IMF downgrades Europe's economic outlook

The International Monetary Fund has downgraded Europe's economic outlook for 2025 and 2026. Back in January the IMF estimated the euro zone would see growth rates of one percent and 1.4 percent. 

The IMF's new projections are for 0.8 percent growth this year and 1.2 percent in 2026.

The global financial agency has warned that global trade tensions could further erode growth. 

"Financial conditions could become tighter, and even though the financial system generally appears resilient, strains could occur. Larger fiscal easing due to higher defense spending and lower energy prices are upside risks, especially beyond 2025," the IMF wrote in its latest forecast. 

The IMF is holding its annual Spring meeting in Washington D.C. In a press conference to accompany the agency's Regional Economic Outlook for Europe, the IMF's Director of the European Department, Alfred Kammer, warned that trade tensions are bad for growth and said that the longer tariffs remain in place, the longer the impact for the global economy.

Over recent months the United States has imposed a raft of tariffs on nations around the world, including a 25 percent duty on the import of European steel and aluminum. The European Commission has held off on imposing countermeasures as negotiations with the Trump administration continue. 

The European Commission's commissioner for trade, Valdis Dombrovskis, is in the U.S. capital for talks with Treasury Secretary, Scott Bessent.

"The strategy of the European Commission has been very clear from the start, we'll talk to anyone we need to talk to to get the message across that we want to avoid tariffs and that we want to strike win-win agreements with our U.S. counterparts," said European Commission spokesperson Olof Gill. 

Together the U.S. and EU account for close to 30 percent of global trade but the Trump administration says the partnership is unfair, a charge rejected by Brussels. 

The IMF has expressed hope that negotiations are successful stating that increased trade is an engine for economic growth.

Despite facing economic headwinds and several years of sluggish growth, the IMF says Europe can be competitive on a global stage but needs to do more to encourage innovation and make the continent more attractive for startups. 

The financial body also expects inflation in Europe to reach a benchmark level of two percent in the second half of this year. 

The IMF also stated that Germany's commitment to boost public spending for infrastructure and defense could yield modest growth for Europe's largest economy.