Higher infrastructure spending in Germany will offer some support to Europe’s growth outlook, but it won’t be enough to offset the damage caused by US tariffs, according to Alfred Kammer, director of the European department at the IMF.
Speaking to CNBC, Kammer stressed that “it’s the tariffs and the trade tensions which weigh on the outlook rather than the positive effects on the fiscal side.”
He noted that the IMF has delivered a “meaningful downgrade” to growth forecasts for Europe’s advanced economies and an even steeper downgrade for the emerging Eurozone countries over the next two years. The IMF cut its Eurozone growth forecasts by -0.2% for each of the next two years, now projecting growth of just 0.8% in 2025 and 1.2% in 2026.
Kammer also outlined a clear policy recommendation for ECB. Acknowledging the success of the disinflation efforts, he suggested that ECB has room for “one more 25-basis-point cut in the summer,” after which it should hold rates steady at around 2%, barring major shocks.
