France And Germany Will Slow Eurozone Down: IMF

The economies of France and Germany will grow by less than expected this year and next, weighing on the eurozone's overall performance, the International Monetary Fund said Tuesday

Paris, (UrduPoint / Pakistan Point News - 16th Apr, 2024) The economies of France and Germany will grow by less than expected this year and next, weighing on the eurozone's overall performance, the International Monetary Fund said Tuesday.

In its latest World Economic Outlook report, the IMF slashed its forecasts for growth in the eurozone's top two economies this year by 0.3 percentage points as high interest rates continue to weigh on the region.

It now expects French growth to slow to 0.7 percent this year, from 0.9 percent in 2023.

Meanwhile, the German economy should manage only a weak recovery of 0.2 percent, from the 0.3 percent contraction it suffered last year, as "persistently weak consumer sentiment" hobbles its performance, the IMF said.

Both countries will underperform the overall eurozone, which is expected to see growth accelerate to 0.8 percent this year, from 0.4 percent in 2023. That is a drop of 0.1 points from the IMF's previous 2024 forecast made in January.

"In the euro area, growth will pick up this year, but from very low levels, as the trailing effects of tight monetary policy and past energy costs, as well as planned fiscal consolidation, weigh on activity," the IMF said in its report.

"Stronger household consumption, as the effects of the shock to energy prices subside and a fall in inflation supports growth in real income, is expected to drive the recovery," it added.

It is the third consecutive downgrade by the IMF of its forecast for German growth, and the second for France. As of last October it saw France's growth picking up steam to 1.3 percent this year.

Germany's lacklustre economic performance has seen it once again labelled by analysts as the "Sick man of Europe", unheard of since the late 1990s when it was weighed down by the cost of unification.

Increasing competition from Chinese manufacturers, the transition to a green economy and the rise of energy costs following the Russian invasion of Ukraine all weighed heavily on the German economy, BNP Paribas economist Stephane Colliac told AFP.

Inflation and high interest rates continue to weigh upon the French economy, as does Germany's weak recovery, he added.

"The geopolitical context is not favourable to growth and confidence," a source in the French economy ministry said, pointing to attacks by Yemeni rebels on shipping through the Red Sea and the risk of the conflict in the Middle East spreading, as well as the continued fighting in Ukraine.

The IMF's forecast for Germany is now in line with that of the German government.

The French government lowered its 2024 growth forecast in January to 1.0 percent, but that is now seen as too optimistic. The French central bank sees 0.8 percent growth, the OECD 0.6 percent, and the European Commission 0.9 percent.

The IMF sees the French and German economies continuing to underperform the overall eurozone in 2025, which is seen as growing by 1.5 percent, a cut of 0.2 points from its previous forecast.

It expects the French economy to pick up the pace to a 1.4 percent expansion, with German growth accelerating to 1.3 percent, a cut in 0.3 points for both.

A reduction in interest rates by the European Central Bank is seen as a big reason for the pick-up in growth in the eurozone.

With eurozone inflation steadily slowing in recent months, the European Central Bank last week reiterated that it was eyeing a first rate cut in June.

The IMF sees Italy's economy slowing from 0.9 percent growth in 2023 to 0.7 percent this year, unchanged from its previous forecast. For next year, the IMF cut its forecast from 1.1 percent to 0.7 percent.

It hiked its 2024 growth forecast for Spain by 0.4 points to 1.9 percent. It left its 2025 forecast unchanged at 2.1 percent.