Europe: Soft Landing in Sight, But Long-Term Reforms Crucial
Europe’s economies are poised for a soft landing, with efforts to bring inflation back to target while minimizing the impact on growth. Cooling yet resilient labor markets are expected to support consumption, offsetting the withdrawal of fiscal support as monetary policy eases.
However, challenges loom, particularly in the Central, Eastern, and Southeastern Europe (CESEE) region, where wage growth and inflation remain high.
Beyond immediate concerns, Europe faces structural issues, including lagging per capita income levels and slowing productivity growth exacerbated by aging populations. Geoeconomic fragmentation and rising long-term expenditure pressures add to the urgency of sustainable growth initiatives.
To address these challenges, policymakers advocate for a measured pace of monetary easing in advanced economies and continued fiscal consolidation across the continent. Structural fiscal reforms are needed to strengthen sustainability and address spending needs related to aging, climate, and defense.
Additionally, efforts at both the domestic and European levels are essential to raising potential growth prospects. These measures include promoting labor force participation, fostering innovation, and enhancing European integration to unlock growth-enhancing reforms.
While the road ahead may be challenging, Europe has demonstrated resilience in the face of adversity. With decisive action and collaboration, policymakers aim to secure a soft landing and pave the way for sustainable growth in the medium term.
