European Central Banks Tackle Inflation with Interest Rate Increases

In an effort to combat ongoing inflation, European central banks have swiftly increased borrowing costs. This decision comes in reaction to the significant economic impact stemming from Russia’s attack on Ukraine.

The International Monetary Fund (IMF) anticipates that these actions will lead to a “soft landing” for Europe’s economy, even as GDP growth slows. The IMF forecasts that GDP growth in Europe will decelerate to 1.3% in 2023, with a slight recovery to 1.5% projected for 2024.

Emerging economies within Europe are experiencing rising wages, which could boost economic recovery. However, the IMF cautions that if these wage increases are not matched by improvements in productivity, inflation may worsen.

The normalization of consumer prices is expected to take time, potentially spanning several years. The IMF underscores the need to strike a balance between fostering economic recovery and controlling persistent inflation during this period.