Alfred Kammer, director of the European Department at the International Monetary Fund (IMF), said that an increase in German spending on infrastructure will boost European economic growth, but at the same time will not be a factor that can outweigh the expected impact of tariffs from the United States.
Last week, the IMF released updated forecasts for the growth of the gross domestic product (GDP) of the countries of the Earth. In this case, the revised projections turned out to be a less optimistic vision of the prospects for an upward dynamic of the world’s economies in 2025. In particular, the IMF expects a slowdown in economic growth in the eurozone, the United States, the United Kingdom, and Asian countries. Experts from the mentioned organization, based in Washington, noted that the deterioration in forecasts for GDP growth in the current year is primarily due to the volatile tariff policy of US President Donald Trump.
Currently, the IMF expects the eurozone economy to rise by 0.8% in 2025. Next year, the experts of this organization predict an increase in the GDP of the mentioned region by 1.2%. It is worth noting that the IMF projections for both specified years were reduced by 0.2% compared to the previous version of the corresponding vision for the eurozone economy’s prospects in 2025 and 2026.
Alfred Kammer, during a conversation with media representatives last week at the IMF-World Bank Spring Meetings, stated that it is tariffs and trade tensions that have a stronger impact on the outlook than the positive effects on the fiscal side. He also noted that there is currently a meaningful downgrade in the forecast for Europe’s advanced economies. Moreover, in the relevant context, Alfred Kammer stated that for emerging eurozone countries, the mentioned downgrade has doubled as much over a two-year period. According to him, the negative impact of tariffs will be slightly offset by Germany’s infrastructure spending bill, which will boost economic growth in the specified region over two years.
Exceptions passed to long-standing German debt rules have unlocked an increase in defense spending and enabled the formation of an infrastructure and climate fund worth 500 billion euros ($548 billion). According to media reports, experts described the specified Berlin’s move as a potential game changer for the mentioned country’s economic system, which has recently been showing sluggishness and is involved in what can be called a struggle for sources of growth. It is worth noting that the German economy is the largest in the eurozone. For this reason, the state of affairs in Germany’s economic system is a fundamental and formative factor impacting the situation in the entire mentioned region. For Berlin, tariffs have become an additional challenge after several years of fighting for GDP growth. It is worth noting separately that the German authorities have so far failed to win or come close to victory in this struggle. According to calculations of the Federal Statistical Office (Destatis), Germany’s GDP in 2024 fell by 0.2% year-on-year. In 2023, the mentioned indicator decreased by 0.3% compared to the reading for 2022.
It is worth noting that tariffs will have a significant negative impact not only on Germany and the eurozone but also on the world as a whole. The IMF expects a slowdown in global economic growth. It is also predicted that tariffs will cause a downward dynamic in international trade flows.
According to media reports, several officials of the European Central Bank told reporters last week that the inflation tendency in the eurozone appeared positive. At the same time, their broader vision of the future is not optimistic and is characterized not even by any assessment regarding the most likely configuration of the time to come, but by uncertainty.
Alfred Kammer believes that the European Central Bank should cut interest rates only once more this year. According to him, in this case, the financial regulator should lower the cost of borrowing by a quarter of a percentage point.
It is worth mentioning that since June last year, the European Central Bank has already cut interest rates seven times. The last relevant decision was made by the financial regulator in the current month. The deposit facility in the eurozone decreased to 2.25%.
Alfred Kammer stated that the IMF has a very clear recommendation for the European Central Bank. He noted that what has been observed in the eurozone is a huge success in the deflation effort and monetary policy has worked. According to him, the IMF expects that inflation in the mentioned region will sustainably reach the 2% target in the second half of 2025. He stated that the recommendation from the specified organization is that there is room for one more 25-basis-point cut, in the summer, and then the European Central Bank should hold that 2% policy rate unless major shocks hit and there is a need for recalibrating monetary policy.
The overnight swap pricing index on Monday, April 28, pointed to market expectations that the mentioned financial regulator two more times to lower the cost of borrowing by a quarter of a percentage point each in 2025.
Returning to the topic of the current state of affairs in the German economic system, it is worth noting that it is facing weak exports. This problem is obviously related to tariffs and will be exacerbated by appropriate measures. However, Berlin was faced with a weakening of export activity as a factor shaping the state of the economy even before the trade war that gradually began after Washington announced sweeping tariffs against almost the entire world in the first half of April. Global economic uncertainty has become an established reality until 2025. Protectionist actions worsen this situation, which in principle cannot contain the prerequisites for a period of widespread material and financial prosperity.
Berlin is also facing the problem of unemployment. There is an active opinion among experts that the unemployment rate in Germany will rise in the foreseeable future. Currently, the country is characterized by such a challenge as the shortage of skilled labor. Moreover, Berlin has seen moderate private investment. At the same time, Germany expects that the sector will soon begin to recover.
