IMF: EU Threatened by Recession, Inflation Approaches 5 Percent

ILLUSTRATION UNSPLASH/Paolo Margari

JAKARTA - The International Monetary Fund (IMF) has warned the European Union (EU) that it could potentially approach a recession with inflation approaching 5 percent due to the conflict in the Middle East.

"We see in a more severe scenario, a sustained supply shock and tightening financial conditions could push the EU closer to a recession with inflation close to 5 percent," said IMF European Department Head Alfred Kammer, Friday, April 17, reported by ANTARA from Sputnik.

He stressed that no European country would be spared from the impact.

The IMF also expects the European Central Bank to raise its benchmark rate by 50 basis points by the end of 2026, amid rising short-term inflation expectations.

According to Kammer, the policy response could change depending on the development of the global energy market in the next few weeks as well as the economic conditions of the euro area.

"With eurozone inflation close to target and medium-term expectations relatively stable, the European Central Bank still has time to monitor the impact of the conflict before taking further steps," he said.

Kammer said the main impact of the conflict on the EU was through rising energy prices.

"Industrial energy prices in the EU are now about twice as high as before 2022 and much higher than in the US," he said.

He added that this condition was triggered by dependence on energy imports and fragmentation of the energy market in the region.

For the UK, the IMF assessed that tight monetary policy needed to be maintained to contain inflationary pressures.

The IMF also lowered its forecast for British economic growth for 2026 more sharply than other G7 countries. Inflation in the country is expected to reach 3.2 percent this year.

British Finance Minister Rachel Reeves said the escalation of the Middle East conflict posed a significant challenge for her country.