{
  "title": "IMF Executive Board Concludes 2023 Article IV Consultation with Euro Area",
  "publication": "IMF News, July 19, 2023",
  "sourceUrl": "https://www.imf.org/en/news/articles/2023/07/18/pr23268-euro-area-imf-executive-board-concludes-2023-article-iv-consultation",
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  "summary": "On July 12, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 discussions on common euro area policies with member countries",
  "publishDate": "2023-07-19",
  "sections": [
    {
      "heading": "Overview",
      "content": "- On July 12, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 discussions on common euro area policies with member countries.\n- The euro area economy displayed resilience after Russia’s invasion of Ukraine and the largest terms of trade shock in several decades, owing to a swift policy response and a strong rebound in contact-intensive services.\n- Economic activity weakened significantly in the second half of 2022 and slipped into a mild technical recession in early 2023 as financial conditions tightened, real wages declined, and consumer confidence fell.\n- The next consultation on euro area policies in the context of the Article IV obligations of member countries is expected to be held on the standard 12-month cycle."
    },
    {
      "heading": "Outlook and Inflation Dynamics",
      "content": "- Growth is expected to pick up gradually throughout 2023 and 2024, supported by:\n  - a recovery in real incomes in the context of continued tight labor market conditions,\n  - a further easing of supply constraints,\n  - firmer external demand,\n  - even as financial conditions continue to tighten.\n- Headline inflation has fallen sharply recently after reaching record high levels, but core inflation is proving more persistent.\n- As tight financial conditions restrain demand and supply shocks dissipate further, inflation is set to decline further but is expected to remain elevated for an extended period."
    },
    {
      "heading": "Risks and Uncertainty",
      "content": "- Uncertainty surrounding the outlook is high. Key downside risks identified:\n  - Turbulence in financial markets, including from distress elsewhere, could lead to a contraction in credit and a broader increase in risk aversion.\n  - Weaker external demand would negatively affect the bloc’s growth prospects.\n  - More persistent inflation, including due to strong wage growth, would require a tight policy stance for longer, weighing on domestic demand.\n  - Renewed supply shocks from an escalation of the war in Ukraine or further geoeconomic fragmentation would push up inflation and hurt growth.\n- An upside scenario: the economy could again prove more resilient than expected, especially amid a still large stock of excess savings."
    },
    {
      "heading": "Executive Board Assessment",
      "content": "- Directors agreed with the thrust of the staff appraisal and commended authorities for decisive policy actions that supported resilience.\n- Near-term priority: bring inflation back to target while preserving financial stability.\n- Monetary policy:\n  - Directors noted the need to maintain a tight monetary policy stance to ensure inflation returns to target in a timely manner.\n  - Most Directors stressed that further monetary policy tightening is needed.\n  - Directors called for a continued flexible and data-dependent approach.\n  - Directors agreed that the Eurosystem’s bond holdings should continue to be reduced in a gradual and predictable manner, with the policy rate serving as the primary tool of monetary policy.\n- Financial sector:\n  - Directors welcomed that euro area banks are overall well capitalized and liquid.\n  - They stressed the importance of strong supervision and regulation of banks and nonbank financial intermediaries to mitigate risks related to asset valuations, liquidity, funding, and exposures to real estate markets.\n  - Directors called for making further progress toward completing the EU’s financial architecture to enhance economic and financial resilience.\n- Fiscal policy:\n  - Directors agreed that a tighter fiscal stance, as planned in 2024, would help contain inflationary pressures.\n  - They stressed that a reduction in deficits is essential to safeguard fiscal sustainability in many high-debt countries, including by phasing out energy relief measures and saving any revenue windfalls.\n  - Directors emphasized the importance of protecting investment as public finances are consolidated.\n  - They supported the ongoing reform of the European economic governance framework and encouraged reaching an agreement swiftly to anchor medium-term fiscal policy making.\n  - A number of Directors considered that an EU-wide fiscal capacity for macroeconomic stabilization and provision of public goods would help strengthen this framework.\n- Structural policies:\n  - Directors noted that ambitious structural policies and investments are instrumental to increase potential growth and support the digital and green transitions.\n  - Progress toward the National Recovery and Resilience Plan targets, promoting innovation, facilitating sectoral reallocation of labor, and reskilling and upskilling the workforce were underscored as crucial.\n  - Directors also stressed the EU’s critical role in promoting rules-based, open trade and welcomed its commitment to the World Trade Organization."
    },
    {
      "heading": "Projections and Key Statistics (Table 1. Euro Area: Main Economic Indicators, 2019–2028)",
      "content": "- Real GDP (y/y percent change):\n  - 2019: 1.6\n  - 2020: -6.1\n  - 2021: 5.3\n  - 2022: 3.5\n  - 2023: 0.9\n  - 2024: 1.5\n  - 2025: 1.8\n  - 2026: 1.7\n  - 2027: 1.4\n  - 2028: 1.3\n- Private consumption:\n  - 2019: -7.7\n  - 2020: 3.7\n  - 2021: 4.5\n  - 2022: 0.5\n  - 2023: 2.1\n  - 2024: 2.0\n- Public consumption:\n  - 2019: 1.0\n  - 2020: 4.3\n  - 2021: 0.0\n  - 2022: 0.8\n  - 2023: 0.7\n  - 2024: 1.1\n- Gross fixed investment:\n  - 2019: 6.9\n  - 2020: -6.2\n  - 2021: 3.9\n  - 2022: 2.3\n  - 2023: 2.4\n  - 2024: 1.9\n- Final domestic demand:\n  - 2019: 2.7\n  - 2020: -5.5\n  - 2021: 3.6\n  - 2022: 0.6\n- Stockbuilding (contribution to growth):\n  - 2019: -0.2\n  - 2020: -0.3\n  - 2021: 0.3\n  - 2022: -0.1\n- Domestic demand:\n  - 2019: -5.7\n  - 2020: 4.1\n  - 2021: 3.8\n- Foreign balance (contribution to growth):\n  - 2019: -0.7\n  - 2020: -0.5\n  - 2021: 0.4\n  - 2022: 0.1\n- Exports (includes intra-euro area trade):\n  - 2019: 2.9\n  - 2020: -9.0\n  - 2021: 10.7\n  - 2022: 7.2\n  - 2023: 3.4\n  - 2024: 3.2\n  - 2025: 3.1\n- Imports (includes intra-euro area trade):\n  - 2019: 4.8\n  - 2020: -8.5\n  - 2021: 8.4\n  - 2022: 8.3\n  - 2023: 4.2\n  - 2024: 3.3\n- Potential GDP:\n  - 2019: -1.4\n  - 2020: 2.5\n  - 2021: 1.2\n- Output gap:\n  - 2019: -4.7\n  - 2020: -2.1\n  - 2021: -0.4\n- Employment growth (in percent):\n  - 2019: 0.2\n- Unemployment rate (in percent):\n  - 2019: 7.6\n  - 2020: 8.0\n  - 2021: 7.7\n  - 2022: 6.7\n  - 2023: 6.8\n  - 2024: 6.6\n  - 2025: 6.5\n- Prices:\n  - GDP deflator 2019: 4.6\n  - Consumer prices 2019: 2.6\n  - Consumer prices 2020: 5.2\n  - Consumer prices 2021: 2.8\n- Public Finance (percent of GDP):\n  - Overall fiscal balance:\n    - 2019: -0.6\n    - 2020: -7.1\n    - 2021: -5.3\n    - 2022: -3.6\n    - 2023: -3.5\n    - 2024: -2.7\n    - 2025: -2.3\n    - 2026: -2.0\n  - Primary balance 2019: -4.0\n  - Primary balance 2020: -1.0\n  - Structural balance (in percent of potential GDP):\n    - 2019: -2.4\n    - 2020: -2.8\n    - 2021: -2.2\n  - Structural primary balance (in percent of potential GDP):\n    - 2019: -0.9\n    - 2020: -1.2\n  - Gross public debt:\n    - 2019: 83.7\n    - 2020: 96.8\n    - 2021: 95.1\n    - 2022: 91.2\n    - 2023: 89.4\n    - 2024: 88.2\n    - 2025: 87.1\n    - 2026: 86.3\n    - 2027: 85.6\n    - 2028: 85.1\n- External Sector:\n  - Current account balance (in percent of GDP) 2019: 2.2\n- Interest Rates (end of period):\n  - 10-year government benchmark bond yield 2019: 3.0\n  - Euro short-term rate (€STR): …\n- Exchange Rates (end of period):\n  - U.S. dollar per euro:\n    - 2019: 1.11\n    - 2020: 1.22\n    - 2021: 1.13\n    - 2022: 1.06\n    - 2023: 1.09\n  - Nominal effective rate (2005=100):\n    - 2019: 106.0\n    - 2020: 114.5\n    - 2021: 110.8\n    - 2022: 111.1\n    - 2023: 112.7\n  - Real effective rate (2005=100, ULC based):\n    - 2019: 87.4\n    - 2020: 82.1\n    - 2021: 81.1\n    - 2022: 82.0\n\nIMF Communications Department, Press Release No. 23/268 (July 19, 2023).\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2023/07/18/pr23268-euro-area-imf-executive-board-concludes-2023-article-iv-consultation"
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    "Published: July 19, 2023",
    "On July 12, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 discussions on common euro area policies with member countries.",
    "The euro area economy displayed resilience after Russia’s invasion of Ukraine and the largest terms of trade shock in several decades, owing to a swift policy response and a strong rebound in contact-intensive services.",
    "Economic activity weakened significantly in the second half of 2022 and slipped into a mild technical recession in early 2023 as financial conditions tightened, real wages declined, and consumer confidence fell.",
    "The next consultation on euro area policies in the context of the Article IV obligations of member countries is expected to be held on the standard 12-month cycle.",
    "Growth is expected to pick up gradually throughout 2023 and 2024, supported by:",
    "Headline inflation has fallen sharply recently after reaching record high levels, but core inflation is proving more persistent.",
    "As tight financial conditions restrain demand and supply shocks dissipate further, inflation is set to decline further but is expected to remain elevated for an extended period.",
    "Uncertainty surrounding the outlook is high. Key downside risks identified:",
    "An upside scenario: the economy could again prove more resilient than expected, especially amid a still large stock of excess savings.",
    "Directors agreed with the thrust of the staff appraisal and commended authorities for decisive policy actions that supported resilience.",
    "Near-term priority: bring inflation back to target while preserving financial stability.",
    "Monetary policy:",
    "Financial sector:",
    "Fiscal policy:",
    "Structural policies:",
    "Real GDP (y/y percent change):",
    "Private consumption:",
    "Public consumption:",
    "Gross fixed investment:",
    "Final domestic demand:",
    "Stockbuilding (contribution to growth):",
    "Domestic demand:",
    "Foreign balance (contribution to growth):",
    "Exports (includes intra-euro area trade):",
    "Imports (includes intra-euro area trade):",
    "Potential GDP:",
    "Output gap:",
    "Employment growth (in percent):",
    "Unemployment rate (in percent):",
    "Prices:",
    "Public Finance (percent of GDP):",
    "External Sector:",
    "Interest Rates (end of period):",
    "Exchange Rates (end of period):",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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