Germany, Italy to face recession as IMF cuts global growth forecast

Germany and Italy will slip into recession next year, becoming the first advanced economies to contract in the wake of the Russia-Ukraine conflict.

The German economy is now expected to shrink by 0.3 percent in 2023, the IMF said on Tuesday in an update to its World Economic Outlook from July, which had forecast 0.8 percent growth for the country.

Italy, whose industries are also dependent on gas imports, will see its gross domestic product contract by 0.2 percent - also a sharp downgrade from 0.9 percent growth July.

While the eurozone will avoid a recession, the output of the 19-nation single currency area will slow sharply, eking out 0.5 percent growth - worse than previously forecast by the IMF.

The conflict on Europe's eastern flank has sent inflation soaring higher as energy prices have jumped, forcing the European Central Bank to hike interest rates to cool the economy, at the risk of precipitating a contraction.

"Weak 2023 growth across Europe reflects spillover effects from the war in Ukraine, with especially sharp downward revisions for economies most exposed to the Russian gas supply cuts," the IMF said.

The report also cited the "tighter financial conditions, with the European Central Bank having ended net asset purchases and rapidly raising policy rates by 50 basis points in July 2022 and 75 basis points in September 2022."

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Global growth forecast lowered

Global growth is expected to slow further next year, the IMF also said on Tuesday, downgrading its forecasts.

"This year's shocks will re-open economic wounds that were only partially healed post-pandemic," said International Monetary Fund eco nomic counsellor Pierre-Olivier Gourinchas in a blog post accompanying the fund's latest World Economic Outlook.

More than a third of the global economy is headed for contraction this year or next, and the three biggest economies – the United States, European Union and China – will continue to stall, he warned.

"The worst is yet to come and, for many people 2023 will feel like a recession," said Gourinchas.

In its report, the IMF trimmed its 2023 global GDP forecast to 2.7 percent, 0.2 points down from July expectations.

Its world growth forecast for this year remains unchanged at 3.2 percent.

The global growth profile is its "weakest" since 2001, apart from during the global financial crisis and the worst of the pandemic, said the IMF.

This reflects slowdowns for the biggest economies, including a US GDP contraction in the first half of 2022 and virus lockdowns in China on top of a property market crisis.

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