Europe's Economic Outlook Brightens Amid German Reforms

J.P.Morgan, in alignment with Goldman Sachs, foresees a rise in the euro area's economic growth in 2025 due to Germany's fiscal reforms, predicting growth increases for 2025 and 2026. However, U.S. tariffs and trade policies pose growth risks, with cautious ECB rate cuts anticipated.

J.P.Morgan has joined Goldman Sachs in projecting an optimistic outlook for the euro area's economic growth in 2025, largely driven by Germany's initiative to relax fiscal constraints. Both financial powerhouses predict a 0.1 percentage point boost, bringing the growth up to 0.8%.

According to J.P.Morgan economists, this uptick is expected not only from Germany's fiscal policy changes but also from broader regional effects and relaxed fiscal measures. The brokers noted a potential trillion-euro borrowing to fund defense and infrastructure spending in Germany as key stimuli, despite cautioning against volatile uncertainties like U.S. tariff policies that could derail progress.

The European Central Bank's recent decision to lower the deposit rate and refrain from further cuts signifies the challenges ahead, as uncertainties linger about trade wars impacting inflation and economic growth. In this financial landscape, JPM foresees only two ECB rate cuts this year, forecasting potential mid-year policy revisions prompted by ongoing global trade dynamics.

(With inputs from agencies.)