Econostrum | Economic News in the Mediterranean

The IMF revises downwards the prospects of the euro zone

Written by Eric Apim on Thursday, April 21st 2022 à 10:55 | Read 275 times

The war in Ukraine, but also the effects of the Covid-19 which persist, will impact more strongly than expected the world and European economies according to the International Monetary Fund.

EU. In a publication dated Tuesday 19 April 2022, the International Monetary Fund (IMF) revised downwards its forecast for the world economic outlook and noted a sharp rise in inflation. This is due to the effects of the conflict in Ukraine, which are putting strong pressure on prices, while those of the Covid-19 have not yet been fully absorbed.

"Even before the war, inflation had accelerated in many countries due to supply-demand imbalances and government support during the pandemic, leading to a tightening of monetary policy. The latest containment measures in China could cause further bottlenecks in global supply chains," says Pierre-Olivier Gourinchas. For the IMF's Economic Advisor and Director of Research, author of this note, "beyond its immediate and tragic humanitarian consequences, the war will slow economic growth and accentuate inflation. Overall, economic risks have increased significantly and governments are now faced with increasingly complex trade-offs".

Seismic wave

IMF revises its January 2022 forecast (chart: IMF, World Economic Outlook)
IMF revises its January 2022 forecast (chart: IMF, World Economic Outlook)
The IMF now expects global growth of 3.6% for 2022 and 2023. Due to the indirect consequences of the war, the eurozone countries are expected to grow by only 2.8% in 2022, which is 1.1 percentage points lower than the IMF's January 2022 forecast of +3.9%. In October 2021, this figure was even 4.3%.

The countries in this zone are all lagging behind. For example, Germany (2.1% growth) is losing 1.7 points, Italy (2.3%) 1.5 points and France (2.9%) 0.6% points. This trend is in line with that of the Organisation for Economic Co-operation and Development (OECD), which estimates a loss of 1.4 points in March 2022.
For the 2023 outlook, the disparities widen with a eurozone average of 2.3% (-0.2 points), but 2.7% for Germany, 1.7% for Italy and 1.4% for France.

European inflation is now at 7.5%, an all-time high. "Although many countries will need to shore up their public finances, this should not prevent governments from offering targeted assistance to refugees displaced by the conflict, to households affected by rising food and fuel prices, and to those affected by the pandemic," advises the IMF's chief economist.

Russia is a major producer of oil, gas, metals, and Ukraine of wheat and corn. "The countries importing these products in Europe, the Caucasus, Central Asia, the Middle East, North Africa and sub-Saharan Africa are the first to suffer from this situation. Food and fuel price increases will hurt low-income households around the world, including in the Americas and Asia," says Pierre-Olivier Gourinchas. "Like seismic waves propagating from the epicentre of an earthquake, the economic impact of the war is felt far beyond the region, mainly through commodity markets, trade and financial linkages," the note says.

According to the Bretton Woods institution, the GDPs of Russia and Ukraine are expected to contract by 8.5 and 35 percent respectively in 2022.

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