The alarm from the IMF: “Half Eurozone in recession, the impact of prices is brutal”

Europe is facing a harsh winter from every point of view. The “brutal impact” of energy prices has in fact darkened the prospects of the Old Continent, for which a sharp slowdown in economic growth and particularly high inflation is expected. A «toxic mix» due to which «this winter more than half of the euro area countries» will experience a «technical recession with at least two consecutive quarters of contraction». To take the European photograph – in a report entitled “The fog of war obscures the European outlook” – is the International Monetary Fund, which foresees a technical recession also for Germany and Italy, which according to the estimates of the Washington institute will register “Three consecutive quarters of negative growth since the third quarter of 2022”.

For the Belpaese, the Fund confirms a growth of 3.2% this year but a contraction of 0.2% in 2023, although followed by a rebound of 1.3% in the following year, in 2024. “Private consumption have already contracted in the first quarter of 2022 in Italy, Spain and France and, despite the recovery during the summer, they are expected to remain weak in the second half of the year “, says the international body, warning that the European situation could turn out to be worse than expected in the event of a Russian gas stop and a winter characterized by particularly low temperatures.

The countries of Central and Eastern Europe would be the most vulnerable in this context and could record a loss of gross domestic product of 3% compared to the baseline scenario, but also “other countries (such as Italy) could experience” significant losses of GDP

In the scenario described by the IMF, fiscal policy must consequently deal with the need to rebuild the fiscal space and help monetary policy to fight inflation, with the aim of helping to mitigate the “brutal impact of higher prices. of energy on people and companies “, explains Alfred Kammer, the head of the European Department of the Monetary Fund, observing how” strength, coordination and solidarity have made Europe emerge from the Covid crisis. Once again the task going forward is immense but if Europeans embrace the spirit of the response to the pandemic, then “the objectives can be achieved.” To fight the inflation race, therefore, the central banks of the advanced economies of Europe, including the euro area, should pursue a more stringent monetary policy probably also in 2023 unless activity and inflation weaken in the meantime. meanwhile more than expected.

“Continuing to raise interest rates is – Kammer points out – at the moment an insurance against risks that would require even stronger and more painful responses from central banks going forward”.