IMF cuts euro zone growth forecast amid tariff uncertainty

BRUSSELS (Reuters) -The International Monetary Fund on Tuesday cut its economic growth forecast for the euro zone for this year and next, citing the increase in U.S. tariffs and uncertainty surrounding their implementation.

The IMF cut its forecast for the 20 countries sharing the euro currency to 0.8% growth in 2025 and 1.2% growth in 2026, both forecasts 0.2 point lower than the lender of last resort predicted at the start of the year.

"Rising uncertainty and tariffs are key drivers of the subdued growth in 2025," the IMF said in its regular forecast.

"The offsetting forces that support the modest pick-up in 2026 include stronger consumption on the back of rising real wages and a projected fiscal easing in Germany following major changes to its fiscal rule (the 'debt brake')," it said.

The IMF said Spain's economy enjoyed the strongest growth momentum in Europe, and could grow 2.5% this year, an upward revision of 0.2 percentage point from January.

"This reflects a large carryover from better-than-expected outturns in 2024 and reconstruction activity following floods," the forecast said.

The IMF also forecast that the European Central Bank would cut its main policy rate to 2% by mid-year from 2.25% now.

"In the euro area, 100 basis points in cuts are expected in 2025 (with three cuts having already occurred this year), representing two more 25 basis point cuts than in the assumptions underlying the October (forecast), bringing the policy rate to 2% by the middle of the year," the IMF said.

(Reporting by Jan Strupczewski; Editing by Andrea Ricci)