IMF: Europe best resisted the war in the Middle East thanks to renewables

O The International Monetary Fund (IMF) today considered that the European economy resisted better than originally planned the impact of the prolonged war in the Middle East, partly thanks to progress in the energy transition.

“ In general, Europe faced the initial impact of the conflict much better than was feared,” said the director of the IMF European Department, Mateusz Szczurek, in presenting regional economic perspectives during the IMF Annual Meetings and the World Bank in Bangkok.

According to the responsible, the growing adoption of renewable energy has reduced dependence on imported fossil fuels, which has helped dampen the effects of the conflict’s energy shock.

“ This is one of the successes of European policies. Growth is lower than expected before the war, but not as low as we feared ", said.

Despite this, Szczurek warned that high energy prices will continue to penalise economic activity and that uncertainty remains high.

“The growth remains fragile and mediocre,” he said.

For the euro area, excluding Ireland, the IMF expects growth of 1.2% in 2026, close to the growth potential of most advanced economies in the region.

The institution estimated a growth of the Portuguese economy of 2.1% this year and 1.9% next year, but forecasting that Portugal will record a zero budget balance this year and also in 2027.

In the countries of Central, Eastern and South-Eastern Europe, growth is expected to reach 2.2% in 2026, before modestly accelerating in 2027, remaining below the average of about 3.5% in recent decades.

With regard to inflation, the institution expects it to remain above the euro area target until 2028 and for longer in some Central and South-East European countries.

“ In an environment like this, macroeconomic policy must be conducted with care and prevent inflationary pressures from becoming permanent”, he said.

According to the IMF, monetary policy may have to maintain a restrictive stance, while fiscal policy should not contribute to aggravating price pressures.

Szczurek pointed out that energy cost support measures were largely withdrawn, but warned that governments face growing expenditure needs, particularly in the areas of defence, health and pensions.

“ Many countries will have to combine fiscal consolidation with reforms that boost growth to maintain sustainable public debt,” he said.

He stressed that the main message from this year’s regional economic perspectives is the need for Europe to bet on structural reforms to strengthen innovation, productivity and resilience.

“ Protectionist measures and comprehensive industrial policies can buy time, but not prosperity,” he said.

Among the priorities identified by the IMF is the continuation of the energy transition. The fund also advocates deepening the single European market and removing barriers in the markets for goods, services, labour, capital and energy.

“ The fragmentation of the single market limits the capacity of European companies to grow and reduces the possibility of making the best use of the savings of the European economy,” Szczurek said.

The responsible added that many of the productivity gains can be achieved through national reforms.

“What needs to be done varies from country to country, but increasing labour supply, improving skills, reforming labour markets, insolvency regimes and tax systems can help companies expand and reduce productivity differentials,” he said.

Despite the challenges, Szczurek considered there were encouraging signs of gradual reduction. Some economic barriers within the European Union.