UK growth expected lower on stretched consumer, eurozone growth revised up – IMF

Jonathan Lopez


MADRID (ICIS)–Growth domestic product (GDP) in the UK will fall by 0.6% in 2023 compared with 2022 as companies and households face tighter monetary conditions and elevated energy prices, the International Monetary Fund (IMF) said on Tuesday.

The new UK GDP forecast for 2023 represents a revision of 0.9 percentage points compared with the IMF’s World Economic Outlook which was published in October.

Elsewhere, growth prospects for the eurozone improved slightly with GDP in the 20-country currency union expected to grow by 0.7% year on year in 2023 as inflation moderates on the back of lower energy prices facilitated by state support.

This represents an upward revision of 0.2 percentage points since October.

Globally, the IMF said growth is expected to slow in 2023 and remain weak by historical standards as inflation and the war in Ukraine weigh on activity.

GDP forecasts (in %) 2022 2023 Difference for 2023 from October’s WEO 2024 Difference for 2024 from October’s WEO
Eurozone 3.4 0.2 0.2 1.6 -0.2
-Germany 1.9 0.1 0.4 1.4 -0.1
-France 2.6 0.7 0.0 1.6 0.0
-Italy 3.9 0.6 0.8 0.9 0.0
-Spain 5.2 1.1 -0.1 2.4 -0.2
UK 4.1 -0.6 -0.9 0.9 0.3

UK interest rate hikes in 2022 mean sharply higher borrowing costs for households and companies which could slow the key petrochemical-intensive construction sector further.

Moreover, the government’s plan to end to subsidies on energy bills in the spring will place an additional burden on already stretched consumers.

“The accelerated pace of rate increases by the Bank of England (BoE) and the European Central Bank (ECB) is tightening financial conditions and cooling demand in the housing sector and beyond,” said the IMF.

Although the forecast for the eurozone was upgraded, the IMF said that the services and manufacturing sectors in Europe remain in contraction territory due to poor consumer confidence.

“High-frequency indicators for the fourth quarter suggest that the manufacturing and services sectors are contracting. Consumer confidence and business sentiment have worsened. With inflation at about 10% or above in several eurozone countries and the UK, household budgets remain stretched,” said the Washington-based body.

However, the IMF did highlight some “positive surprises” for economic growth in Q3 2022, when Europe was dealing with the immediate aftermath of the war in Ukraine.

Better-than-expected growth during the quarter came on the back of stronger-than-expected private consumption and investment amid a tight labour markets as well as greater-than-anticipated fiscal support.

“[In Q3 2022] Households spent more to satisfy pent-up demand, particularly on services, partly by drawing down their stock of savings as economies reopened. Business investment rose to meet demand,” said the IMF.

“On the supply side, easing bottlenecks and declining transportation costs reduced pressures on input prices and allowed for a rebound in previously constrained sectors, such as motor vehicles. Energy markets have adjusted faster than expected to the shock from Russia’s invasion of Ukraine.”


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