Our economic outlook for the euro area
April 09, 2025
Our outlook for year-end 2025
Less than 1%
Economic growth,
year over year
The imposition of U.S. tariffs on euro area goods counteracts gains in economic growth that we had expected from Germany’s announced infrastructure and defense program, a broader increase in defense spending across Europe, and the prospect of a ceasefire in Ukraine.
Just under 2%
Core inflation, year over year
We expect a short-term boost in prices related to the tariff environment to give way to softening inflation in the medium term as growth falls below potential. The new prevailing risk is of a material undershoot of the 2% inflation target set by the European Central Bank (ECB).
1.75%
Monetary policy rate
A weaker growth and medium-term inflation outlook implies a more dovish ECB. We now foresee three quarter-point cuts from the current 2.5% policy rate, more than the one quarter-point cut we had anticipated previously.
Around 6.5%
Unemployment rate
We expect momentum in the labor market to stall amid a deteriorating growth outlook and the unemployment rate to rise from its current record low of 6.2%.
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