Wide Angle Shot: IMF cautious, lowest growth in 10 years Euro area/USA

In the course of its July forecast update, IMF has come closer to our cautious view for the euro area. Even without further escalation and uncertainties, the G2 economies (euro area, US) face their weakest growth in a decade in 2023. High inflation and restrictive financing conditions have their price. In CE/SEE, key interest rates are already as high as in the "CE/SEE bonanza period" before the Global Financial Crisis. The IMF has slightly improved its forecast for Russia.

Update Economic Outlook: Gloomy perspectives

We have repeatedly addressed the fact that we have long considered many medium-term economic forecasts (i.e. especially for 2023), such as those of the International Monetary Fund (IMF), to be too optimistic already in the spring (see here: Wide Angle Shot: (Too) positive IMF forecasts for CE/SEE & Europe? Not so for EE!). In the meantime, the IMF forecasts for the euro area in particular have come close to our baseline scenario (see table). The IMF now also expects GDP growth of only 1.2% in 2023 for the euro area (in April, IMF expectations were still above 2%), according to its July short update of the World Economic Outlook (under the title "Gloomy mood and greater uncertainty"). For the US economy, the IMF has also revised its outlook for 2023 significantly downwards. GDP growth of only 1% is expected here in 2023 (below the euro area)! This means that 2023 should see the weakest G2 growth (euro area, USA) in a decade.

G2 GDP growth (euro area & USA)*
IMF, RBI/Raiffeisen Research
real, % yoy, euro area and US equally weighted, euro area forecast Raiffeisen Research, US IMF

This scenario will only work if there is no complete escalation in the energy sector with Russia in Europe. However, it should be emphasised that the noticeable slump in growth in the G2 economies is also linked to the consequences of high macroeconomic inflation and the associated faster-than-expected interest rate hikes in the context of explicitly disinflationary monetary policies.

The IMF sees risks to the economic outlook tilted to the downside, with inflation risks (even in a negative scenario) tilted to the upside. In line with the IMF's global trend of even more pronounced monetary tightening in emerging markets, policy rates in our core CE/SEE markets have also reached pre-Global Financial Crisis levels of 2008 – we are still far from such levels in the G2 economies.

Key interest rates CE/SEE vs. global trend
BIS, national sources, RBI/Raiffeisen Research
* CE/SEE: CZ, HU, PL, RO; leading global central banks: Fed, ECB, UK, Canada, Switzerland, Sweden

Looking ahead, the IMF expects some financing problems and/or debt restructurings in some selected emerging markets. However, except for Ukraine, which is directly affected by the current geopolitical escalation, we expect significantly fewer risks than in the global emerging markets context in our CE/SEE markets — despite current selective currency turbulences such as in Hungary. Interestingly, Russia is one of the few cases and emerging markets for which IMF has raised its growth for 2022 and slightly lowered it for 2023 (the IMF has not published any new forecasts for other CEE countries). We thus see the IMF close to our Russia scenario. This makes it clear that Russia, even according to the new IMF assessment, can avoid disaster scenarios, as feared in part by some forecasters, and is currently even acting from a position of "perceived" economic strength; the mirror image of this is probably the highest current account surplus in relation to GDP since 2000 (see also here).

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Gunter Deuber is heading the Economics and Financial Analysis division (Raiffeisen Research) at Raiffeisen Bank International (RBI) since 1 January 2021. Since 2011, Gunter Deuber has held leading positions in RBI's Economic and CEE Research and has continuously expanded the cooperation with his research colleagues in RBI’s subsidiary banks in CEE. Since the early 2000s, he has been analysing economies, banking sectors and market topics with a focus on CEE and EU/euro area topics for RBI in Vienna, but also in the international (investment) banking context in Frankfurt. He regularly presents the views of Raiffeisen Research and his research team at meetings with investors and clients. He is a well sought-after speaker at landmark events in the finance and banking industry and a guest lecturer at several universities/teaching institutions. In 2019, he was nominated for the US State Department's IVLP (International Visitor Leadership Program). Gunter has published several edited volumes on Euro/EU crisis issues and published various articles in professional journals and industry magazines. Outside the office, Gunter enjoys travelling with his family and long-distance running.