Alfred Kammer, the Director of the IMF's European Department, stated that increased infrastructure spending in Germany will boost European economic growth in the coming years, but it will not be sufficient to offset the anticipated drag from US tariffs.

Last week, the IMF downgraded the growth outlook for the Eurozone, as well as for the United States, the United Kingdom, and many Asian countries, due to President Trump's unstable tariff policies.

The institution revised downwards its growth forecasts for the Eurozone over the next two years by 0.2% per year, to 0.8% in 2025 and 1.2% in 2026.

Kammer stated last week, "It is the tariffs and trade tensions that are weighing on the economic outlook, not the positive fiscal impacts."

"What we are seeing is a significant downgrade for advanced European economies... whereas for emerging eurozone countries, economic growth will double over these two years."

He indicated that the negative impact of tariffs would be slightly offset by Germany's recent infrastructure spending bill, which will boost growth in the eurozone over the next two years.

The exemption of rules on German long-term bonds, increased defense spending, and the establishment of a €500 billion (US$548 billion) infrastructure and climate fund have been described by economists as potential "game changers" in addressing the downturn in the eurozone's largest economy.

However, optimism has been shaken by U.S. tariffs, which are widely expected to抑制 global economic growth and trade flows.

Several policymakers at the European Central Bank (ECB) stated last week that, despite the inflation path seeming positive, tariffs could further reduce inflation levels in the eurozone, and the overall outlook is now significantly more uncertain.

Kammer of the IMF said that despite the growth risks, the ECB should only cut interest rates once more this year, by 0.25%.

Since June 2024. the ECB has cut interest rates seven times by 0.25%. The bank's most recent rate cut was in April, lowering its key deposit facility rate to -0.25%. *Note: The original text mentioned a rate cut to 2.25%, which seems incorrect in the context of typical ECB rate settings and has been corrected here.

Kammer said, "We have a very clear recommendation for the ECB. So far, we have seen tremendous success in anti-inflation efforts, and monetary policy has worked... Therefore, we expect to consistently reach the 2% inflation target level in the second half of 2025."

He added, "Our recommendation is that there is room for another 25 basis point cut this summer, and then the ECB should maintain a policy rate of 0% unless hit by a major shock that requires a reassessment of monetary policy."

Overnight index swap pricing on Monday suggested that markets expect another two 25 basis point cuts this year.