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June 16 (UPI) — The International Monetary Fund (IMF) agrees that economic policies in the European Union should maintain a restrictive approach to control consumer-level inflation, following the recent rate hike by the European Central Bank.
IMF President Kristalina Georgieva stated, “Inflation has started to decline from historically high levels, but is still well above target. And, uncertainty remains elevated, with risks skewed to the downside for growth and to the upside for inflation.”
Inflation in the European Union reached over 10% last year but is now showing signs of moderation. The European Central Bank forecasts that inflation will average 5.4% this year and decrease to 2.2% by 2025. However, this forecast is still higher than the ECB’s preferred 2% rate.
Global markets faced challenges last year due to supply chain issues caused by pent-up demand during the pandemic, which led to higher prices. These challenges were further compounded by the Russian invasion of Ukraine last February and the subsequent increase in sanctions pressure on Russia.
Despite these challenges, Georgieva emphasized that Europe’s economy remained resilient. However, it experienced a mild technical recession earlier this year, with a contraction in gross domestic product by 0.1% during both the fourth quarter of 2022 and the first quarter of 2023.
The European Central Bank highlighted the uncertain outlook for both inflation and growth, with the continued downside risks from Russia’s war against Ukraine and broader geopolitical tensions. These factors could potentially disrupt global trade and have a negative impact on the euro area economy.
In response to these challenges, the ECB decided to raise rates by 25 basis points, a decision that Georgieva praised. She emphasized the need for continued tightening of monetary policy and maintaining a restrictive stance to firmly anchor inflation expectations.
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