Euro area recovering gradually; modest acceleration projected: IMF

Increasing real wages along with some drawdown of household savings are contributing to consumption in the zone, while the projected easing of financing conditions is supporting a recovery in investment, IMF noted after its executive board concluded its 2024 consultation with the euro area recently.

Inflation is also coming down as past monetary tightening and the decline in commodity prices are having an effect on prices in the euro area. However, disinflation will continue to be gradual, and the inflation is projected to return to target in the second half of 2025, an IMF release said.

Risks to growth are on the downside while they are two-sided for inflation. Past monetary policy tightening could put a stronger drag on output than expected.

Adverse external developments like intensifying geopolitical tensions or weaker global demand could also hold back growth, the IMF noted.

Were labor markets to weaken, the projected consumption growth may not materialise. Such developments could also drag inflation below the baseline.

However, there are counterbalancing upside inflation risks from stronger-than-expected wage pressures or continued high company profits margins. Renewed commodity price spikes or shipping disruptions could also put upward pressure on inflation, it added.

Fibre2Fashion News Desk (DS)