IMF Lowers Euro Zone Growth Forecast

BRUSSELS (Reuters) – The International Monetary Fund (IMF) on Tuesday reduced its economic growth forecast for the euro zone for this year and next due to rising U.S. tariffs and uncertainty surrounding their implementation.

The IMF now anticipates that the 20 countries sharing the euro currency will experience growth of 0.8% in 2025 and 1.2% in 2026, both forecasts downgraded by 0.2 points from previous predictions made earlier in the year.

> “Rising uncertainty and tariffs are key drivers of the subdued growth in 2025,” the IMF noted in its forecast.
>
> “The offsetting forces supporting a modest pick-up in 2026 include stronger consumption from rising real wages and projected fiscal easement in Germany, following significant changes to its fiscal regulation (the ‘debt brake’).”

The IMF indicated that Spain’s economy is showing the strongest growth momentum in Europe, forecasting a growth rate of 2.5% this year, a revision upward by 0.2 percentage points compared to January.

> “This reflects a large carryover from better-than-expected outcomes in 2024 and reconstruction activities after floods,” the IMF explained.

Additionally, the IMF predicts that the European Central Bank will lower its main policy rate to 2% by mid-year, down from 2.25% currently.

> “In the euro area, 100 basis points in cuts are anticipated in 2025 (with three cuts already taking place this year), representing two more 25 basis point cuts compared to the assumptions in the October forecast, bringing the policy rate to 2% by mid-year,” the IMF stated.