## Press Briefing: Europe Regional Economic Outlook

_IMF News, October 17, 2025_

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## Bibliographic details
- Published: October 17, 2025

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### Short-term outlook and growth drivers
- Pandemic and energy crisis were large shocks; recovery unfolded as expected but the recovery phase is ending and leading into a "dismal, mediocre" medium-term growth outlook for Europe.
- Short-term growth drivers:
  - Higher real wages supporting consumption.
  - Lower interest rates supporting investment spending.
  - Front‑loading of activity in response to tariff threats earlier this year.
- Trade and geopolitical headwinds:
  - Trade tariffs and uncertainty projected to shave off growth by 0.5 percent cumulatively for 2025-2026.
  - Higher infrastructure spending (Germany) and higher defense spending only partially offset tariff impacts.

### Inflation and monetary policy
- Euro area disinflation: assessed as "mission accomplished" — inflation target has been reached durably.
  - Recommendation: ECB can stay at a terminal rate of 2 percent and should change the policy rate only if material shocks materially change the inflation outlook.
- CESEE countries:
  - Inflation remains 1 to 3 percentage points above target.
  - Recommendation: CESEE central banks should remain data dependent, meeting by meeting, and ease only gradually to avoid unanchoring expectations.

### Structural reforms and European-level reforms (medium-term)
- Four priority EU-level reform areas:
  - Reduce intra-European trade barriers.
  - Prepare for deeper capital markets with the capital markets union.
  - Allow labor to move to where high-productivity jobs are (labor mobility).
  - Create an energy union to provide cheaper, less volatile energy.
- National structural and transformation reforms are also necessary to boost productivity.
- Quantified gains from reforms:
  - Combined Euro-level reforms (first step) plus national structural reforms would boost the level of GDP by 9 percent over 10 to 15 years.
  - Bundling a set of EU reforms over the next 10 years would provide a boost to the level of GDP of 3 percent.
  - Country-level distribution of gains from the bundling exercise: the country that gains least gets a boost in GDP level of 2 percent; the country that gains most gets an increase in 5 percent.
- Implementation considerations:
  - Speed up EU decision-making where possible (examples: coalition of the willing; consider majority voting in some areas) and smart sequencing and communication domestically to overcome political economy resistance.
  - Use the European budget to incentivize reform and to finance savings for European public goods: public investments in R&D, energy, and defense.

### Fiscal consolidation and long-term fiscal risks
- Long-term spending pressures: aging-related health care and pensions, digital transformation, clean energy transitions, and higher interest rates.
- Simulation outcome if fiscal policies are not adjusted:
  - Debt would double over the next 15 years and increase for the average European country to 130 percent of GDP.
- Role of reforms in fiscal adjustment:
  - Productivity-enhancing reforms raise incomes and contribute to fiscal consolidation.
  - Structural reforms could lower the fiscal adjustment requirement over the next five years by one-third to one-half of the effort.
- Policy recommendation: prioritize reform and fiscal consolidation now; "the long-term starts here and now."

### Ukraine: program discussions, macro outlook, and financing
- The Ukrainian authorities requested a new IMF program; IMF has begun discussions on the macro framework and structural transformation measures — discussions are progressing but will take time.
- Financing:
  - IMF emphasizes that financing relies on donors; Ukraine has started discussions with donors to close the financing gap.
  - On the use of immobilized Russian assets: IMF recommends countries considering doing so seek a strong legal underpinning and be aware of implications for the international monetary system.
- Macroeconomic effects of the war:
  - Growth has been dented, reflecting attacks on energy infrastructure and civilian harm.
  - Ukrainian authorities indicate the war will be lasting during 2026; this assumption is reflected in projections.
  - Current account: projections for 2025 reflect higher imports — both critical war-related imports and higher household imports due to loss of competitiveness.
  - Public debt: Ukraine's public debt is expected to rise above 100 percent of GDP in 2025.
- Program design priorities:
  - External viability and debt sustainability will be addressed in program discussions.
  - Continued anti-corruption, governance, and institutional reforms; domestic revenue mobilization with durable revenue measures; prepare for reconstruction and EU accession.

### Russia: outlook and constraints
- Growth downgraded for 2025 and 2026; growth has been significantly slowing since last year.
- Drivers of slowdown:
  - Weaker domestic demand following prior overheating and policy tightening (monetary and fiscal).
  - Weaker external demand due to lower oil prices and lower export volumes.
- Medium-term outlook remains very low growth because of sanctions, the war, and restricted technology transfers affecting productivity.

### Country-specific notes and policy advice
- Italy:
  - Growth near 0.5-0.7 percent between now and 2030 in IMF estimates.
  - Importance of productivity-enhancing reforms (NRRP follow-on reforms, labor market participation, skills, firm dynamics).
  - Fiscal stance: IMF forecasted a headline deficit of 3.3 percent of GDP for this year; Italian authorities report 3.0 percent and IMF will reflect updates when it revises forecasts.
  - Encourage continued fiscal consolidation alongside reforms.
- Spain:
  - Strong recent performance with "bumper" growth around 3 percent in recent years; IMF upgraded Spanish forecasts for this year and next year.
  - Key contributors: exports of services (not only tourism, but IT and communications), employment boom (three-quarters of employment increase came from immigration).
  - Near-term growth expected to remain robust but slow in the medium-term.
  - Policy priorities: productivity-enhancing reforms, active labor market policies, front-load fiscal adjustment to build confidence.
  - Housing: supply-side actions (planning and zoning), increased social housing, and addressing affordability to support labor mobility and growth.
- United Kingdom:
  - Support for consolidating budget events to once a year; one full appraisal for budget-setting is appropriate.
  - Two suggested areas for improvement: appraisal timing/role of additional forecasts and careful consideration of headroom in the budget.
  - AI: potential large upside for productivity, especially in services-heavy economies like the U.K.; need labor market policies and upskilling to spread benefits.
- Switzerland:
  - Comparatively modest debt burden and low borrowing costs.
  - Plan for 2025 is modestly expansionary fiscal policy to address remaining slack and deflationary pressure; fiscal space could be used if new adverse shocks emerge.
- Bulgaria and Eurozone enlargement:
  - Bulgaria expected to grow around 3 percent next year and the year after.
  - Short-term forces: strong domestic demand (euro adoption, lower interest rates), strong fiscal policy, credit developments; wage growth in region is rather exuberant and presses inflation up.
  - Policy priorities for Bulgaria: careful monetary stance under ECB from January, non-expansionary fiscal policies to avoid fueling wage growth, structural reforms to boost long-term convergence.
  - EU-level reforms (single market integration, capital market union) would benefit Bulgaria and CESEE region through stronger investment and productivity.
- Russia and CESEE regional concerns:
  - Across the CESEE region, watch inflationary pressures and wage growth; fiscal policy should avoid exacerbating pressures and support debt stabilization.

*Press Briefing: Europe Regional Economic Outlook, October 17, 2025 — IMF Communications Department*

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## References

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_Source: https://www.imf.org/en/news/articles/2025/10/17/tr-10-17-25-press-briefing-transcript-eur-reo_