JPMorgan Chase has revised its forecast for the growth of the eurozone economy in the current year, expecting that the upward dynamic of this indicator will demonstrate a faster pace compared to previous projections.
Experts at the mentioned financial institution, which is the largest in terms of assets in the United States banking sector, predict that in 2025, gross domestic product (GDP) in the specified region will increase by 0.8%. The previous version of this forecast provided for the growth of the eurozone economy by 0.7% in 2025. Experts from the largest financial institution in the United States also expect that the GDP of the mentioned region will show an increase of 1.2% in 2026. The previous version of this forecast provided for a 0.9% rise in eurozone GDP in the mentioned year.
The main factor impacting JPMorgan Chase’s decision to review the projection of economic growth in the specified region was the fiscal loosening reforms in Germany. Moreover, the financial institution’s experts noted in a note published last week that they expect a stronger economic increase in the rest of the eurozone due to spillovers and a slightly looser fiscal policy.
It is worth noting that this month the parties involved in the negotiations on the formation of a new government in Germany have agreed to make efforts aimed at loosening fiscal rules. If the corresponding goal is achieved, there will be a nearly trillion-euro borrowing boom to finance defense and infrastructure spending.
At the same time, JPMorgan Chase experts noted that there is uncertainty related to the tariff policy of the administration of the President of the United States, Donald Trump, which is likely to have some impact on the growth of the eurozone economy in the coming months. Also in this context, special attention was drawn to the risk that, against the background of the mentioned circumstances, there will be a slight increase in inflation in the specified region in 2025 and 2026.
The European Central Bank last week decided on the sixth lowering of borrowing costs since June. The financial regulator cut the deposit rate to 2.5%. At the same time, the European Central Bank warned of phenomenal uncertainty. In the relevant context, the financial regulator noted the risk that trade wars and an increase in defense spending could trigger a growth in inflation. The mentioned background lifts the likelihood that the European Central Bank will pause its monetary policy easing next month.
JPMorgan Chase experts do not expect the European financial regulator to decide on cutting interest rates in April. At the same time, their preliminary expectations were that the European Central Bank would lower borrowing costs by 25 basis points in the specified month. JPMorgan Chase experts predict two interest rate cuts in the eurozone in the current year. They expect that the relevant decisions will be made in June and September. JPMorgan Chase’s previous forecast called for three lower borrowing costs in the eurozone in the current year. The bank’s experts also drew attention to the fact that the potential imposition of tariffs by the United States on European goods could push policymakers to a live meeting in April and back to the back-to-back approach.
It is worth noting that last week Goldman Sachs and Nomura also announced an upward revision of their forecasts for the growth of the eurozone economy. In this context, expectations were noted that increased military and infrastructure spending would accelerate the pace of the upward dynamic of Germany’s economic system, which would also have a kind of ripple effect for other countries in the specified region. Goldman Sachs experts predict that Germany’s GDP will grow by 0.2% in the current year. The previous forecast of this bank provided for zero economic growth in the mentioned country in 2025. Goldman Sachs experts expect the eurozone’s GDP to increase by 0.8% in the current year. The previous forecast provided for a 0.7% growth in the mentioned indicator.
Nomura forecasts a 0.2% quarterly increase in eurozone GDP by the end of 2026.
Goldman Sachs economists led by Sven Jari Stehn stated that this financial institution expects that the spillovers from the processes in Germany will be of great importance in terms of the impact on the situation in France, and will be a factor of lesser effect on the state of affairs in Spain and a source of some kind of medium-scale changes for Italy. It was also noted that this reflects the likely trade flows in defense spending. It is worth noting that Nomura adheres to the same assessment of the prospects.
Goldman Sachs also said that eurozone countries other than Germany are approaching their fiscal limits and are likely to face the need to cut spending or raise taxes, which will result in a smaller fiscal boost. Appropriate measures will be necessary to finance the increase in defense spending.
Goldman Sachs experts noted that the latest fiscal news reduces pressure on the European Central Bank in the context of cutting interest rates below the neutral level. They expect the European financial regulator to make decisions on lowering borrowing costs in April and June.
Nomura predicts that the European Central Bank will cut interest rates in June.
Goldman Sachs expects the European financial regulator’s benchmark interest rate to reach 2% by June. At the same time, Nomura predicts that the corresponding figure will be fixed at the 2.25% mark in the middle of the current year.
