“Europe avoided an all-out recession this winter and showed resilience-but it is facing a triple challenge: defeat inflation, sustain the recovery, and safeguard financial stability,” Kammer told reporters.
He warned that inflation remains “stubbornly high” and continues to be in double digits in most emerging European economies and some advanced economies.
“Energy prices have fallen, but prices of other household expenses are still increasing at a fast pace.,” he added.
Kammer also noted that economic activity has decelerated across the continent, and growth slowed in key trading partners. Instability in the banking and financial sectors, which appeared in recent weeks, has added shadows over the continent's near-term economic prospects, he emphasized.
“Things could easily get more complicated, as discussed in more detail in our new 'Regional Economic Outlook', which will be released on April 28. Tight labor markets, a resurgence of energy prices, or increasing geopolitical fragmentation could bring both lower growth and higher inflation. Failure to contain financial stability risks could lead to crisis and lower growth,” Kammer said.
He urged European governments to implement decisive measures in the fight against inflation, and to maintain tight monetary policy until the situation improves.
Kammer also emphasized that further increases in policy rates are required in the euro area, while emerging economies should stand ready to tighten their measures if it is necessary.
“For most countries, governments should pursue more ambitious fiscal consolidation than is currently planned. This is needed both to place inflation firmly on a path to target and to replenish depleted fiscal space, particularly in view of the fact that shocks have become more prevalent,” he said.
The IMF official also called for reforms to boost productivity, and pointed out that Europe needs investments to speed up the green transition.