IMF Cuts Eurozone Growth Forecasts Citing US Tariffs

Alfred Kammer, the head of the European Department of the International Monetary Fund (IMF), has stated that Germany's fiscal stimulus measures will not be sufficient to offset the drag on the eurozone economy caused by tariffs. The IMF has recently lowered its growth forecasts for the eurozone, citing the unpredictable tariff policies of U.S. President Donald Trump as a significant factor. These policies have also led to downward revisions in growth expectations for the United States, the United Kingdom, and several Asian nations.

Kammer emphasized that while Germany's recent infrastructure spending bill is expected to boost the eurozone's economic growth over the next two years, it will not be enough to counteract the negative impact of U.S. tariffs. The IMF's revised forecasts for the eurozone's growth rate are 0.8% for 2025 and 1.2% for 2026, reflecting a 0.2 percentage point reduction for each year. Kammer noted that the primary pressure on the economic outlook comes from tariffs and trade tensions, rather than fiscal stimulus measures.

Germany's long-standing debt rules have been waived, allowing the country to increase defense spending and establish a €500 billion (approximately $548 billion) infrastructure and climate fund. Economists view this move as potentially transformative for Germany, the largest and most sluggish economy in the eurozone. However, Kammer cautioned that the negative effects of tariffs will only be marginally offset by these fiscal measures.

Despite the risks to growth, Kammer advised that the European Central Bank (ECB) should reduce interest rates by an additional 0.25 percentage points this year. The ECB has already lowered its key interest rates seven times since June 2024, with the most recent reduction in April bringing the deposit facility rate to 2.25%. Kammer suggested that the ECB should maintain this rate until the end of 2025, unless a significant shock necessitates further adjustments.

Kammer's comments come as the IMF and World Bank hold their spring meetings in Washington, D.C. The meetings provide a platform for global economic discussions and policy coordination. The IMF's revised forecasts and Kammer's remarks underscore the challenges facing the eurozone economy, particularly in the context of ongoing trade tensions and the need for coordinated fiscal and monetary policies.