Europe's economy fared reasonably well in recent months, but growth is now weakening and faces multiple risks, the International Monetary Fund (IMF) warned on Friday.
"Europe avoided an all-out recession this winter and showed resilience - but it is facing a triple challenge," Alfred Kammer, the head of the IMF's European Department, said in Washington: "Defeat inflation, sustain the recovery, and safeguard financial stability."
Inflation remained stubbornly high and was in double digits in most emerging European economies and some advanced economies, Kammer said. But an easing is expected due to lower energy prices and improving supply chain bottlenecks, even if household expenses continue to grow.
The IMF projects inflation at about 5.6% on average in advanced Europe this year, and 11.7% in emerging European economies.
In recent weeks, the banking sector and broader financial stability had also been tested, casting a further shadow over Europe's near-term economic growth prospects, Kammer noted.
The IMF forecasts 0.7% growth in gross domestic product (GDP) for Europe's industrialized nations this year, compared with 3.6% in 2022, and 1.4% next year.
"Things could easily get more complicated," Kammer warned, citing risks from tight labour markets, a resurgence in energy prices or increasing geopolitical fragmentation that can stunt growth and fuel inflation.
"Failure to contain financial stability risks could lead to crisis and lower growth," he said. Therefore, it was important to take the recent turmoil in the US and European banking sector seriously.
