IMF Executive Board Concludes 2024 Consultation with Euro Area
IMF News, July 30, 2024
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- Published: July 30, 2024
Macro Outlook and Recent Developments
- The euro area is recovering gradually, with a modest acceleration of growth projected for 2024, gathering further speed in 2025.
- Drivers of near-term demand:
- Increasing real wages.
- Some drawdown of household savings contributing to consumption.
- Projected easing of financing conditions supporting a recovery in investment.
- Inflation dynamics:
- Inflation is coming down as past monetary tightening and the decline in commodity prices are having an effect.
- Disinflation will continue to be gradual.
- Inflation is projected to return to target in the second half of 2025.
Risks
- Growth risks: predominantly on the downside.
- Past monetary policy tightening could put a stronger drag on output than expected.
- Adverse external developments—such as intensifying geopolitical tensions and/or weaker global demand—could hold back growth.
- Weakening labor markets could cause projected consumption growth not to materialize.
- Inflation risks: two‑sided.
- Downside: weaker demand or labor markets could drag inflation below the baseline.
- Upside: stronger‑than‑expected wage pressures, continued high company profit margins, renewed commodity price spikes, or shipping disruptions could put upward pressure on inflation.
Executive Board Assessment
- Directors agreed with the thrust of the staff appraisal and welcomed the euro area’s resilience with inflation declining toward its target.
- Growth outlook: Directors concurred with the positive growth outlook while recognizing downside risks.
- Near‑term priorities emphasized by Directors:
- Finalizing the task of returning inflation to target.
- Ensuring credible fiscal consolidation, particularly in high‑debt countries.
- Structural challenges noted:
- Population aging, the green transition, and security needs.
- Importance of labor market reforms and boosting investment and innovation to generate productivity growth.
- Monetary policy:
- Commended the European Central Bank for skillful management.
- Welcomed the recent start to monetary policy easing.
- Stressed that the pace of further easing should be data dependent.
- Underscored importance of maintaining anchored inflation expectations and avoiding an overly restrictive policy stance.
- Fiscal policy:
- Need to rebuild fiscal buffers to guard against future shocks and higher spending needs, while minimizing adverse effects on growth.
- Sustained fiscal adjustment in high‑debt and high‑deficit countries to restore fiscal sustainability and reduce risks to the euro area.
- Medium‑term fiscal adjustment should primarily rely on expenditure measures that protect priority spending.
- Countries with lower risk of debt becoming unsustainable could use fiscal space to enhance growth and resilience.
- EU economic governance:
- Welcomed the new EU economic governance framework for enhancing fiscal policy coordination and fiscal sustainability via growth‑enhancing reforms and investments.
- Noted the framework’s complexity and the need for capacity and political support for effective implementation.
- Timely preparation of the medium‑term fiscal structural plans mandated under the framework is important.
- Financial sector and macroprudential policy:
- Noted strong capital and liquidity positions of European banks.
- Saw merit in using temporarily high profits to build safeguards, including by increasing countercyclical buffer requirements.
- Continued monitoring of pockets of vulnerabilities from the commercial real estate sector and nonbank financial sector is important.
- Encouraged development of nonbank macroprudential tools and efforts to bridge data gaps.
- Productivity, labor supply, and integration:
- Welcomed authorities’ efforts to boost productivity and labor supply.
- Recommended policies to address skills mismatches and improve labor mobility across the Union, including better integration of migrants into the labor market.
- Deeper financial market integration, including completing the capital markets and the banking unions, is essential to increase productivity and mobilize investment for the green and digital transformations.
- Underscored need for higher and better targeted EU public investment and lower barriers within the European Union to strengthen the single market.
- Establishing a common Climate and Energy Security Facility would also be important.
- Trade and international engagement:
- Welcomed the European Union’s efforts to strengthen the rules‑based international system.
- Agreed on the need to continue to engage with partners as the EU implements trade‑related environment and climate policies.
- Agreed on the need to avoid distortive trade and industrial policies.
- Next steps:
- The next consultation on euro area policies in the context of the Article IV obligations is expected to be held on the standard 12‑month cycle.
Key Statistics (Table 1: Euro Area: Main Economic Indicators, 2020–2029)
- Projection note: Projections for 2024-29 are based on the aggregation of the latest projections by IMF country teams, unless otherwise indicated.
- Demand and Supply (y/y percent change, unless otherwise specified)
- Real GDP:
- 2020: -6.1
- 2021: 5.9
- 2022: 3.4
- 2023: 0.5
- 2024: 0.9
- 2025: 1.5
- 2026: 1.3
- 2027: 1.2
- Private consumption:
- 2020: -7.7
- 2021: 4.4
- 2022: 4.2
- 2023: 1.7
- 2024: 1.4
- Public consumption:
- 2020: 1.1
- 2021: 1.6
- 2022: 0.6
- 2023: 0.7
- 2024: 0.8
- Gross fixed investment:
- 2020: -5.9
- 2021: 3.5
- 2022: 2.5
- 2023: -0.2
- 2024: 2.0
- Final domestic demand:
- 2020: -5.4
- 2021: 4.1
- 2022: 3.2
- 2023: (not listed)
- Stockbuilding (contribution to growth) 2/:
- 2020: -0.3
- 2021: 0.4
- 2022: -0.6
- 2023: -0.1
- 2024: 0.0
- Domestic demand:
- 2020: -5.7
- 2021: 4.7
- 2022: 3.6
- 2023: 0.2
- Foreign balance 2/:
- 2020: 0.3
- 2021: 0.1
- Exports 3/:
- 2020: -9.1
- 2021: 11.5
- 2022: 7.2
- 2023: -0.8
- 2024: 2.8
- 2025: 3.0
- 2026: 2.9
- Imports 3/:
- 2020: -8.5
- 2021: 9.2
- 2022: 7.9
- 2023: -1.4
- 2024: 3.1
- Resource Utilization
- Potential GDP:
- 2020: (not listed)
- Output gap 4/:
- 2020: -4.6
- 2021: -1.7
- 2022: -0.4
- Employment growth:
- 2020: 2.3
- Unemployment rate 5/:
- 2020: 8.0
- 2021: 7.8
- 2022: 6.8
- 2023: 6.6
- 2024: 6.5
- 2025: 6.4
- Prices
- GDP deflator:
- 2020: 1.8
- 2021: 2.2
- 2022: 6.0
- 2023: 1.9
- Consumer prices:
- 2020: 2.6
- 2021: 8.4
- 2022: 5.4
- 2023: 2.4
- 2024: 2.1
- Public Finance (percent of GDP)
- Overall fiscal balance:
- 2020: -7.0
- 2021: -5.2
- 2022: -3.7
- 2023: -3.5
- 2024: -3.0
- 2025: -2.8
- 2026: -2.6
- 2027: -2.5
- 2028: -2.4
- Primary balance:
- 2020: -3.9
- 2021: -2.1
- 2022: -1.3
- 2023: -1.0
- 2024: -0.7
- 2025: -0.5
- Structural balance 4/:
- 2020: -4.0
- 2021: -3.4
- 2022: -2.7
- Structural primary balance 4/:
- 2020: -2.0
- 2021: -1.9
- 2022: -1.1
- Gross public debt:
- 2020: 97.2
- 2021: 94.8
- 2022: 90.8
- 2023: 88.6
- 2024: 88.3
- 2025: 88.1
- 2026: 87.9
- 2027: 87.7
- External Sector (percent of GDP) 6/
- Current account balance:
- 2020: 2.7
- Interest Rates (percent, end of period) 7/
- Euro short-term rate (€STR):
- 2020: 3.9
- 10-year government benchmark bond yield:
- 2020: (not listed)
- Exchange Rates (end of period) 7/
- U.S. dollar per euro:
- 2020: (not listed)
- Nominal effective rate (2005=100):
- 2020: 101.3
- 2021: 96.5
- 2022: 96.2
- 2023: 97.7
- 2024: 98.4
- Real effective rate (2005=100, ULC based):
- 2020: 90.7
- 2021: 86.3
- 2022: 84.3
- 2023: 85.4
IMF Executive Board press release: IMF Executive Board Concludes 2024 Consultation with Euro Area.