The U.S. economy is showing resilience as it rebounds from the coronavirus pandemic, but the outlook for the eurozone is further dimmed by recent crises and serious problems, according to IMF forecasts released on Tuesday.
In its latest World Economic Outlook report, the International Monetary Fund lowered its forecast for euro zone growth in 2025 to 1.2% from 1.5% in July, due to challenges in countries with manufacturing recessions such as Germany.
In contrast, the world's largest economy is expected to grow by 2.2% next year.
The United States and the eurozone have diverged over the past two years, with the U.S. economy set to grow by 2.9% in 2023, significantly faster than the eurozone's 0.4%, according to IMF figures.
The fund expects the U.S. economy to grow by 2.8% in 2024, also faster than the euro zone's 0.8% growth forecast.
“Europe has experienced two shocks, while the US has only experienced one,” EY chief economist Gregory Daco told AFP.
European countries were hit hard by Russia's full-scale invasion of Ukraine in February 2022, after recovering from the pandemic that caused historic recession around the world.
This once again caused energy prices to skyrocket and disrupted regional supply chains, but the impact was small due to the United States' distance from the conflict and its high level of energy independence.
german food stall
In particular, the war had a major impact on Germany, the euro zone's largest economy, and its economy was set to contract in 2023.
Germany's economy will not grow this year and is expected to grow by just 0.8% in 2025, according to the latest IMF report.
The 2025 figure has been revised downward from the 1.3% growth forecast in July.
“The persistent weakness in manufacturing is weighing on growth in countries such as Germany and Italy,” the IMF said.
Italy's domestic demand is expected to benefit from a recovery plan financed by the European Union, but “Germany is experiencing distortions from fiscal consolidation and a sharp decline in real estate prices,” the fund said.
However, he said, “Growth in the euro area appears to have reached its lowest point in 2023.''
France, the EU's second-largest economy, is expected to record modest growth of 1.1% this year and next.
US advantages
EY's Daco said the United States benefits from more favorable structural factors and has “twice the growth prospects of Europe, given population growth, investment rates and productivity.”
He pointed to a younger and more competitive U.S. population.
Other factors included support from the Washington government for households and businesses during the pandemic, which helped support consumption.
He said funding from the government's CHIPS Act and Science Act, and the Control of Inflation Act to boost the domestic semiconductor and clean energy industries, respectively, is also stimulating the economy.
Meanwhile, Europe is struggling to respond to these major initiatives.
A report by former European Central Bank president Mario Draghi, released in September, aims to narrow the economic gap between Europe and the United States.
“It is important that Mario Draghi's proposals to strengthen Europe's competitiveness are quickly followed up with concrete and ambitious structural policies,” ECB President Christine Lagarde said last Thursday.
