IMF’s Kammer says tariff drag could overshadow Eurozone growth despite German fiscal boost

Alfred Kammer, director of the European department at the International Monetary Fund (IMF), said higher German infrastructure spending will boost Europe’s economic growth in the coming years—but it will not be enough to outweigh the drag expected from U.S. tariffs. Kammer said the recently approved multi-billion economic stimulus package in Germany is not enough to outweigh the projected drag from U.S. tariffs. He added that the IMF has a very clear recommendation for the European Central Bank (ECB), noting that so far, there has been a huge success in the disinflation effort and monetary policy has worked–so the IMF is expecting the Eurozone to sustainably hit the 2% inflation target in the second half of 2025. Kammer said the IMF’s recommendation for the ECB is that there is room for one more 25 basis points cut in the summer, and then the ECB should hold that 2% policy rate unless major shocks hit and there is a need for recalibrating monetary policy. Kammer says increased spending in Germany will not offset U.S. tariff drag Kammer during an interview with CNBC’s Carolin Roth. Source: CNBC According to Kammer, Germany’s recent infrastructure spending bill will only offset the negative impact of tariffs “slightly,” which will boost growth in the euro area over the next two years. However, the deputy director of the IMF’s European department, Oya Celasun, said on Friday that Germany’s fiscal expansion will boost its economy starting in 2026 to offset the increased drag from U.S. tariffs after years of weak growth. Celasun told a panel during the IMF and World Bank spring meetings in Washington that she did not expect Germany’s increased spending to happen quickly. She, however, pointed out that it would be a dominant factor in offsetting the ongoing drag from trade tensions as “we move into 2026 and 2027.” Kammer told CNBC’s Carolin Roth in an interview at the IMF-World Bank Spring Meetings last week that tariffs and trade tensions weighed on the euro area’s growth outlook rather than the positive effects on the fiscal side. The IMF cut its Eurozone growth forecasts for each of the next two years by 0.2 percentage points, to 0.8% in 2025 and 1.2% in 2026. “What we see is we have a meaningful downgrade for Europe’s advanced economies…and for the emerging euro area countries double as much over this two-year period.” – Alfred Kammer , Director of the European Department at the International Monetary Fund (IMF) Kammer also suggested that the ECB should cut interest rates by a quarter percentage point only once more this year, despite growth risks. The ECB has so far reduced rates seven times in quarter-percentage-point increments, starting in June 2024. Its most recent rate cut in April took the deposit facility down to 2.25%. IMF praises German multi-billion fiscal stimulus package The IMF’s Managing Director Kristalina Georgieva said on April 24 that the global economy was entering a “new era,” praising what she described as “impossible” policy shifts in Germany, Britain, and Argentina. The IMF particularly praised the special fund for infrastructure, saying that the package was likely to boost growth in the near term and also have a long-term impact. Germany’s parliament approved in March plans for a massive spending surge, throwing off decades of fiscal conservatism in hopes of reviving economic growth and scaling up military spending. The stimulus package will allow investments in defense, transport, energy grids, schools, sporting facilities, and climate protection. The IMF urged Germany to embark on reforms, stressing that the most important thing was to cut red tape so that the special fund could actually achieve its full impact. The fund also asserted that Germany should help more women to work full-time. Cryptopolitan Academy: Want to grow your money in 2025? Learn how to do it with DeFi in our upcoming webclass. Save Your Spot

Source: Cryptopolitan