Rampant inflation and weak growth against a backdrop of energy crisis and uncertainty linked to the war in Ukraine: this is the economic scenario that awaits Europe in 2023, and it is undoubtedly one of the worst possible. “The European outlook has darkened considerably”, warns the International Monetary Fund (IMF) in its new economic forecasts for the Old Continent, published on Sunday 23 October.
“The slowdown in growth is widespread, and more than half of the countries of the euro zone will experience a technical recession”, that is to say a decline in gross domestic product (GDP) over two consecutive quarters, adds Alfred Kammer, director of the European department of the IMF. In fact, the euro zone should grow by 3.1% in 2022, still driven by the post-Covid catch-up in the first half, but by only 0.5% in 2023, the institution predicts. In April, the IMF was still expecting 2.3% for 2023.
In detail, Germany (− 0.3%) and Italy (− 0.2%) should record a recession in 2023, more affected by the energy crisis than France (0.7%) or Italy. Spain (1.2%). The region that the Washington institution designates as emerging Europe – mainly Central, Eastern and Southern Europe – should, for its part, grow (excluding countries affected by the conflict: Ukraine, Belarus and Russia) 4.3% this year and 1.7% in 2023, compared to 2.8% forecast in April.
Laminated buying power
Ukraine is expected to see its GDP contract by 35% in 2022. IMF economists are wary of any forecast for 2023 concerning kyiv, because no one knows how far the human and material destruction caused by the crisis will extend. Russian aggression. “The risks will be exceptionally high during the winter of 2022-2023”they also warn, citing a possible escalation of the war, the risk of an increase in tensions in Asia likely to further disrupt supply chains, the nuclear threat, or even the complete closure of gas flows remaining Russian.
Combined with a harsh winter, this could lead to shortages, rationing, and cost up to 3% of additional GDP to the most exposed countries, in particular those landlocked in Central and Eastern Europe. “Energy security will also be an issue going into 2024, as it could be particularly difficult to fill gas stocks in 2023”adds Alfred Kammer.
Unsurprisingly, inflation, triggered by the energy crisis – but not only – is a major problem for the entire continent. On average, energy and food prices explain 70% of cumulative inflation until August in the euro zone, and 60% in emerging Europe. The sharp depreciation of European currencies, including the euro, against the dollar also played a role. While the price index is expected to soar by 8.3% in 2022 and 5.7% in 2023 in the euro zone, the Baltic countries are particularly affected (17.6% in Lithuania in 2022). Just like the Balkans, where it will be above 10% in 2022 almost everywhere.
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