The head of the International Monetary Fund, Kristalina Georgieva, has warned that the eurozone is looking at a prolonged period of high inflation.
In an interview with Euronews, the IMF Managing director says while Europe has shown remarkable resilience in the aftermath of Russia’s invasion of Ukraine and the largest period of trade shock in several decades, economic activity has weakened and inflation “although gradually declining” remains elevated.
“The most important thing for Europe is to get a handle on inflation,” Georgieva says. “Why? Because inflation is bad for growth, and it is a tax on the poor. When we look into the medium long term, critical for Europe is to spur more innovation and create more dynamism.”
The IMF’s biggest concern for the Eurozone is a prolonged period of high inflation that could negatively impact growth the IMF’s latest projections which indicate inflation could stay above the European Central Bank target until mid-2025.
“The EU is a very important player. Globally, the European economy is. If you take the whole 27 members, it is compatible to the United States,” Georgieva says.
“And let’s remember, many of the European economies are small, open economies. If we undermine the engine of growth, that is trade, that would affect negatively the European people.”
Inflation in the European Union reached over 10% last year but is now showing signs of moderation.
The European Central Bank forecasts that inflation will average 5.4% this year and decrease to 2.2% by 2025. However, this forecast is still higher than the ECB’s preferred 2% rate.