The International Monetary Fund warned Monday that the economic recovery in the euro zone is weak, adding that the region is at risk of falling into deflation as it cut its forecast for growth this year.

International Monetary Fund warns on weak euro zone recovery

In its latest report on the euro zone, the Washington-based fund said the recovery is “neither robust nor sufficiently strong” to withstand further negative shocks and the economy is at risk of falling into deflation.

The IMF also said the region’s financial markets remain too fragmented and urged policymakers to implement a host of measures to shore up the single currency bloc.

“The recovery is weak and uneven. Inflation has been too low for too long, financial markets are still fragmented, and structural gaps persist: these hinder rebalancing and substantial reductions in debt and unemployment,” the report said.

The report also urged politicians to avoid further austerity measures, saying “further negative shocks – either domestic or external – could undermine financial market sentiment, halt the recovery, and push the economy into lower inflation and even deflation.”

The IMF welcomed measures by the European Central Bank to combat low inflation, but said the ECB should be ready to embark on quantitative easing should inflation remain “too low”.

The IMF forecast an annual inflation rate of 0.7% this year and 1.2% in 2015, well below the ECB’s target of close to but just under 2%.

Economic growth is expected to accelerate to 1.5% from 1.1% in 2014. In April the IMF forecast growth of 1.2% this year.