IMF Warns of ‘Mediocre Growth’ for Europe Amidst Trade Tensions

Europe is transitioning into a period of weaker medium-term growth following a strong post-pandemic rebound, according to cautions issued today by the International Monetary Fund (IMF).

Speaking at the IMF’s 2025 Annual Meeting, Alfred Kammer, Director of the IMF’s European Department, stated that while the initial recovery was driven by higher real wages, lower interest rates, and effective policymaking, new headwinds from trade and geopolitical tensions are now impacting the outlook. “The pandemic and the energy crisis were huge shocks…and what we see is now the end of that recovery,” Kammer said, predicting that these tensions will shave off 0.5% of growth cumulatively through 2026. This slowdown comes as concerns mount over the potential for escalating global trade disputes to further destabilize economic recovery.

Despite these challenges, the IMF noted the success of the euro area and the European Central Bank (ECB) in controlling inflation, suggesting the ECB can maintain a terminal rate of 2% unless “material shocks” alter the inflation outlook. However, Central and Eastern European Countries (CC) still face higher inflation and require a more cautious approach to easing monetary policy. Kammer advised CC countries to remain “data-dependent, meeting-by-meeting and need to ease only gradually.” You can learn more about the ECB’s monetary policy on their official website.

The IMF emphasized the need for deeper reforms to address long-standing constraints on European growth, including reducing intra-European trade barriers, advancing a Capital Markets Union, improving labor mobility, and developing an energy union. Kammer predicted that implementing these reforms, alongside structural changes, could boost Europe’s GDP by 9% over 10 to 15 years. He also stressed the importance of fiscal consolidation, warning that without it, public debt could double over the next 15 years, reaching around 130% of GDP – a situation that could threaten the stability of the European economy.

Kammer concluded that Europe “can act, Europe must act, and Europe must do so now,” urging policymakers to build a narrative to gain public support for necessary, but potentially unpopular, reforms.