The IMF has said that while inflation has abated in the advanced European economies, progress remains uneven in other regions of the continent.
The remarks came in the organisation’s latest Economic Outlook for Europe. Alfred Kammer, director of the European department at the IMF, said a ‘moderate recovery’ was ongoing, but financial conditions were still tight as the easing cycle needed time to take effect.
He added: “Our main message today is that Europe’s recovery is falling short of its full potential. And more importantly, the medium-term outlook is no better. Europe has fallen behind.”
Kammer said there was to be a modest increase in growth going into next year, with the European Central Bank to reach its inflationary target by the middle of 2025. However, for countries in central, eastern, and south-eastern Europe, this target would not be reached until 2026.
He continued: “Central banks should pursue a smooth loosening path in advanced economies, and they need to be more careful and ease more cautiously in several CESEE countries, as real wages may outpace productivity growth there. We also recommend tightening the fiscal stance across most of Europe. We are expecting a recovery, but deficits are too large to stabilise public debt.”
Kammer added: “[…] the urgency for policy action is even more acute when it comes to the medium-term, and that’s really what our report is focusing on. Europe has an underwhelming potential growth rate, and when we are looking at the medium-term, that is not changing.”
Kammer said, however, that there was some good news, singling out the fiscal rules framework on sustainability that has been agreed upon by the European Union.
He also outlined a number of steps to reinvigorate the economy, including open energy, telecommunications, and financial services sectors. These, he said, will bring in more private sector investment, dynamism, and innovation.
The press conference accompanied the release of the Regional Economic Outlook: Europe – A Recovery Short of Europe’s Full Potential, a new report from the IMF.
