The IMF defended this Sunday that European countries must impose rigor in macroeconomic policies to reduce inflation, while helping vulnerable families and viable companies to face the energy crisis.
In a post on the International Monetary Fund (IMF) blog, the director of the IMF’s Europe department, Alfred Kammer, highlights that as Russia’s war in Ukraine increasingly affects European economies, growth is slowing. slowing in the bloc, while inflation shows few signs of abating. .
Citing the report of the latest world economic projections, he recalled that Europe’s advanced economies are expected to grow by 0.6% next year, while emerging economies (excluding Turkey and countries in conflict such as Belarus, Russia and Ukraine) expand by 1.7%, which represents a fall of 0.7 percentage points (pp.) and 1.1 pp., respectively, compared to the July projections.
The IMF official anticipates that this winter, more than half of the eurozone countries will face technical recessions, with at least two consecutive quarters of output contraction, and among these countries, output will fall, on average, by about 1 .5% with respect to its peak.
It also highlights that although inflation is expected to fall next year, it will be “significantly” above the central bank’s targets, around 6% and 12%, respectively, in advanced and emerging European economies.
The IMF official argues that in advanced economies, including the eurozone, a tight monetary policy is likely to be needed in 2023, unless activity and employment weaken more than expected, which will substantially reduce the outlook for inflation. in the medium term.
“In general, a more restrictive stance is warranted in most emerging European economies, where inflation expectations are not as well anchored, demand pressures are stronger and nominal wage growth is high, often double digits,” he says.
In the blog, he also argues that “fiscal policy must balance opposing goals.” One, he notes, is the need to rebuild fiscal space and help monetary policy fight inflation, which he says requires fiscal consolidation at a faster pace in 2023 in countries with less fiscal space and greater vulnerabilities to adverse conditions. stricter financial
The other is that, at the same time, fiscal policy must also help mitigate the “brutal” impact of rising energy prices on viable people and businesses.
“This suggests that the pace of consolidation may have to slow down for a few months,” he says.
Still, he believes it will be important in the future to temporarily maintain energy-related support, to contain budget costs.
The IMF advocates once again that support be directed to low- and middle-income families through fixed discounts on energy bills rather than price interventions.
It also points out as a close alternative to combining fixed general discounts with additional support for lower-income families, through the Welfare State, financed with higher taxes for higher-income families.
Another alternative, he says, although less efficient, “is to implement higher tariffs for higher levels of energy consumption”, although he points out that “this approach is not completely aimed at the most vulnerable”.
Source: TSF
