IMF Slashes Eurozone Growth to 1.1% as Energy Crisis Bites

The International Monetary Fund has revised downward its outlook for the euro area, now projecting economic growth of 1.1% this year. The adjustment reflects mounting pressure from rising energy costs, which continue to weigh heavily on industrial activity across the region.

In its first updated assessment since the escalation of the Middle East conflict, the IMF pointed to additional strain coming from currency dynamics. A stronger euro against the dollar and other major currencies is making exports less competitive globally, putting further pressure on European producers. The projections assume that the US-Israeli war with Iran will persist for several more weeks before conditions begin to stabilize and oil exports gradually return to normal.

Compared to earlier expectations, the downgrade is notable. The fund had previously anticipated 1.4% growth, meaning the latest estimate is 0.2 percentage points lower than its January outlook. Within the bloc, Germany is expected to expand by 0.8%, reflecting a reduction from prior forecasts as its energy-intensive industries struggle with higher costs.

France has also seen its growth outlook cut, now estimated at 0.9%, a decline of 0.3 percentage points. Italy’s economy is projected to grow by just 0.5%, unchanged from last year, while Spain remains one of the stronger performers, with expected growth of 2.1%, supported largely by tourism.

Beyond the eurozone, the IMF has lowered its forecast for the United Kingdom as well. The British economy is now expected to grow by 0.8%, down from an earlier estimate of 1.3%. The revision is partly attributed to “a slower pace of monetary easing” compared to other major economies, highlighting differing policy trajectories amid ongoing global uncertainty.