#GermanInfrastructure

[thehustlejournal]

IMF: German Spending Surge Won’t Offset Economic Strain from U.S. Tariffs

The International Monetary Fund has warned that a surge in German infrastructure investment will provide a modest boost to euro zone growth, but not enough to counterbalance the mounting pressure from U.S. tariffs.

Alfred Kammer, the IMF’s European department director, said the recently approved German fiscal package — including a €500 billion ($548 billion) infrastructure and climate fund — will lift economic activity in the euro area, but its impact will be overshadowed by trade tensions. “It’s the tariffs and trade tensions that are weighing on the outlook, rather than the positive effects of fiscal policy,” Kammer said in an interview during the IMF-World Bank Spring Meetings.

Last week, the IMF downgraded its euro area growth forecasts by 0.2 percentage points, projecting GDP growth of just 0.8% in 2025 and 1.2% in 2026. The forecast reductions extended to several major economies, including the U.S., U.K., and parts of Asia, amid ongoing global trade uncertainty.

Germany’s break from its traditional fiscal constraints has enabled higher defense spending and major investment initiatives aimed at revitalizing Europe’s largest economy — moves economists have described as a potential "game changer." Still, Kammer cautioned that the broader euro zone outlook remains fragile due to the disruptive effects of American protectionist trade policies.

At the same time, the European Central Bank is being urged to proceed cautiously with further monetary easing. Kammer stated the IMF sees room for just one additional interest rate cut this year — a 25-basis-point reduction — before holding steady. The ECB has already cut rates seven times since June 2024, bringing its key rate to 2.25% as of April.

“We’ve seen substantial progress on disinflation, and monetary policy has been effective,” Kammer said. “We expect inflation to sustainably reach the 2% target in the second half of 2025. That allows for one more cut, likely in summer, before pausing — unless unexpected shocks require further adjustments.”

Despite this guidance, markets are currently pricing in two more rate cuts for 2025, reflecting ongoing uncertainty in the global economic landscape.