Other instances in which inflation targeting might not work so well are negative supply shocks, such as most economies experienced in the mid-1970s when oil prices exploded. In these times, inflation rises just as output falls.
Consequently, the euro zone contracted by 1.1% year-on-year in the first quarter of 2013, following a contraction of 0.8% in the final quarter of 2012. The IMF has reduced its forecast for Eurozone growth in 2013, by 0.2 percentage points to –0.6%, with a weaker recovery than previously forecast in 2014.