Euro Area Policies

The euro area economy has shown resilience in the aftermath of Russia’s invasion Ukraine and largest terms trade loss several decades, reflecting strong policy efforts to secure gas supplies cushion disposable incomes. Nonetheless, activity weakened, with slipping into a mild technical recession early 2023, inflation is far above target. While headline started decline easing supply bottlenecks energy prices, core proving more persistent. Euro banks are well capitalized liquid overall, but rapid tightening monetary after prolonged period accommodation can expose pockets weakness financial system, including nonbank sector.