Europe's economy is projected to be badly hit by the energy crisis triggered by Russia's war in Ukraine, with at least half of the 19 countries that use the euro heading for a recession, the managing director of the International Monetary Fund (IMF) has said.
"The horizon has darkened significantly over the last year," Kristalina Georgieva told Euronews on Thursday.
"One year ago, we were recovering from COVID and we finished with over 6% global growth. And then two shocks: Omicron and Russia's war in Ukraine have not only interrupted the recovery but reversed it."
Georgieva sat down with Euronews Business Editor Sasha Vakulina after speaking at the "Making Markets Work For People" event in Brussels.
"The number one priority [is] to fight and win against inflation. What does that mean? Tightening financial conditions. Interest rates are going up," she noted.
"When central banks are stepping on the brakes, finance ministries cannot press the accelerator."
The IMF chief did not mince her words: the picture she painted of the global economy was unmistakably dark, with a worsening cost-of-living crisis and momentum slowing down in Asia and America.
For Europe, the outlook is even bleaker.
"Europe is affected more severely by the increase of energy prices. The heat on European economies is such that we actually expect half of the countries in the eurozone to experience at least two quarters of negative growth. In other words, a recession," she said, without naming the countries.
A recession is generally defined as two consecutive quarters of negative GDP growth.
"Just to give you a sense as to how significant the hit on Europe is, our pre-pandemic projections and our current projections differ by half a trillion euros," she said.
"In other words, the loss to the European people is quite, quite dramatic."
In its latest outlook, the IMF estimated the eurozone to expand by 3.1% in 2022 but just by a meagre 0.5% in 2023. Next year, Germany and Italy are projected to post -0.3% and -0.2% rates, respectively.
'2023 will be tougher than 2022'
Georgieva praised EU policymakers for providing "targeted, timely and temporary" support for households and companies under financial stress, and said the main focus should remain on energy savings to rebalance the supply-demand mismatch.
But great challenges lie ahead.
"I am not going to sugar-coat it: 2023 will be tougher than 2022. Next winter for Europe may be even harsher than this winter," she declared.
"Why? Because European policymakers acted very swiftly to fill gas storage. If conditions remain as they are with Russia not providing gas to Europe, how is this gas storage going to be filled next year?"
The EU has surpassed 93% of capacity in its underground storage facilities. The shopping spree, while successful, brought gas prices to all-time highs in August.
But Georgieva did strike a note of optimism, arguing the current energy crisis will be a major boost for green technologies in the same way the pandemic accelerated the digital transition.
"It is heartbreaking to see a war on our territory again, refugees again, and the tremendous suffering of people under siege again. We thought that this would never be repeated. And I am, in my mind, still wrestling with this image of Europe at war again," she said.
"The key question today in Europe is: Can Europe stay united and can the public be brought on board for this difficult time?"
Speaking about the Russian economy, Georgieva projected contractions in both 2022 and 2023, together with mid- and long-term damaging implications.
"One, [Russia] is losing access to technology that would have helped the country to modernise and diversify its economy. Two, it is losing people. The outflow of Russians, especially highly-qualified Russians, because of the war is hurting Russia," she said.
"And three, it is losing its role in the global economy."