The eurozone economy's cyclical stagnation may be coming to an end but the recovery remains gradual and too dependent on global trade, the International Monetary Fund (IMF) said in a document released on Friday.
Domestic demand is picking up only "at a hesitant pace" in the eurozone, it said in a document released by Ireland's European Union presidency before a meeting of EU finance ministers on June 1.
This reflects, in particular, weakness in the German economy, the Washington-based body said.
The IMF said the risks to the 12-nation eurozone's cyclical outlook "remain tilted to the downside" due to a cloudy business environment, doubts over the pace of structural reform and the high debt levels of many European companies.
The European Central Bank should remain accommodative in its monetary policy but should be prepared to ease interest rates if the projected sustained recovery of domestic demand does not materialise. "Monetary policy can, however, only play a supportive role in helping the area's recovery," it said.
Europe's medium-term inflation outlook remains benign but could come under threat if the euro strengthens. The recent hike in world oil prices will put some pressure on the eurozone's headline inflation figures, it said.
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