Euro Area Policies: 2026 Annual Consultation-Press Release; Staff Report; and Statement by the Executive Director for Member Countries

International Monetary Fund

No 2026/177, IMF Staff Country Reports from International Monetary Fund

Abstract: The 2026 Article IV Consultation discusses that the euro area economy had displayed resilience before the war in the Middle East started. In 2025, GDP growth ran slightly above potential, inflation was close to target for most of the year, the output gap was broadly closed, and the current account surplus narrowed. The near-term outlook has deteriorated amid the war in the Middle East. Despite the agreement announced on June 15 on a framework to end hostilities, uncertainty remains about how soon energy supply disruptions will be resolved. Geo-economic fragmentation and fast technological progress have raised the stakes for Europe. Efforts to mitigate external risks through trade diversification or the expansion of domestic capabilities can entail fiscal costs and lower efficiency, making careful cost-benefit assessment essential. At the same time, advances in digital and clean energy technologies are reshaping production and investment, with important implications for productivity and financial intermediation. The war in the Middle East and the associated energy price surge have raised near-term inflation expectations and upside risks to inflation, and weakened the growth outlook.

Keywords: headline inflation; EU institution; inflation expectation; single market; State aid; Inflation; Financial sector stability; Energy prices; Anti-money laundering and combating the financing of terrorism (AML/CFT); Middle East; Global; Europe (search for similar items in EconPapers)
Pages: 94
Date: 2026-07-16
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