The only G20 country to be in recession this year, Russia should remain on this trend in 2023 and even beyond, IMF chief economist Pierre-Olivier Gourinchas said on Tuesday in an interview with AFP.
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But Europe will not be spared from the energy shock caused by the invasion of Ukraine, which is hitting the continent’s main economies hard, particularly Germany and Italy, which are highly dependent on gas.
Question: Russia will be the only G20 country in recession this year, will the trend continue in the medium term?
Answer: We project a recession for 2022, certainly less marked than initially anticipated, but which will continue in 2023. And if we look beyond, we believe that the trend will continue downwards, there is no recovery in sight for the Russian economy. This will collectively represent a very significant shock.
Nevertheless, it has held up relatively better this year, for two reasons. First of all energy prices, which have had a boost effect for the economy, and this is a very important factor. Then this economy is holding up thanks to a combination of the budgetary support provided and the fact that the banking sector remains afloat, all of which makes it possible to stabilize domestic demand. But the shock still persists.
Q: Germany and Italy will suffer particularly in Europe, with a recession expected in 2023. Should they expect the worst or can they limit the impact?
R: Both countries face serious headwinds. Energy plays an important part in the revision of our forecasts insofar as these two countries are very dependent on gas, which has become very expensive.
The consequence is that there are a lot of fears, in homes and businesses, especially in sectors very dependent on energy. In this sense, a budgetary response can be adapted to support the most vulnerable households and critical sectors.
But (…) we must ensure that it will not reinforce this crisis by stimulating demand, with for example a price ceiling which would limit the cost for consumers.
Especially since the European Central Bank is trying to bring down inflation, which requires a drop in demand, so budgetary support should not go in the opposite direction. But it is a difficult exercise for governments.
Q: France, for its part, seems a little more spared. Does this mean that the country will be able to avoid recession?
R: There was higher growth than some European countries in 2022, but we anticipate a slowdown in 2023, to 0.7% growth. It has somewhat the same causes as elsewhere in Europe, the country is affected by energy prices, insofar as the energy market in Europe is partly integrated. It is also linked to the slowdown in the growth of our partners, since Germany and Italy are very important trading partners. Finally, the tightening of financial conditions is also having an effect.
We are starting from a situation where the labor market is quite robust, with a historically relatively low level of unemployment (…), so we are not yet in recession. But it remains fragile, additional shocks can derail the trajectory.
We must also remember that the energy crisis is going to be persistent, it does not concern that this winter, the energy reorientation will be lasting, it will take time, it is not certain that these problems will be resolved in a year.