Euro Zone recovery strengthens, Low oil prices, broad neutral fiscal stance, & accommodative monetary policy are supporting domestic demand. However, inflation expectations remain low, below ECB
The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1with the Euro Area. The recovery has strengthened recently. Lower oil prices, a broadly neutral fiscal stance, and accommodative monetary policy are supporting domestic demand. However, inflation and inflation expectations remain very low, below the European Central Bank (ECB) medium-term price stability objective. Euro area GDP growth is expected to decelerate from 1.6 percent this year to 1.4 percent in 2017, mainly due to the negative impact of the U.K. referendum outcome. Helped by gradually rising energy prices, headline inflation is expected to increase from 0.2 percent this year to 1.1 percent next year. At the same time, downside risks have grown. Externally, a further global slowdown could spill over and derail the domestic demand-led recovery. Domestically, the risks are largely political. Further spillovers from the U.K. post-referendum situation, the refugee surge, or a h...