IMF Sees Tepid Recovery In Germany, Warns Of Downside Risks Including Russian Gas Shutoff

IMF Sees Tepid Recovery in Germany, Warns of Downside Risks Including Russian Gas Shutoff

The International Monetary Fund on Monday said it expects a "tepid recovery" in Germany but warned of possible downside risks, including a potential shutoff of gas from Russia, since the country would need two full years to find alternative supplies

WASHINGTON (Pakistan Point News / Sputnik - 23rd May, 2022) The International Monetary Fund on Monday said it expects a "tepid recovery" in Germany but warned of possible downside risks, including a potential shutoff of gas from Russia, since the country would need two full years to find alternative supplies.

"The baseline scenario is for a tepid recovery, but risks are skewed downward," the IMF said in a statement on its 2022 Article IV mission. "The greatest threat is a persistent and complete shut-off of Russia's gas exports to Germany and Europe more broadly, as it would take at least two years to fully replace the missing supplies in Germany."

Other risks to Germany's economy include tighter sanctions on Russia, as well as supply disruptions caused by the conflict in Ukraine, or by new COVID restrictions in the country or abroad, the IMF said.

The IMF expects Germany's economic growth to slow to about 2% in 2022 from 2.9% the previous year, before picking up in 2023 to slightly above 2% if energy prices subside and supply chain issues ease.

"Growth would then decline toward potential after 2024," the IMF said.

In the medium-term, the IMF expects that output will remain below the pre-pandemic levels due to elevated energy prices, weaker external demand and other factors directly or indirectly related to the conflict in Ukraine.

"Inflation is expected to stay elevated at about 6 percent in 2022 and moderate to about 3 percent in 2023. However, growth could prove weaker and inflation higher than in the baseline," the statement said.

The IMF also noted that persistently high inflation could prompt major central banks to tighten their monetary policies faster than expected. Such a situation could lead to a sharp tightening in financial conditions and corrections in asset prices, the statement said.