JPMorgan Revises Euro Area Economic Growth Upward for 2025

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J.P. Morgan has joined Goldman Sachs in forecasting a boost to the euro area’s economic growth in 2025, driven by Germany’s fiscal reforms. JPM predicts growth will rise by 0.1 percentage point to 0.8% in 2025, with a further increase to 1.2% in 2026, up by 0.3 percentage points. This revision is largely attributed to Germany's fiscal policies, with expected positive spillover effects across the region due to slightly looser fiscal measures.

However, JPM economists also pointed out potential risks, notably from the uncertainty surrounding Trump's tariff policies, which could impact economic growth in the short term. The bank also forecasts a slight uptick in inflation for the euro area this year and next.

Meanwhile, the European Central Bank (ECB) made its sixth rate cut since June, lowering the deposit rate to 2.5%. However, the ECB warned of "phenomenal uncertainty," including concerns that trade wars and increased defense spending could drive up inflation, potentially halting further rate cuts. JPM no longer expects a rate cut in April and now forecasts only two cuts this year, in June and September, rather than the previously expected three. They also noted that potential US tariffs on European goods could prompt a shift in the ECB's strategy, possibly leading to a change in policy in April.

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