The International Monetary Fund said on Tuesday that economic growth in France and Germany will be weaker than expected this year and next, weighing on performance across the euro zone.
In its latest World Economic Outlook report, the IMF cut its growth forecast for the eurozone's top two countries this year by 0.3 percentage points, as high interest rates continue to weigh on the region.
France's growth rate is currently expected to slow to 0.7% this year from 0.9% in 2023.
Meanwhile, Germany's economy should recover only a weak 0.2% from last year's contraction of 0.3% as “persistently weak consumer sentiment” continues to weigh on performance, the IMF said.
Growth is expected to accelerate to 0.8% this year from 0.4% in 2023, with growth in both countries slower than that of the eurozone as a whole. This is 0.1 percentage point lower than the IMF's previous 2024 forecast released in January.
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“Growth in the euro area is expected to pick up this year, but from very low levels as tight monetary policy, historical energy costs and the impact of planned fiscal consolidation weigh on economic activity,” the IMF said in a report. It will grow,” he said. .
“Strong household consumption is expected to drive the economic recovery as the impact of the energy price shock subsides and falling inflation supports real income growth.''
This is the third consecutive time the IMF has cut Germany's growth outlook, and the second time for France. As of October last year, France's growth rate was expected to accelerate to 1.3% this year.
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Germany's weak economic performance has once again led analysts to label it the “sick man of Europe”, an unprecedented move since the late 1990s, when the costs of unification weighed on Germany.
Intensifying competition from Chinese manufacturers, the transition to a green economy and rising energy costs following Russia's invasion of Ukraine are weighing on Germany's economy, BNP Paribas economist Stephane Koriak told AFP.
He said inflation and high interest rates continued to weigh on the French economy, and Germany's economic recovery was also weak.
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“The geopolitical situation is unfavorable for growth and confidence,” said a French Economy Ministry official, pointing to attacks by Yemeni rebels on shipping through the Red Sea and the risk of escalating conflict in the Middle East. Continued fighting in Ukraine.
The IMF's forecasts for Germany are now in line with the German government's forecasts.
In January, the French government lowered its growth forecast for 2024 to 1.0%, which is seen as too optimistic. The French central bank is forecasting growth of 0.8%, the OECD is forecasting growth of 0.6% and the European Commission is forecasting growth of 0.9%.
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The IMF expects the French and German economies to continue to grow at a lower rate than the euro area as a whole in 2025, with the growth rate expected to be 1.5%, down 0.2 points from the previous forecast.
The French economy is expected to accelerate to 1.4% growth, and Germany's growth rate is expected to accelerate to 1.3%, both down 0.3 percentage points.
Interest rate cuts by the European Central Bank are seen as a major reason for accelerated growth in the euro area.
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Inflation in the euro zone has steadily slowed in recent months, and the European Central Bank reiterated last week that it is considering a first interest rate cut in June.
The IMF expects Italy's economic growth to slow to 0.7% this year from 0.9% in 2023, unchanged from its previous forecast. The IMF has lowered its forecast for next year from 1.1% to 0.7%.
Spain's growth forecast for 2024 has been raised by 0.4 points to 1.9%. The forecast for 2025 remains unchanged at 2.1%.
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