IMF Says Euro Area Strengthening, Warns About High-Debt Nations

  • Euro-area recovery is becoming more ‘broad-based’: IMF
  • Core inflation in region is ‘undesirably low,’ fund says

The European Central Bank headquarters in Frankfurt, Germany.

Photographer: Martin Leissl/Bloomberg

The International Monetary Fund said the euro area’s economic recovery “has gained momentum” while it warned that some of the region’s high-debt countries may face difficulties when monetary policy accommodation is reduced.

“The euro area recovery is strengthening and becoming more broad-based,” the IMF said in a statement Thursday following its regular consultations with the 19-nation region. “There should be a renewed commitment to completing the banking union, advancing the capital markets union and creating a common fiscal capacity.”

Still, the Washington-based fund cautioned that “inflation expectations, however, remain subdued, with core inflation at undesirably low levels.” It said countries already operating at capacity should accept inflation above 2 percent “for a prolonged period.”

After years of stimulus from quantitative easing and negative interest rates, the European Central Bank has managed to spur economic growth but has so far failed to turn that into sustainable inflation at its goal of just under 2 percent. Data on Friday will probably confirm that consumer-price growth eased to 1.4 percent last month from 1.9 percent.

In its assessment of the euro area the IMF said “some high-debt countries may face rising sovereign spreads when monetary policy accommodation is reduced.”

The IMF also cautioned about risks from “uncertainties around global trade, Brexit, and geopolitics” while saying the euro area “faces deep-rooted structural weaknesses and imbalances.”

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