June 23. 2024. 12:30

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German MEP blames ECB for IMF’s recession forecast

EU lawmaker Rasmus Andresen has blamed the European Central Bank for the forecast contraction of the German economy by 0.1% according to an IMF forecast even if other forecasts projected a slight growth of around 0.3%.

In its “Global Economic Outlook”, the International Monetary Fund (IMF) gives a grim forecast of the world economy for 2023.

“Tentative signs in early 2023 that the world economy could achieve a soft landing – with inflation coming down and growth steady – have receded amid stubbornly high inflation and recent financial sector turmoil,” the IMF wrote.

For Germany, it expects the economy to shrink by 0.1%, contrary to a consortium of German economic institutes which had predicted a growth rate of 0.3% in 2023.

With this, Germany would be one of only three countries in the Euro area with negative economic growth rates, with Lithuania (-0.3%) and Estonia (-1.2%) being the other examples. Other big countries from the economic bloc, such as France (+0.7%), Italy (+0.7%) and Spain (+1.5%), fare better.

For the euro area, the IMF expects a growth rate of 0.8%, which is lower than for most other advanced economies, such as the US, Canada, Korea or Australia.

“The ECB’s too aggressive interest rate policy and too little public investment are damaging our economic development,“ Andresen wrote on Twitter.

“We need a course correction in fiscal and monetary policy,” he added.

Since July 2022, the ECB has increased interest rates by 3.5 percentage points to combat the high inflation in the Euro area.

This increases the capital costs of investments, reducing investment activity in the economy, which slashes overall demand to lower pressure on prices. It is also meant to signal to investors and consumers that central banks are serious about fighting inflation.

The IMF also notes that efforts of central banks worldwide to fight inflation come with a cost.

“Side effects from the fast rise in policy rates are becoming apparent, as banking sector vulnerabilities have come into focus and fears of contagion have risen across the broader financial sector, including non-bank financial institutions,” the IMF report adds.

(Jonathan Packroff | EURACTIV.de)