(June 19): Europe risks drifting into stagnation without urgent action to tackle slowing growth, weak investment and rising geopolitical threats, the International Monetary Fund warned.
Trade tensions and low demand are choking momentum, with risks tilted sharply to the downside, the Washington-based institution said in a statement on Thursday. The euro area is expected to grow just 0.8% in 2025, despite record-low unemployment and inflation near target.
To revive productivity, the IMF called for a “decisive push” for a long-delayed deepening of the European Union’s single market, adding that fragmentation across borders is stifling innovation and corporate growth.
The cost to companies of existing barriers within the EU is equivalent to a 44% tariff on goods and 110% on services, the IMF said. Closing those gaps through regulatory harmonisation, capital market reforms and labour mobility could boost gross domestic product by 3% over a decade, it added.
As defence, ageing and climate costs push spending sharply higher, countries with fiscal space should invest, but highly indebted member states face painful consolidation, the IMF said. It called for a 50% increase in the EU budget to meet shared goals.
The fund sees risks of a worsening business environment for companies with exposure to the US, which could weigh on banks’ balance sheets. However, it described Europe’s banking system as “adequately capitalised and liquid” at the moment.
In its concluding statement after a so-called Article IV consultation, the IMF also warned that non-bank financial firms could threaten financial stability.
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