In an effort to counteract persistent inflation, European central banks have swiftly increased borrowing costs. This move comes in response to the geopolitical event of Russia's attack on Ukraine, which has had a significant impact on the region's economy.
The International Monetary Fund (IMF) predicts that these measures will lead to a "soft landing" for Europe's economy, despite a slowdown in GDP growth. The IMF projects that Europe's GDP growth will slow to 1.3% in 2023 before experiencing a minor recovery to 1.5% in 2024.
Emerging European economies are witnessing rising wages, stimulating economic recovery. However, the IMF warns that this could exacerbate inflation if not offset by productivity enhancements.
The process of normalizing consumer prices is expected to be lengthy and could span several years. The IMF highlights the importance of maintaining a balance between promoting economic recovery and managing stubborn inflation in this period.
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