The International Monetary Fund is somewhat more optimistic about economic growth in the euro zone this year, now forecasting a GDP expansion of 0.7% and ruling out a recession in Germany and Italy.
In the update of the “Global Economic Forecasts” (WEO), the International Monetary Fund (IMF) forecasts that the economy of the euro zone will grow 0.7% this year, 0.2 percentage points (pp) more than estimated in October, but below the 3.5% projected for 2022.
The upward revision is justified, according to the IMF, by the effects of the rapid rise in interest rates by the European Central Bank (ECB) and the erosion of real income, offset by the drag effect of the results of 2022 , lower energy prices and announcements of support in the form of energy price controls and cash transfers.
As for 2024, the institution led by Kristalina Georgieva is somewhat more pessimistic and cuts the projection by 0.2 pp to 1.6%.
Among the main economies of the euro area, the ‘black clouds’ that plagued the outlook for Germany’s Gross Domestic Product (GDP) weigh less: for this year, the IMF has revised upwards by 0.4 pp. the forecast compared to October, of a growth of 0.1%.
The forecast places the German economy in a state of stagnation, but already rules out a recession from the central scenario. A similar result for the Italian economy, whose outlook was revised upwards by 0.8 pp., to 0.6%.
According to the report, growth of 1.4% is expected for Germany in 2024 (-0.2 pp compared to October) and 0.9% for Italy (-0.4 pp compared to October).
The IMF maintained its growth forecast of 0.7% this year and 1.6% in 2024 for France.
On the other hand, the Bretton Woods institutions forecast that the Spanish economy will grow by 1.1% in 2023 (-0.1 pp. than before) and 2.4% in 2024 (-0.2 pp. than before). .
The report also highlights that European economic growth in 2022 was more resilient than expected in the face of the large negative terms-of-trade impact of the war in Ukraine.
“This resilience, which is visible in the third quarter consumption and investment data, partly reflects government support of around 1.2% of EU GDP for households and businesses affected by the energy crisis, as well as the dynamism of the reopening of the economies”. he explains, adding that gas prices have fallen more than expected.
However, he cautions that the momentum for reopening “appears to be waning”, illustrating that high-frequency indicators from the fourth quarter suggest a contraction in the manufacturing and services sectors, while consumer confidence and business sentiment have worsened.
In addition, “with inflation around 10% or more in several countries in the euro zone and in the United Kingdom,” he stresses that state budgets remain “adjusted.”
At the same time, “the accelerated pace of interest rate hikes by the Bank of England and the European Central Bank (ECB) is tightening financial conditions and reducing demand in the real estate sector.”
Source: TSF
