J.P.Morgan followed Goldman Sachs in predicting a rise in the euro area’s economic growth for 2025. They attribute this to Germany’s fiscal loosening reforms.
Like Goldman, JPM anticipates growth will rise by 0.1 percentage point, reaching 0.8%. JPM forecasts 1.2% growth for 2026, a 0.3 percentage point increase.
JPM economists stated in a note dated late Friday, “This revision is primarily driven by Germany, but we also anticipate slightly stronger growth across the rest of the region from spillovers and slightly looser fiscal policy.”
Last week, parties negotiating Germany’s new government agreed to attempt to relax fiscal rules. This could lead to nearly a trillion-euro borrowing boom to finance defence and infrastructure spending.
However, the brokerage cautioned that uncertainty from Trump’s tariff policy might negatively affect economic growth in the coming months. They also estimated a slight increase in the euro area’s inflation for this year and next.
The European Central Bank (ECB) lowered the deposit rate to 2.5% on Thursday, marking its sixth cut since June. However, the ECB warned of “phenomenal uncertainty”, including the risk that trade wars and increased defence spending could fuel inflation. This raises the possibility of a pause in their policy easing next month.
JPM stated in the same note that they do not expect the ECB to cut rates in April, revising their previous projection of a 25 basis point cut. The brokerage now expects only two interest rate cuts this year, in June and September. They previously estimated three rate cuts.
JPM added, “We highlight risks that the potential imposition of US tariffs on European goods could also push them to a live meeting in April and back to the back-to-back approach.”
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