The German fiscal impetus will not exceed the tariff drag for the euro area: IMF

Higher costs for German infrastructure will increase Europe’s economic growth in the coming years – but not enough to exceed the expected drag of US tariffs, according to Alfred Camer, director of the European Department of the International Monetary Fund.

IMF last week reduced its growth prospects for the euro area by also making a decrease in USA., Britain and Many Asian countries Due to the variable tariff policy of President Donald Trump.

The institution reduced its euro area growth forecasts for each of the next two years by 0.2 percentage points to 0.8% in 2025 and 1.2% in 2026.

“Tariffs and trade tensions weigh on the prospects, not the positive effects of the fiscal side,” Camer Roth from CNBC told CNBC in an interview with the IMF Bank’s spring meetings.

“What we see is that we have a significant decrease in advanced economies in Europe … And for developing euro area countries, they double so much during this two -year period.”

The negative impact of tariffs will be slightly offset by The recent bill on infrastructure costs in GermanyWhich will increase the growth of the euro area during these two years, said Camer.

Exceptions handed over to Germany Long -standing rules for debt They unlocked higher defense costs and allowed the creation of infrastructure and climate fund of $ 500 billion ($ 548 billion). This move has been described by economists As a potential “change of game” for the slow economy – the biggest in the euro area.

However, optimism is shaken by US tariffs that are expected to Suppress global growth and commercial flowsS

Several politicians in the European Central Bank told CNBC last week The fact that although the path of inflation seems positive -with tariffs potentially reduce inflation in the block further -their wider perspective was already significantly more uninsured.

The IMF camera said the ECB should only reduce interest rates once again, with a quarterly percentage, despite the risks of growth.

So far, the ECB has reduced prices seven times in a quarter percent steps, starting in June 2024. Its last move lower in April took the deposit facility, a key rate, up to 2.25%.

“We have a very clear recommendation for the ECB. What we have seen so far is a huge success in the efforts of disinflation and monetary policy works … So we expect to sustain a sustainable goal for inflation by 2% in the second half of 2025,” Camer told CNBC.

“Our recommendation is that in the summer there is room for another 25-base point, and then the ECB has to hold this 2% policy, unless big shocks are hit and no monetary policy is needed,” he added.

Prices for exchanging an index for one night on Monday indicated the market expectations for two more cuts per quarter point this year.