IMF managing director Christine Lagarde urged the eurozone yesterday to fight persistently low inflation, calling it a looming threat to economic recovery in the region.
Key risks menace the 18-nation eurozone even as it emerges from recession, the IMF head told an economic conference in Bilbao, Spain.
Lagarde said inflation was well below the European Central Bank’s target rate. Eurozone inflation was 0.8 percent last month, unchanged from January, according to the official statistics agency Eurostat.
“We see the risk of prolonged low inflation way below targets — targets being as you know just below 2 percent — looming,” the IMF managing director said.
This “could derail the recovery,” she said.
Lagarde warned in January of the risk of a return to deflation, which she described as “the ogre that must be fought decisively.”
“There is still room to maneuver that can be used with a view to bringing the inflation to target and with the view to procuring the creation of jobs,” she said.
The IMF boss said the eurozone was hampered by “unacceptably high” unemployment rates, especially among the young, and by high levels of private and public debt.
Lagarde hailed signs of the eurozone’s economic recovery, acknowledging the “good news” conveyed by the IMF’s forecast for economic growth in the region of 1 percent this year and 1.4 percent next year.
The most recent Eurozone Manufacturing Purchasing Managers’ Index (PMI) compiled by Markit came in at 53.2 last month, up from a flash reading of 53.0, but below January’s 54.0 — which was the highest since May 2011. A reading above 50 indicates growth in activity.
The index measuring manufacturing output, which feeds into a composite PMI that is seen as a good gauge of growth, dipped from January’s 33-month high.
“[This] reinforces suspicion that it is going to be far from plain sailing for the euro zone in 2014,” Howard Archer at IHS Global Insight said.
“While the eurozone may be establishing modest growth, it is still finding it hard to build momentum,” he said.
GDP across the eurozone expanded 0.3 percent in the final three months of last year.