Alfred Kammer’s Opening Remarks at the Press Conference for the Regional Economic Outlook for Europe
IMF News, April 24, 2025
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- Authors: Alfred Kammer April
- Published: April 24, 2025
Forecast and near-term outlook
- Euro area growth forecast: 0.8 percent for 2025 and 1.2 percent for 2026.
- Size of downgrade relative to January 2025 forecast: -0.2 percentage points for both years.
- Drivers of weaker activity: increase in US tariffs, elevated uncertainty, tighter financial conditions.
- Impact of increased public spending on euro area growth: 0.1 and 0.2 percentage points of GDP in 2025 and 2026, respectively.
- US tariffs note: forecast includes all tariff announcements (US tariffs on the EU) up until April 4, 2025, at an estimated US effective rate of about 15 percent.
CESEE region outlook
- CESEE growth forecast: 2.6 percent for 2025 and 3.0 percent for 2026.
- Downgrade attribution: comparatively larger trade-exposed manufacturing sector in the region.
- Regional inflation persistence: inflation rates likely to remain above targets well into 2026 and for some until 2027.
- Country-specific note: Romania, Hungary, and Poland — high wage growth may take time to come down and could slow disinflation.
- Definition: CESEE excludes Belarus, Russia, Türkiye and Ukraine.
Risks to growth
- Downside risks: further deterioration of trade tensions and uncertainty; tighter financial conditions; possible strains despite generally resilient financial system.
- Upside risks: larger fiscal easing due to higher defense spending and lower energy prices, especially beyond 2025.
- Trade diversion preliminary estimate: higher imports from China of around 0.25 percent of EU GDP in the near term.
- Net effect caveat: net effects difficult to gauge; sector-specific safeguards should be time-limited, WTO-aligned, and well-communicated.
Inflation and monetary policy
- Euro area inflation: forecast to reach target sustainably in the second half of 2025 slightly faster than previously anticipated due to lower energy prices and softer demand.
- CESEE inflation: likely to remain above targets well into 2026 and for some until 2027 because of persistent services inflation and high labor costs.
- Monetary policy recommendation: IMF recommends that the ECB lower the policy rate to 2 percent this summer and maintain it there, barring major shocks.
- CESEE monetary stance: central banks should ease cautiously where inflation is still higher and more persistent.
- Monetary policy guidance: central banks should continue to normalize monetary policy with caution; monetary policy must remain agile and focused on durably reaching targets.
Medium-term structural challenges
- Demographics: by 2050 the working-age population will have shrunk in more than two-thirds of EU countries.
- Structural transformations: arrival of new technologies in automobile and AI sectors; sharp rise in energy costs.
- Productivity and investment: private investment and productivity growth have slowed; European firms have fallen behind the global productivity frontier (IMF October 2024).
- Single market fragmentation: Europe’s still very fragmented single market limits companies’ incentives and ability to innovate and scale up.
- Long-term spending pressures: over the next 25 years, social, defense, and climate spending alone will add almost 5 ¾ percentage points of GDP to budgets in advanced economies, and 8 percentage points in emerging Europe.
Reform opportunities and projected gains
- EU-level reforms: selected, actionable EU-level reforms could increase EU GDP by around 3 percent over the next decade.
- Key EU reform areas: lowering barriers to labor mobility; enhancing the functioning of capital markets; creating a more integrated electricity market; harmonizing laws and regulations (such as through a 28th regime).
- National reform gains: comprehensive national reforms could raise real GDP levels by about 5 percent in advanced Europe and between 7 to 9 percent in the CESEE region.
- Priority national reforms: raising skills of workers; improving functioning of labor markets; for advanced economies, boosting innovation; for several CESEE countries, strengthening the rule of law and combatting corruption.
- Historical integration payoff: last enlargement wave in 2004 led new member states to increase their GDP per person by 30 percent after 15 years versus what it would have been without accession.
Policy prescriptions (summary)
- Trade
- Aim for more, not less trade; preserve openness and expand free trade agreements.
- Support to viable businesses to mitigate tariff impacts should be temporary and targeted.
- Carefully assess trade diversion; consider sector-specific safeguards only where viable firms are at risk and ensure measures align with WTO principles, are time-limited, and well-communicated.
- Macroeconomic stability
- Ensure stability through balanced macroeconomic policies.
- Rebuild fiscal buffers where needed; those with low deficits and debt can temporarily accommodate priority defense spending but should return to debt sustainability goals over time.
- Countries with high debt levels should reallocate spending or boost fiscal revenues without delay.
- Structural reform and resilience
- Embrace structural reform agenda at EU and national levels to unlock growth potential and increase resilience.
- Focus areas include single market integration, labor mobility, capital market functioning, electricity market integration, harmonization of laws, worker skills, labor market functioning, innovation, rule of law, and anti-corruption measures.
Alfred Kammer — Opening Remarks at the Press Conference for the Regional Economic Outlook for Europe, April 24, 2025 (IMF Communications Department).
Content in this bundle
- IMF Staff Background Note on EU Energy Market Integration
- reoeurnote1
- Box 2.2. Regional Convergence after EU Accession
- Executive Summary
References
- Alfred Kammer
- Germany and the IMF
- Hungary and the IMF
- Republic of Belarus and the IMF
- Republic of Poland and the IMF
- Republic of Türkiye and the IMF
- Romania and the IMF
- Speeches
- PRESS CENTER
- Arnold, Claveres and Frie, 2024
- Eble et al., 2025
- Adilbish et al., 2025
- IMF, 2025
- https://www.imf.org/en/home