Frankfurt: The International Monetary Fund (IMF) has released a sobering update on the economic outlook for the eurozone, warning that while growth remains surprisingly resilient, it comes at the expense of escalating fiscal burdens. In its latest World Economic Outlook, the IMF projects the euro area’s GDP growth at 1.2% for 2025, slightly above July forecasts, but expects a modest slowdown to 1.1% in 2026.
The IMF attributes this relative resilience to recovering private consumption, supported by higher real wages, and targeted fiscal easing measures in Germany. However, the report highlights that these gains are partially offset by rising government spending, particularly Germany’s investments in defense and infrastructure, which are expected to lift the eurozone’s debt-to-GDP ratio from 87% in 2024 to 92% by 2030.
Trade tensions, especially with the United States, remain a persistent drag. The effective U.S. tariff rate on European goods has jumped from 2.3% to 13%, and while exporters have so far maintained stable prices for German cars sold outside the EU, the IMF cautions that protectionist measures are beginning to reveal their negative impact.
Despite these fiscal and trade pressures, inflation is expected to remain close to the European Central Bank’s 2% target, allowing for a steady deposit rate projected at 2% through 2029. Yet, the IMF warns that strategies like trade diversion and rerouting, which have temporarily helped maintain economic activity, are costly and their benefits may diminish, exposing the eurozone to greater risks in an increasingly fragmented global economy.
The IMF’s assessment underscores the delicate balance policymakers face: sustaining growth while managing rising debt and fiscal commitments, all amid a landscape of heightened global uncertainty and protectionism.