A “toxic mix of high inflation and sluggish growth” weighs on Europe: “this winter more than half of the countries in the euro area will experience a technical recession, with at least two consecutive quarters” of negative growth. This was stated by Alfred Kammer, the head of the European Department of the IMF. Among the countries that will slide into a technical recession are Germany and Italy (which will have three consecutive quarters of contraction starting from the third quarter of 2022), the Fund specifies, observing that the “war in Ukraine will keep uncertainty high, with the balance of downside risks for growth and upside risks for inflation.
The Italian GDP is expected to grow by 1.3% in 2024 after the contraction of 0.2% in 2023. This is predicted by the IMF in its report on Europe, in which it notes that for European households the highest prices of energy will increase the cost of living by 7% in 2022 and by 9% in 2023. “Private consumption has already contracted in the first quarter of 2022 in France, Spain and Italy and, despite a recovery in the summer, are expected to remain weak in the second half of the year “.
In Europe’s advanced economies, including the euro area, tighter monetary policy will likely be needed in 2023 unless activity and inflation weaken more than expected, says Alfred Kammer, pointing out how to “keep raising interest rates is currently insurance against risks that would require even stronger and more painful central bank responses going forward. “
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