The IMF has cut its growth forecasts for the eurozone to below 1%
The bloc’s annual economic report: in 2026, GDP growth will stand at 0.9 per cent; in 2027, it will be 1.2 per cent, ‘0.5 and 0.2 percentage points below pre-war estimates’. Inflation will rise to 2.8% this year and 2.3% next year, i.e. 0.8 and 0.4 percentage points above the estimates made before the conflict
Key points
- ECB forced to tighten policy
- Don’t weaken the ETS
The International Monetary Fund has lowered its growth forecast for the Eurozone to below 1%, a reduction of two tenths of a percentage point compared with its April estimates, when it had already revised them downwards due to the war in Iran and the Middle East.
Weaker outlook
‘The outlook for the Eurozone has weakened’ and, in 2026, growth will stand at 0.9%, before rising to 1.2% in 2027. The downward revision, compared with pre-war estimates, is of “0.5 and 0.2 percentage points”, according to the conclusions of the bloc’s annual economic report (Article IV), released on 11 June. Inflation will rise to 2.8% this year and 2.3% next year, which is 0.8 and 0.4 percentage points higher than the estimates made before the conflict.
“A more persistent energy shock,” the Fund warns, “could push prices and inflation expectations even higher, although a decline in confidence or financial stress could weaken demand.”
ECB forced to tighten
According to the Fund’s analysts, the rate hike announced by the ECB on 11 June is likely to be followed by another tightening, resulting in a total increase of 50 basis points by 2026. Clearly, a deterioration in the situation could lead to further tightening.
Support for businesses in the green transition
The IMF then reiterated its call for caution regarding measures to cushion the impact of energy costs, stating that ‘blanket fiscal support is not justified’ and could in turn fuel inflation, leading to ‘an even more restrictive monetary policy to maintain price stability’.
