March 25, 2023

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Half of Eurozone countries are headed for recession, IMF chief predicts

Europe’s economy will be hit hard by an energy crisis fueled by Russia’s war in Ukraine, with at least half of the 19 countries that use the euro heading into recession, the managing director of the International Monetary Fund said.

“The horizon has darkened significantly over the past year,” Kristalina Georgieva told Euronews on Thursday.

“A year ago we recovered from the Covid disease and finished with a global growth of more than 6%. Then two shocks: Omicron in Ukraine and the war in Russia not only stopped the recovery, but reversed it. »

“Number one priority [est] Fight against inflation and win. What does that mean? Tight financial conditions. Interest rates are rising,” he noted.

“When central banks put on the brakes, finance ministries cannot step on the accelerator. »

The IMF boss did not mince words: the picture he painted of the global economy was unmistakably bleak, with a deepening and slowing cost-of-living crisis in Asia and the US.

“Europe has been hit hard by rising energy prices. With European economies heating up, half of eurozone countries are actually expected to experience at least two quarters of negative growth. In other words, a recession,” he added, without naming the countries.

A recession is usually defined as two consecutive quarters of negative GDP growth.

“To give you an idea of ​​the scale of the impact in Europe, our pre-pandemic forecasts and our current forecasts differ by half a trillion euros,” he said.

In its latest outlook, the IMF estimates the eurozone will grow by 3.1% in 2022, but only 0.5% in 2023. Next year, Germany and Italy are expected to record growth. The rates were -0.3% and -0.2%, respectively.

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“2023 will be more difficult than 2022”

Georgieva praised EU policymakers for providing “targeted, timely and temporary” support to households and businesses in financial trouble, and said the focus should be on energy savings to redress the mismatch between supply and demand.

But big challenges lie ahead.

“I’m not going to discount it: 2023 will be harder than 2022. Next winter for Europe may be harder than this winter,” he said.

” Why ? Because European decision-makers acted very quickly to fill gas reserves. How will these gas reserves be filled next year if the conditions remain where Russia does not supply gas to Europe? »

The EU has exceeded the capacity of 93% of its underground storage facilities. Although the shopping spree was successful, it pushed gasoline prices to historic highs in August.

But Georgieva was optimistic, saying the current energy crisis could be a big boost for green technologies just as the pandemic accelerated digital transformation.

“It is heartbreaking to see another war in our land, again refugees and great suffering of the besieged. We thought it would never happen again. “I, in my mind, still struggle with this image of Europe going back to war,” he said.

“The key question in Europe today is: Can Europe be united and engage the public in this difficult time?”

Speaking about the Russian economy, Georgieva predicted contractions in 2022 and 2023, as well as negative consequences in the medium and long term.

“First, [la Russie] It loses access to technology that helps modernize and diversify the country’s economy. Second, it loses people. “The exodus of Russians, especially highly skilled Russians, because of the war is hurting Russia,” he says.

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“Three, it loses its role in the global economy. »