The International Monetary Fund has delivered a sobering assessment of Europe’s economic outlook, cautioning that Germany’s €48 billion fiscal stimulus package will be insufficient to counterbalance the Eurozone’s growing losses from global trade wars. According to the IMF’s latest Regional Economic Outlook, the currency bloc faces a 0.7% GDP drag in 2025 from retaliatory tariffs – three times the projected boost from Berlin’s measures.

Key Findings:

• Sectoral Impacts:

  • German carmakers face a 28% export decline to China – their most critical overseas market.

  • A 35% tariff wall now confronts Italian luxury exports in key developing markets.

• Geographic Divergence:

  • Northern Europe (Germany, Netherlands) to grow 0.4%

  • Southern Europe (Italy, Spain) contracts 0.3%

  • Eastern Europe buoyed by nearshoring (+1.1%)

Policy Dilemmas:

1. Monetary Policy: ECB torn between inflation (3.1%) and recession risks

2. Industrial Strategy: EU considering “emergency competitiveness pact”

3. Social Costs: 1.2 million manufacturing jobs at risk

Expert Commentary:
“Europe is caught in a perfect storm,” explains IMF Europe Director Alfred Kammer. “The US Inflation Reduction Act pulls investment west, Chinese tariffs push exports south, and domestic demand remains anemic.”

What’s Next?
The European Commission is drafting “asymmetric countermeasures” targeting specific US states and Chinese provinces, while accelerating the €720B Sovereignty Fund.