeted and temporary, so that their fiscal costs are manageable and consumption reduction is encouraged.
Read the News today and get the latest news.
Follow Skai.gr on Google News and be the first to know all the news.
I have worked in the news industry for over 10 years and have been an author at News Bulletin 247 for the past 5 years. I mostly cover technology news and enjoy writing about the latest gadgets and devices. I am also a huge fan of music and enjoy attending live concerts whenever possible.
