Germany and Italy will enter recession next year due to collateral damage from the war in Ukraine, which will weigh heavily on the outlook for the euro zone as a whole, predicts the International Monetary Fund (IMF).
Berlin and Rome will suffer a contraction of 0.3% and 0.2% of their respective GDP, writes the Washington institution in its latest global economic perspectives published this Tuesday, while the growth of the euro zone will slow down to 0 .5% (compared to the 1.2% expected in July).
A recession that is openly talked about
The deterioration of the outlook for these two countries is strong: respectively 1.1 point and 0.9 point less than the previous forecasts for July. As the months go by, the optimism at the beginning of the year about a strong economic recovery after two years of the pandemic gives way to a deepening depression.
After almost eight months of Russian invasion in Ukraine, a first taboo has been lifted: the recession is now openly mentioned by the main international institutions, which had previously refrained from announcing a contraction in economic activity.
The OECD launched at the end of September by forecasting a recession in Germany next year due to the collateral damage of the war, before the World Trade Organization said it feared a “global recession”.
Starting with Germany and Italy, two founding members of the European Union that are highly vulnerable to shocks in the gas market, according to a recent note from rating agency Fitch, highlighting the particularly great difficulties they face in diversifying their supplies.
bankruptcies
The explosion in energy prices is also putting companies in the industrial sector, which weighs heavily in Italy and Germany, in trouble, sometimes forcing them to limit their activity due to exorbitant energy costs, when there is not an absolute risk of bankruptcy.
The situation could get even worse, warns the IMF: “particularly cold temperatures or an insufficiently pronounced drop in gas demand this autumn could lead to energy rationing during the winter in Germany” and harmful effects for German industry.
The German government plans to publish its new forecast on Wednesday, which could be for a recession of 0.4%, according to information in the newspaper. Image. The Italian government still expects 0.6% growth next year.
An energy shock in Europe worse than that of 1973
The euro zone has escaped recession for the moment, with the IMF’s growth forecast for this year raised to 3.1% and another growth of 0.5% expected in 2023. But concern dominates because this last percentage has just be revised down for the third time in a row.
According to him, the recession is already to be expected next year in the countries that share the single currency. “In many ways, the energy shock Europe is going through is worse than the 1973 oil shock in the United States,” he continues.
In addition to Russia, which is expected to experience a recession this year and next due to Western economic sanctions, the IMF also forecasts GDP declines in Sweden, Chile and Equatorial Guinea in 2023.
Source: BFM TV
