IMF Europe Economic Outlook Inflation

The IMF is predicting inflation in Europe should subside in 2022 in the newly released European Regional Economic Outlook released Thursday (October 2) in Washington, DC.

The IMF is upgrading Europe’s economic growth forecast, said Alfred Kammer, head of the IMF’s Europe Department.

“An increasingly resilient recovery is taking hold all across Europe thanks to substantive policy support measures over the past year and a half. Advanced European economies are set to expand by 5.2 percent in 2021, 0.3 percentage points of GDP higher than be expected in our July update, and emerging market economies will hit six percent and upgrade of 1.1 percentage points,” Kammer announced.

Inflation has emerged as a key concern during the pandemic recovery.

“We are expecting the inflation surge, which we are seeing right now to fade out in 2022 next year. And therefore, we would actually expect that there is very little impact in the medium term on the productive capacity and the production of the economy. I think more important at this stage is what will happen with supply chain issues, whether this will be overcome. Again, our expectation is that that should happen in 2022,” said Kammer in a virtual news conference.

Seasonal and structural surges in energy prices are largely behind the current rise in inflation, Kammer said.

“So we don’t anticipate as a stage expect any inflation spiral in in Europe. The high inflation which we are seeing right now is really driven by the main driver is an increase in energy prices and we expect that to fade out during 2022. You have an increase in oil prices. Oil prices actually are going back to pre-pandemic levels because of the strong demand which is in place, and you would expect that,” said Kammer.

The IMF sees that Europe is prepared to handle inflationary pressures.

“In general the underlying inflationary momentum in the Euroarea is is just not there. And so the expectation is that in the medium-term, inflation will increase to one point eight percent. That would still be below what the ECB’s target. So not a concern at this stage for the Euroarea. And we also know that if these concerns were to arise, the ECB can react. We know what to do with inflation. The tools are in place to react to these kind of pressures if they were to materialize.”

The full report is available at: Regional Economic Outlook for Europe, October 2021 (imf.org)

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