IMF: Germany's fiscal stimulus unlikely to offset drag on eurozone from US tariffs

Alfred Kammer, the head of the International Monetary Fund's (IMF) European Department, stated that Germany's fiscal stimulus policy will boost European economic growth in the coming years, but it will not be enough to offset the drag caused by US tariffs.

Due to the aggressive tariff policies introduced by US President Trump, the IMF lowered its growth forecasts for the eurozone last week, as well as for the US, the UK, and many Asian countries.

The IMF revised down its growth forecasts for the eurozone by 0.2 percentage points for each of the next two years, projecting growth of 0.8% in 2025 and 1.2% in 2026.

In an interview with the media, Kammer said, "The factors weighing on the outlook are mainly tariffs and trade tensions, rather than the positive impact of fiscal measures."

He added, "What we are seeing is a significant downward revision in growth expectations for advanced European economies... while the downward revision for emerging eurozone countries is twice that of advanced economies."

Kammer pointed out that the infrastructure spending bill recently passed by Germany will boost eurozone growth over the next two years and slightly offset the negative impact of tariffs.

Germany has relaxed its long-standing debt restrictions, not only increasing defense spending but also planning to establish a special fund totaling 500 billion euros (approximately $548 billion) through debt financing for infrastructure projects in transportation, power grids, and other areas.

Economists believe that this move is expected to have a significant impact on Germany's struggling economy.

As Europe's largest economy, Germany has experienced two consecutive years of economic contraction, making it the only G7 member country that failed to achieve economic growth in the past two years.

However, optimism has been shaken by US tariffs, and it is widely expected that the trade policies of the Trump administration in the US will curb global economic growth and trade flows.

Last week, the German government lowered its forecast for economic growth this year, projecting that its gross domestic product (GDP) will stagnate after two consecutive years of contraction.

Robert Habeck, the outgoing German Minister of Economy, stated that the boosting effect of the German government's fiscal stimulus measures on the economy will only become apparent next year, with growth expected to reach 1%.