Downturns in parts of Europe could turn into “deeper recessions” across the continent as energy disruptions threaten economic pain, while a cost-of-living crisis risks stoking social tensions, the IMF said on Sunday.
The IMF’s Regional Economic Outlook report on Europe comes as countries grapple with heightened inflation, and a worsening energy crisis that has depressed the purchasing power of households and raised business costs.
New government support “only partly” offsets these strains, the IMF said.
Photo: Bloomberg
Russia’s invasion of Ukraine this year sent inflation soaring as energy prices jumped, forcing the European Central Bank to hike interest rates to cool the economy at the risk of causing a contraction.
“The European outlook has darkened considerably, with growth set to slow sharply and inflation to remain elevated,” the IMF said in its report.
Already, the fund predicts that Germany and Italy would slip into recession next year, becoming the first advanced economies to contract in the wake of the war on Europe’s eastern flank.
While Europe was on its way to exit the COVID-19 pandemic at the end of last year, war in Ukraine “changed this picture completely,” the IMF said.
Overall, growth in Europe’s advanced economies is expected to slow markedly to 0.6 percent next year, the report said.
For the region’s emerging economies, excluding conflict countries and Turkey, growth is pegged to slow to 1.7 percent as well, while losses in conflict countries would be large.
“A key near-term risk is further disruption to energy supplies, which, combined with a cold winter, could lead to gas shortages, rationing and deeper economic pain,” the IMF said.
Inflation could also stay higher for longer and social tensions could worsen due to rising costs, it added.
Under current circumstances, central banks should continue raising policy rates, the IMF said, calling for “faster hikes” in advanced economies.
Policymakers need to “walk a fine line” between fighting inflation and supporting vulnerable households and enterprises through the energy crisis, it said.
Earlier this month, the IMF forecast that the German economy — Europe’s biggest — would shrink 0.3 percent next year, hit hard by its reliance on Russian gas after Moscow cut supplies to Europe in suspected retaliation for Western sanctions over the conflict.
Italy, whose industries are also dependent on gas imports, would see its GDP contract by 0.2 percent, the IMF said.
DIVIDED VIEWS: Although the Fed agreed on holding rates steady, some officials see no rate cuts for this year, while 10 policymakers foresee two or more cuts There are a lot of unknowns about the outlook for the economy and interest rates, but US Federal Reserve Chair Jerome Powell signaled at least one thing seems certain: Higher prices are coming. Fed policymakers voted unanimously to hold interest rates steady at a range of 4.25 percent to 4.50 percent for a fourth straight meeting on Wednesday, as they await clarity on whether tariffs would leave a one-time or more lasting mark on inflation. Powell said it is still unclear how much of the bill would fall on the shoulders of consumers, but he expects to learn more about tariffs
NOT JUSTIFIED: The bank’s governor said there would only be a rate cut if inflation falls below 1.5% and economic conditions deteriorate, which have not been detected The central bank yesterday kept its key interest rates unchanged for a fifth consecutive quarter, aligning with market expectations, while slightly lowering its inflation outlook amid signs of cooling price pressures. The move came after the US Federal Reserve held rates steady overnight, despite pressure from US President Donald Trump to cut borrowing costs. Central bank board members unanimously voted to maintain the discount rate at 2 percent, the secured loan rate at 2.375 percent and the overnight lending rate at 4.25 percent. “We consider the policy decision appropriate, although it suggests tightening leaning after factoring in slackening inflation and stable GDP growth,”
Meta Platforms Inc offered US$100 million bonuses to OpenAI employees in an unsuccessful bid to poach the ChatGPT maker’s talent and strengthen its own generative artificial intelligence (AI) teams, OpenAI CEO Sam Altman has said. Facebook’s parent company — a competitor of OpenAI — also offered “giant” annual salaries exceeding US$100 million to OpenAI staffers, Altman said in an interview on the Uncapped with Jack Altman podcast released on Tuesday. “It is crazy,” Sam Altman told his brother Jack in the interview. “I’m really happy that at least so far none of our best people have decided to take them
As they zigzagged from one machine to another in the searing African sun, the workers were covered in black soot. However, the charcoal they were making is known as “green,” and backers hope it can save impoverished Chad from rampant deforestation. Chad, a vast, landlocked country of 19 million people perched at the crossroads of north and central Africa, is steadily turning to desert. It has lost more than 90 percent of its forest cover since the 1970s, hit by climate change and overexploitation of trees for household uses such as cooking, officials say. “Green charcoal” aims to protect what
RSS