Euro area recovering gradually, disinflation to continue: IMF

By Ovunc Kutlu

ISTANBUL (AA) - The euro area is recovering gradually, with a modest acceleration of growth projected for this year and gathering further speed next year, the International Monetary Fund (IMF) said Tuesday.

"Increasing real wages together with some drawdown of household savings are contributing to consumption, while the projected easing of financing conditions is supporting a recovery in investment," the IMF said in a statement as its executive board concludes consultations with the euro area.

Inflation is also coming down as monetary tightening and a decline in commodity prices are having their effects on prices in the euro area, said the financial agency.

While disinflation is expected to continue gradually, inflation is projected to return to target in the second half of next year, it added.

"Risks to growth are on the downside, while they are two-sided for inflation," said the IMF.

"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 also hold back growth," it said.

But there are counterbalancing upside inflation risks, according to the agency, such as wage pressures coming in stronger than expected or company profit margins continuing to remain high.

"Renewed commodity price spikes or shipping disruptions could also put upward pressure on inflation," the IMF noted.