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European Soft Landing is in Reach but not Assured, IMF says

April 19 (Reuters) - A soft landing of easing inflation with "moderate economic cost" is within reach for European economies but is far from assured, with the recovery so far showing itself to be tentative in most economies across the region, the International Monetary Fund said on Friday in a report detailing Europe's outlook.

On the heels of another downgrade to the near-term growth outlook for the continent's core euro area economies, the IMF said the feeble recovery reflects weaker consumer sentiment, the lagged effect of higher energy prices and softness in interest-rate sensitive manufacturing and business investment.

That said, "Europe has done remarkably well against a turbulent backdrop," including a war between Russia and Ukraine on its eastern frontier, IMF European Department Director Alfred Kammer said in remarks prepared for a press briefing on the region.

"After years of crises and their fallouts, a soft landing for the continent’s economies is within reach," Kammer said. "To be sure, within reach does not mean it is a done deal. A number of things need to go right in the coming months."

Among the things needing to go right is calibrating the appropriate monetary policy across a diverse region, where inflation has behaved unevenly.

In advanced European economies, central banks poised to begin cutting interest rates need to match that policy easing with "unfolding conditions - loosening neither too fast nor too slowly," Kammer said. For the rest of Europe, meanwhile, rates will need to remain higher for longer to assure inflation is fully contained.

The region's fiscal adjustments must also pick up pace.

Looking further out, measures to raise the region's growth potential should be pursued to combat the "formidable headwinds" of declining productivity growth, an aging population and underinvesment.

Efforts to deepen the European single market should begin sooner than later, and officials should avoid the temptation to respond to competitive threats through subsidies, Kammer said. "Trying to fix competitiveness problems by engaging in a subsidy race with trading partners will do Europe more harm than good."

Reporting By Dan Burns; Editing by Andrea Ricci

Source: Reuters

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