US, Europe economies diverge after pandemic as war rages

The US economy is showing resilience after bouncing back from the Covid-19 pandemic but the eurozone's prospects are gloomier, according to IMF forecasts released Tuesday -- due to recent crises and deeper problems.

In its latest World Economic Outlook report, the International Monetary Fund (IMF) revised its 2025 eurozone growth forecast down from 1.5 per cent in July to 1.2 per cent -- as challenges in manufacturing bog down countries, including Germany.

In contrast, the world's biggest economy is anticipated to grow 2.2 per cent next year.

The United States and eurozone have seen their paths diverge over the past two years, with the US economy logging 2.9 per cent growth in 2023, significantly above the eurozone's 0.4 per cent, IMF figures show.

The fund expects the US economy to expand by 2.8 per cent in 2024, again higher than the euro area's 0.8 per cent growth forecast.

This is because "Europe has experienced two shocks, while the United States has only experienced one," EY chief economist Gregory Daco told AFP.

After rebounding from the pandemic, which led to historic recessions around the world, European countries took a hit from the effects of Russia's invasion of Ukraine in February 2022.

This once again sharply raised energy prices and snarled supply chains in the region, with the United States experiencing less of an impact given its distance from the conflict and greater energy independence.

In particular, the war has made a significant impact on the eurozone's biggest economy — Germany — which saw its economy shrink in 2023.

The German economy is set to see no growth this year, only expanding 0.8 per cent in 2025, said the IMF's latest report.

The 2025 figure was revised down from July's projection of 1.3 per cent growth.

"Persistent weakness in manufacturing weighs on growth for countries such as Germany and Italy," said the IMF.

Although Italy's domestic demand is set to benefit from a European Union-financed recovery plan, "Germany is experiencing strain from fiscal consolidation and a sharp decline in real estate prices," the fund added.

But it noted that "in the euro area, growth seems to have reached its lowest point in 2023."