IMF Cuts Eurozone Growth Forecast to 0.9%: Impact of Energy and Middle East War

The International Monetary Fund (IMF) cut its eurozone growth forecast to 0.9% for this year, down from 1.1% predicted in April; and raised its inflation forecast to 2.8%, up from 2.6% in April. The IMF said the main reason was the Middle East war.

The IMF noted that if energy prices remain high, they could further push up inflation and inflation expectations; meanwhile, falling confidence or financial stress could weaken demand. The IMF believes that renewed escalation of the Middle East conflict, delays in repairing energy infrastructure, the intensifying Russia-Ukraine war, and further trade policy adjustments will bring additional economic downside risks.

The ECB raised rates for the first time in nearly three years and may hike once more later; total rate hikes for the year could reach 0.5 percentage points.

The IMF warned eurozone finance ministers not to rush into measures to alleviate the impact of high energy prices on national economies, and said broad fiscal support is unnecessary.