IMF warns supply limitations in Europe could last into 2023
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Without the constraints, last year's growth could have been 2 percent higher.
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The spread of Omicron "has injected a new uncertainty." (Reuters)
The IMF cautioned Thursday that supply bottlenecks that slowed growth in Europe last year might endure until 2023.
According to the blog by IMF, without these limitations, which included manufacturing closures and component shortages, growth last year would have been around two percentage points higher.
This means roughly one year's worth of growth in normal pre-pandemic conditions for many European countries.
Managing director Kristalina Georgieva and other authorities noted that the spread of Omicron "has injected new uncertainty."
Last month, the International Monetary Fund warned that inflation in 2022 will be higher than expected and that the spread of the Omicron variant will only exacerbate this, by the worsening global economy.
"Europe and China have imposed new restrictions and more disruptions could follow. All in all, supply disruptions could last for longer, possibly into 2023," they said.
Manufacturing production in the eurozone would have been 6 percent higher if supply issues had not arisen.
The research ascribed 40 percent of the supply shocks to pandemic-caused shutdowns, which it claimed should be temporary.
Countries with the highest reliance on global supply chains were impacted the worst, with the IMF estimating that output in Germany and the Czech Republic would have been 14 percent higher.
The IMF advocated for addressing "supply bottlenecks directly with regulatory measures wherever possible," such as increasing port operating hours, expediting permits necessary for transportation and logistics activities, and pushing immigration to alleviate labor shortages.
The blog also stated that expenditure measures may be employed to assist the issue, but that "support should... be precisely targeted," and cautioned against broad policies that could increase demand and worsen bottlenecks and inflation.
Officials concluded that "The more successful regulatory and targeted fiscal measures are in alleviating the supply bottlenecks, the less likely it is that policymakers will be forced to dampen down aggregate demand and economic growth to contain inflation."
