The forecasts are a setback for German Chancellor Olaf Scholz after he insisted his government would avoid a recession. Photo: Simon Wohlfarth/Bloomberg
The UK will outperform Germany this year, according to the International Monetary Fund, after its worst fears about the UK economy were not realized.
The IMF expects the UK economy to grow 0.4% this year, it said on Tuesday, reaffirming forecasts released in May as part of its annual economic review.
This represents a big improvement from the contraction by 0.3%, which was predicted in April, when the UK was predicted to become the most underperforming major economy in the world, including Russia.
The fund said the improvement in the UK reflects «stronger-than-expected consumption and investment due to the confidence effect from falling energy prices.»
Business confidence improved for the first time in two years, a separate study found by the Confederation of British Industry, while British consumers were the most optimistic in 18 months, according to PwC.
The IMF said the Windsor Framework Agreement, announced by Rishi Sunak in February, also helped trade between Northern Ireland and the UK thanks to «lower post-Brexit uncertainty.»
The UK's financial sector also remained «resilient» after the collapse of Silicon Valley Bank in the US and Credit Suisse in Switzerland.
Meanwhile, the German economy is expected to shrink by 0.3% this year, a blow to Chancellor Olaf Scholz, who earlier this year insisted that that Germany will avoid reductions.
The IMF blamed «weak manufacturing output» for its decision to cut its forecast from its previous 0.1 percent contraction.
A separate survey data released by the German Ifo institute showed that business confidence has worsened in July for a month in a row. Analysts warn that the German economy will struggle to break out of recession this year.
Over the past two quarters, the economy has contracted, meeting the technical definition of a recession.
0107 German GDP growth
In May, the IMF warned that the German economy was entering a «new normal.»
Growth will be hampered by an aging population and «geo-economic fragmentation», which will hit the German economy hard due to its status as an industrial hub with close trade ties to China and the US.
Germany's downgrade means that in this year it is expected to become the most inefficient major economy in the world.
Carsten Brzeski, economist at ING, said that Germany is «stuck in a twilight zone between stagnation and recession — the so-called 'slow cession' — and urgently needs a new reform agenda.”
Individually, the numbers show that business lending in the euro area has fallen at the fastest pace ever due to a sharp rise in interest rates, the European Central Bank warned.
According to the ECB's quarterly study, which has been conducted since 2003, Demand for loans fell faster than during the financial crisis or public debt reduction in the three months before June.
Despite economic clouds in Europe, the IMF raised its forecast for global growth from 2.8% in April to 3%.
However, he warned that the UK and other advanced economies will find it difficult to tame inflation over the next two years, and the head of the Fund, an economist, said that living standards may never match the growth seen in the past.
Inflation in the UK
Mr Gurinsha said: “Prospects for medium-term growth in per capita income over the past decade faded.»
The IMF said inflation is likely to remain stubbornly high for the next two years as central banks struggle to tame skyrocketing prices. prices by 15 percent, which could keep global inflation high.
He said the deal last year brokered by the UN, Turkey and Russia, which ensured that Ukraine, one of the world's breadbaskets, could continue to send its exports through the Bosphorus, «has helped a lot to ensure that there is enough grain for the whole world in the past.» year.» «.
Russia's decision to pull out of the deal «is likely to put upward pressure on prices,» he added.
Though he said the IMF is «still evaluating where we're going to land,» he added he that «a reasonable estimate is for grain prices to rise somewhere in the range of 10 to 15 per cent.»
The IMF recently said that UK inflation will not fall to its target of 2 per cent until then until the second half of 2025.
“Obviously, the battle against inflation is not yet won,” said Mr. Gurinshas.
However, refuting Andrew Bailey’s wage arguments , Mr Gurinsha said the increase in workers' wages was «welcome», adding that he was «confident» that «there is scope for real wages to recover without triggering a wage-price spiral.»
The Governor of the Bank of England has previously warned that wage demands are driving up prices and making it difficult for the Bank to return inflation to its 2 percent target.
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