J.P. Morgan has joined its Wall Street counterpart, Goldman Sachs, in forecasting an increase in the Eurozone’s economic growth for 2025, citing Germany’s expansionary financial reforms.
Similar to Goldman, J.P. Morgan expects growth to rise by 0.1 percentage points, reaching 0.8%. For 2026, the bank forecasts a growth rate of 1.2%, an increase of 0.3 percentage points.
Economists at J.P. Morgan stated in a note dated last Friday:
“This revision is based on economic shifts in Germany, but we also anticipate slightly stronger growth in the rest of the region due to spillover effects and a slight easing of fiscal policy.”
Last week, parties involved in Germany’s new government formation negotiations agreed to attempt easing restrictions on financial regulations, which govern public spending, taxation, and debt management. This relaxation could lead to a substantial increase in borrowing, amounting to nearly one trillion euros, to finance defense and infrastructure spending.
However, J.P. Morgan also warned that uncertainty stemming from U.S. President Donald Trump’s tariff policies could impact economic growth in the coming months. The bank also noted a slight increase in the Eurozone inflation rate for both this year and the next.
In its sixth rate cut since June, the European Central Bank (ECB) lowered the deposit rate to 2.5% on Thursday, down from 3.0%. However, it cautioned about “immense uncertainties,” referring to the significant unpredictability surrounding multiple economic factors, including trade wars and increased defense spending. These elements could drive inflation higher, raising the likelihood that the ECB will halt its monetary easing measures next month.
In the same note, J.P. Morgan stated that it no longer expects the ECB to cut interest rates in April, revising its previous forecast of a 25 basis point reduction. Instead, the bank now anticipates only two rate cuts this year, in June and September, rather than the previously expected three cuts.
J.P. Morgan also highlighted potential risks, stating:
“We draw attention to the possibility of the U.S. imposing tariffs on European goods, which could prompt the ECB to hold an emergency meeting in April and return to a sequential approach.”
