Euro zone to focus on inflation as economic outlook forecast to worsen

Euro zone finance ministers are set to indicate on Monday that the fight against inflation is the current priority despite dwindling growth in the bloc, officials said, as they will be informed of a deteriorating economic outlook.

At a regular monthly meeting of ministers, the EU executive commission is expected to provide an update of its economic forecasts, showing slower growth and higher inflation, Reuters reports quoting officials.

Ministers will focus on fighting inflation, indicating a will to shift further away from the massive economic stimulus offered during the acute phase of the COVID-19 pandemic.

The fiscal advice should recognize that “we have moved away from the need to help the economy,” one official said, echoing a recommendation for “a moderately restrictive fiscal policy” next year issued in June by the European Fiscal Board (EBF), an advisory body.

The EBF, whose recommendation will be discussed by ministers on Monday, urged fiscal prudence especially for countries with high debt, such as Italy, Greece or France.

The discussion on the 2023 fiscal stance comes before governments prepare their national budgets for next year.

The push against inflation, which would support the European Central Bank’s planned tightening of monetary conditions, comes however amid an expected further drop in economic growth.

The Commission is set to again revise downwards its forecasts for the euro zone when it updates its outlook on Thursday, officials said.

In May, it had cut its growth forecasts for the 19 countries sharing the euro to 2.7% this year from 4.0% predicted in February, and to 2.3% next year from 2.7%, in its first assessment of the impact of the war in Ukraine on the bloc’s economy. Read full story

Inflation forecasts are also expected to be revised upwards from the 6.1% predicted by the Commission in May for this year, which was in itself a major uplift from the previously estimated 3.5%.

The International Monetary Fund will also brief euro zone ministers at the meeting about its latest assessment of the bloc’s economy.

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