IMF Executive Board Concludes 2026 Consultation with Euro Area

IMF News, July 16, 2026

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Growth projected to slow from 1.4 percent in 2025 to 0.9 percent in 2026 and 1.2 percent in 2027.
Headline inflation projected to rise from 2.1 percent in 2025 to 2.9 percent in 2026 and 2.3 percent in 2027.
The war in the Middle East is cited as weakening the euro area outlook through weaker confidence, tighter financial conditions, and inflationary pressures.
Growth projections for 2026 and 2027 are noted as being 0.5 and 0.2 percentage points below pre‑war estimates, respectively.

Risks skewed toward weaker growth and higher inflation.
Largest source of uncertainty: extent of energy market disruption from the war in the Middle East.
Additional downside risks:
- Slower restoration of global energy supply, which would damp growth and raise inflation.
- A drop in confidence or financial stress that could weaken demand.
- Further intensification of the war in Ukraine.
- Renewed disruptions and uncertainty from tariffs and trade policies.
Financial stability risks:
- Increased with the weaker outlook.
- Could rise further if a sharp global risk‑off episode amplifies negative wealth effects.
- Risk of balance sheet stress in leveraged nonbank financial institutions (NBFIs) that could propagate to banks and core funding markets.

Assessment: Euro area entered 2026 from a position of strength; energy supply disruptions linked to the war in the Middle East have weakened the outlook by raising inflation and dampening growth. Russia’s war in Ukraine continues to have an impact.
Recommended policy mix: prudent, state‑contingent, and balanced between maintaining macroeconomic stability and fiscal sustainability while advancing reforms to boost resilience, productivity, and medium‑term growth.

Monetary policy

Support data‑dependent and well‑communicated monetary policy focused on maintaining price stability and well‑anchored inflation expectations.
Calibrate the policy response to the evolving inflation outlook.
Use scenario analysis to guide expectations given high uncertainty.

Fiscal policy

Rely on automatic stabilizers for the fiscal response.
Any discretionary support should be temporary, targeted, and preserve price signals.
Emphasize credible medium‑term plans to safeguard fiscal sustainability, underpinned by:
- Expenditure prioritization.
- Efficiency gains.
- Structural reforms.
- Effective implementation of the EU fiscal framework.
Structural fiscal consolidation remains a priority, especially in high‑debt countries.

Structural and market reforms

Deepening the single market seen as the most effective way to strengthen growth and resilience.
Support reducing cross‑border barriers, including a proposed voluntary 28th regime.
Improve labor mobility, including effective integration of migrants, and advance AI readiness.
Achieve greater energy security by deepening energy market integration and advancing the energy transition.
Advance the Savings and Investments Union.
The digital euro could enhance payments efficiency and deepen financial integration.
Strengthening the EU budget and its financing framework would help support common priorities and resilience.
Trade policy: continue trade diversification efforts and support an open, rules‑based trading system; target policies aimed at reducing external supply vulnerabilities to limit economic distortions, fiscal costs, and adverse spillovers while building longer‑term resilience.

Financial sector policy

Note banking system resilience but call for continued monitoring of vulnerabilities from stretched asset valuations and growing NBFI activity.
Support implementation of FSAP recommendations, including:
- Strengthen system‑wide stress testing.
- Improve data collection and sharing.
- Enhance supervisory capacity.
- Strengthen the AML/CFT framework.
Further strengthen the financial safety net through stronger resolution frameworks and completion of the Banking Union.
Ensure regulatory simplification does not weaken prudential standards and that Basel III is fully and timely implemented.
Stablecoins require continued monitoring and strong cross‑border supervisory cooperation and regulation.

Real GDP: 2025 = 1.4; 2026 = 0.9; 2027 = 1.2.
Consumer prices (headline inflation): 2025 = 2.1; 2026 = 2.9; 2027 = 2.3.
Unemployment rate (percent): 6.7, 6.5, 6.4, 6.3, 6.2, 6.1, 5.9 (series shown in table).
General government gross debt (percent of GDP): 88.9, 86.5, 86.6, 87.4, 88.4, 88.8, 89.1, 89.5, 89.9, 92.9 (series shown in table).
Euro short‑term rate (€STR): 3.9 (end of period, latest monthly data for 2026).
10‑year government benchmark bond yield: 2.8; 3.2 (values shown in table).

Projections for 2026‑2031 are based on July WEO 2026 projections of France, Germany, Ireland, Italy, Netherlands, and Spain (accounting for around 85% of EA GDP) and April 2026 WEO projections for others.
Table covers demand and supply contributions, resource utilization, prices, and public finance indicators as reported by IMF staff, using sources including the European Central Bank and Eurostat.

Implied source: IMF Communications Department — July 16, 2026.