BRUSSELS — The International Monetary Fund could be about to cut growth forecasts for the euro area as concerns over the omicron Covid variant and persistently higher inflation grow.
In October, the Fund stated that it expects growth of 4.3% for the euro area economy in 2022. Now the Fund has made a warning about the possibility of minor revisions when it releases new estimates next month.
Kristalina Georgieva, IMF’s Managing Director, said to CNBC that there may be a slight downgrade for the euro area.
Growing supply pressures, high energy pricesThe top concern for the Fund is the introduction of social restrictions in certain euro-area countries. The Fund has been notified of this. omicron Covid variant is reportedIn an increasing number countries all over the globe.
According to IMF the greatest threat to economic growth is the pandemic.
“We’ve been screaming at the mountain top that it isn’t fair!” [the]Global economy is at greatest risk from pandemic. Our firm support for vaccinating the entire world has been strong. Georgieva stated, “Progress is made. But not enough.”
Due to rising Covid cases, and the introduction of the new variant, several euro-area countries have put social restrictions in place that target those who are not vaccinated. Austria and Germany, among others, have placed restrictions on those not yet vaccinated. Greece has announced penalties for people over 60 who are not vaccinated.
According to the governments, these are measures that aim to preserve the health systems of the nations. In practice, these steps also prevent a full shutdown — and the accompanying economic ramifications.
Georgieva responded to a question regarding whether targeting unvaccinated people was the best way to stop economic destruction. [a]There is a correlation between [the]Speed of recovery and level of vaccinations. We support vaccinations as a priority. We have one message: Vaccinate everyone, everywhere.
According to the Fund, last week’s meeting was a success. U.S. Federal ReserveShould speed up its tightening of monetary policy given higher inflation readings. Its message to the European Central Bank however is slightly different.
Georgieva stated that “simply the conditions don’t exist.” “We anticipate, in 2022. [euro area]To fall to below 2.2%, inflation We may see the Chinese economy shrinking and/or real estate markets crashing unless we do something about it. The ECB can respond if this happens. However, it must not be subject to wage pressures and other factors. [the]”The ECB should be accommodative.”
The IMF projects that the euro area inflation will decline from 2022 to 2022, and remain under the 2% target of the ECB in the medium-term.
The IMF warned wage negotiations are an area that should be closely monitored. The IMF reported Monday that wage negotiations would be more common than previous years due to many contract renewals being put on hold because of the pandemic. This will require close monitoring.
Inflation’s impact on households hinges upon wage growth. Wage increases are a critical component. Consumers will be less able to buy if their wages drop below inflation. This could have an effect on the pace at which the central banks tighten.
Market participants are eagerly awaiting next week’s outcome at the ECB meeting to see how the central banking will respond to higher inflation pressures and news of the omicron Covid variation.
The Fed had indicated last week that it may taper faster than expected. To increase liquidity, the Chinese central banking announced Monday that they would be reducing their reserve requirement ratio, which is the amount of reserves required by banks to maintain.
Georgieva stated that, in comparison to the beginning of the pandemic in 1918, the current conditions are quite different in today’s world. Different stages of the pandemic and different vaccination levels, different recovery rates, different debt pressures, etc. What we want to tell our members is to adjust your policies according to your particular circumstances.
Friday’s announcement by the IMF indicated that they will examine their research process in order to protect data integrity. Two months have passed since the announcement. a data rigging scandal emerged at the World BankThis covered Georgieva’s time as CEO of the institution.
Georgieva responded to a question regarding whether or not the IMF’s review process was intended to restore its reputation.