Rampant inflation and weak growth in a context 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 prospects have 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 eurozone countries will experience a technical recession”, namely a decline in gross domestic product (GDP) in two successive quarters, adds Alfred Kammer, director of the IMF’s European department. The euro zone, in fact, should grow by 3.1% in 2022, still driven by the post-Covid recovery in the first half, but only by 0.5% in 2023, the institute predicts. In April, the IMF still expected 2.3% for 2023.
In detail, Germany (−0.3%) and Italy (−0.2%) are expected to experience a recession in 2023, more affected by the energy crisis than France (0.7%) or Italy. Spain (1.2%) . The region designated by the Washington institution as emerging Europe – mainly Central, Eastern and Southern Europe – is expected to grow (excluding the countries affected by the conflict: Ukraine, Belarus and Russia) by 4.3% this year. and 1.7% in 2023, compared to 2.8% forecast in April.
Laminated purchasing power
Ukraine is expected to see its GDP contract by 35% in 2022. IMF economists are wary of any predictions for 2023 relating to Kiev, because no one knows how far the human and material destruction caused by the Russian aggression crisis will extend. “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 that could further disrupt supply chains, the nuclear threat or even the complete closure of the remaining Russian gas flows.
Combined with a harsh winter, this could lead to shortages, rationing and cost up to 3% of additional GDP to the most exposed countries, especially landlocked countries in Central and Eastern Europe. “Energy security will also be a problem in 2024, as it could be particularly difficult to replenish gas stocks in 2023”adds Kammer.
It is not surprising that inflation, triggered by the energy crisis – but not only – is a serious problem for the entire continent. On average, energy and food prices explain 70% of cumulative inflation up to August in the euro area 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 rise 8.3% in 2022 and 5.7% in 2023 in the euro area, the Baltic countries are particularly affected (17.6% in Lithuania in 2022). Just like the Balkans, where in 2022 it will be above 10% almost everywhere.
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