MNI BRIEF: EZ Economy Stronger, Downside Risks Persist - IMF

Central banks should look through transitory inflation pressures such as those caused by the expiration of Germany's VAT cut and avoiding tightening until underlying price dynamics become clearer, the latest edition of the IMF's World Economic Outlook states, with risks to the global economy still tilted to the downside due in part to growing divergences in vaccine access and economic activity.

The recovery is not assured even in countries where infections are currently very low, the IMF said, though strong economic rebounds are expected in France, Germany, Italy and Spain later this year and into next year, with most countries likely to see inflation return to its pre-pandemic ranges in 2022.

The IMF expects major central banks such as the European Central Bank to leave policy rates unchanged until at least the end of 2022, but said that where the recovery is underway central banks begin telegraphing their exit from extraordinary monetary support, but action is still required at multinational and national level to arrest divergences, limit adverse spillovers, and ease policy space constraints for individual economies.