The IMF warns of a harsher impact of the Middle East war on the Eurozone. The combination of expensive energy and weak growth can stifle both the economy and investors.
A shock rise in energy prices in the wake of the war in the Middle East, now in its fourth month, could hurt the eurozone economy more than previously expected, the International Monetary Fund (IMF) warned on Thursday. TASR informs about it based on the AFP report.
- The eurozone economy will grow more slowly than expected.
- Inflation in the euro zone should reach 2.8 percent.
- The blockade of the Strait of Hormuz threatens oil supplies.
- The war in the Middle East increases energy prices.
The IMF predicts that the economy of the monetary union will grow by 0.9% this year, which is a decrease from the April forecast of 1.1%. In 2027, growth should accelerate to 1.2%. The fund also raised this year’s inflation estimate to 2.8% from the 2% level it forecast in February before the start of the US-Israeli war against Iran.
The shock may increase inflation
In retaliation for the attacks, Tehran effectively blocked the Strait of Hormuz, through which under normal conditions about a fifth of the world’s oil and natural gas supplies passed. A lingering energy shock could push up inflation and inflation expectations further, while a drop in confidence could weaken demand, the IMF said.
In response to the decision of the European Central Bank (ECB), which raised interest rates for the first time in almost three years on Thursday, the fund drew attention to challenges for monetary policy in the eurozone. “The immediate priority is to keep inflation expectations anchored and mitigate the impact of the shock within the available fiscal space, i.e. without excessive government spending that would further increase public deficits,” the IMF said. The ECB raised its key deposit rate from 2% to 2.25%. The IMF now expects a further increase of a quarter of a percentage point by the end of this year.
