IMF warns of pressures on eurozone growth

The final statement regarding the assessment made by the IMF team regarding the Eurozone economy within the scope of Article 4 has been published.

The statement said the European economy remained resilient, with record-low unemployment, broadly targeted headline inflation and a stable financial system.

However, policymakers face increasing challenges such as trade tensions, rising demand for defense spending and energy security, the statement said, as well as low productivity, rapid ageing and weak medium-term growth.

The statement noted that the eurozone economy is navigating a challenging global environment of high tariffs, trade policy uncertainty and increasing geopolitical risks.

The statement, which stated that Eurozone growth is expected to remain moderate at 0.8 percent in 2025 and rise to 1.2 percent in 2026, stated that trade tensions and increasing uncertainty are darkening the domestic demand and export outlook, and that the geopolitical situation in Europe is also expected to put pressure on investment and consumption.

The statement stated that headline inflation in the region is close to 2 percent, and core inflation is expected to decline to 2 percent in 2026.

"Trade policy uncertainty, further tariff escalation or geopolitical tensions could put more pressure on demand and growth than expected. These would likely outweigh the potential positive effects of additional unexpected fiscal easing if more countries increase their defense spending," the statement said.

The statement noted that the risks to inflation were two-sided, with lower than expected non-energy goods prices, weaker than expected activity and wages, and the recent appreciation of the euro all likely to push inflation to lower levels than in the base case scenario.

Fiscal spending could be larger or more inflationary than assumed in the base case scenario, while geopolitical tensions, supply chain disruptions and escalating tariffs could lead to faster increases in import prices and wage growth could slow less than expected.

The statement stressed that structural constraints are weighing on the medium-term outlook, adding that "risks such as continued trade policy uncertainty, rising tariffs, still high and volatile energy prices, and the changing geopolitical context add to existing challenges stemming from ageing, skill shortages, and weak productivity trends."