Source: IMF – News in Russian
April 25, 2025
PARTICIPANTS:
MR. HELGE BERGER, Deputy Director, European Department, IMF
MS. OYA CELASUN, Deputy Director, European Department, IMF
MR. ALFRED KAMMER, Director, European Department, IMF
MODERATOR:
MS. CAMILA PEREZ, Senior Communications Officer, IMF
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P R O C E E D I N G S
(10:00 a.m.)
MS. PEREZ: Hi everyone. Thank you so much for joining today’s press conference on the European Economic Outlook. I’m Camila Perez. I’m a Communications Officer with the IMF. We’re pleased to be joined today by Alfred Kammer, sitting next to me, Director of the European Department here at the IMF. Also, with us we’ve got Oya Celasun and Helge Berger, both Deputy Directors of the Department.
We’ll begin as usual with some opening remarks from Alfred, and then we’ll take your questions. I see some colleagues joining online, so we will also go to your questions online. Alfred, over to you.
MR. KAMMER: Welcome to this press conference on Europe. I have posted my opening remarks and also circulated. You should have them. So, I will just make a few points for emphasis.
First of all, in terms of the outlook, we have had a meaningful downgrade for Europe that reflects the impact of tariffs, partially compensated by an increase in infrastructure spending and defense spending, in particular from Germany. But the biggest impact is coming from uncertainty and tighter financial conditions. The impact is different for the Euro area versus CESEE (Central, Eastern, and Southeastern Europe). CESEE is more affected as it has a larger manufacturing sector and is more exposed to tariffs.
Second point to make is when we are looking at the medium term, we see rather weak growth, and that has not changed from our previous outlook. And that is a clear result of a large productivity gap Europe has to the global economy. And that is something which clearly needs to be fixed. We were talking about internal barriers; we are talking about financial barriers which need to be overcome. So that’s part of the medium-term growth story, and that is something for the policy part.
On the policy recommendations, first, our recommendation is more trade is better and therefore we are very encouraged that the European Union is continuing to move forward on trade agreements. Those who have been — which have been negotiated, they should be brought to a conclusion.
The second policy advice is on the monetary side. In the Euro area, we had success in the disinflation effort. We are forecasting now that we hit the target in the second half of 2025. What does that mean for ECB monetary policy? One more cut in the summer of 25 basis points and then keep the rate on hold at 2 percent until — unless major shocks ask for a recalibration of that monetary stance. A bit different in CESEE, where inflation is more persistent and still higher, and there needs to be taken more caution in terms of the easing part.
On fiscal consolidation, fiscal consolidation should continue. Europe needs to build up buffers for the next shock. But also, Europe needs to build fiscal space for long-term spending pressures, which we have on aging, health care, the energy transition, and of course, now an accelerated need is on defense spending.
Final point, focus needs to be on structural reforms. In Europe, we have been making suggestions on reforms which could be taken at the EU level. Draghi Letta, we have a shared diagnostic. We also have an understanding of the policy solutions. These reforms should be undertaken with urgency. We selected a number of key reforms which are under discussion. If we are looking at the benefit of the implementation, it would add 3 percent to the level of GDP in Europe. So, these reforms need to be pushed forward with urgency.
There’s also a need for national structural reforms. There’s lots of benefit to those. Priority in Europe actually is on the labor market side, including on upskilling and reskilling of workers. We put together, country by country, a set of priority reform areas. If countries actually close the gap to the best-performing countries, best-practice countries in these areas by only 50 percent, it would give a boost to the level of GDP by 5 percent for advanced European countries, by 6 to 7 percent for CESEE countries and for the Western Balkan countries, the number is 9 percent increase in GDP. So, the reform areas are discussed, the reform areas are agreed. What now needs to happen is the political will, and that is not easy to overcome vested interests, but it needs to be done because this is to secure the future of Europe. Thank you.
MS. PEREZ: Thanks so much, Alfred. We can now start with your questions. We will go to the room. Please raise your hand when called, identify yourself, name, and outlet. We’re going to get started with the lady sitting here. Thank you. First row.
QUESTIONER: Hi, good morning. Thank you for taking my question. So, in recent weeks financial market has shown increasing pressure on U.S. Treasury while demand on the European debt appears to be rising. Do you believe this shift represents a sustainable trend? And more broadly, do you think that what some have termed European exceptionalism could eventually supplant the American exceptionalism in the global economic and financial order? Thank you.
MR. KAMMER: First, to move to European exceptionalism. It’s still a long and hard road away, and it starts with utilizing the single market in order to create the productivity gains necessary actually to create markets to scale and to create financing to scale so that we get a dynamic business sector going. And that is a must, which needs to be done in order to increase growth, and also, given all of the spending needs coming to secure the European welfare state.
On your other question, we should not overinterpret the shifts which have taken place on the portfolio side over the last few weeks. When markets are adjusting, you would expect rebalancing to take place. At this stage, way too early to say whether there has been a structural shift.
MS. PEREZ: Thank you, Alfred. We’re going to go now to the gentleman in the fourth row with the blue jacket, please.
QUESTIONER: Mr. Kammer, Germany has been very praised here during the Spring Meetings for its new fiscal stimulus package. But in Germany we have a little bit of different discussion. A lot of economists criticize the lack of structural reforms in Germany. Do you have already a first assessment of how the fiscal stimulus package could boost the weak German potential growth? And do you think that the expenditures are in line with the EU fiscal rules, or must the EU fiscal rules be reformed again so that Germany just can spend the money in the end? Thanks.
MR. KAMMER: On your first question, yes, we do. And I hand over to Oya.
MS. CELASUN: Thank you very much. So, you’re asking how the fiscal stimulus will impact the German economy and how it fits in with the broader structural reform agenda. So, it will bring some — blow some energy into the economy after several years of weak growth. We don’t expect the ramp-up in expenditures to be very quick. We expect the peak effect in 2026. Basically in ’25, it will bring some partial offset to the increased drags we are seeing from the trade side from global uncertainty, weak consumer and business confidence. But as we move into 2026 and 2027, it will be a dominant factor offsetting the expected ongoing drag from trade tensions. So, it will certainly lift aggregate demand.
And the part on infrastructure spending is very welcome. For years we’ve pointed to deficient public infrastructure as a factor holding back growth in Germany. So not only will it help growth in the near-term through aggregate demand, but it should have, if fully spent, it should have an effect on lifting potential growth in the long-term as well. It is one of the important areas we see for lifting potential growth as Germany moves into a period with weak growth in its workforce — in fact, a sharp contraction in the coming five years. So that’s very welcome. But there are other important areas. One of them is cutting red tape, actually important for lifting public infrastructure spending as well. It’s important for Germany to be a leader in pushing European integration and also deal with its shrinking labor force by helping women work full-time. Thanks.
MS. PEREZ: Thanks, Oya. We’re —
QUESTIONER: [off mic]
MS. CELASUN: So maybe the important thing to mention is that Germany has fiscal space, it has low debt, it has low deficits, it has low borrowing costs. So that’s very important. We, our own forecasts suggest that Germany, once you exclude defense spending of about 1.5 percent of GDP relative to 2021, will keep its deficits below 3 percent. Thank you.
MS. PEREZ: We’re going to go now to the center. Gentlemen on the second row. Thank.
QUESTIONER: Thank you. In the updated World Economic Outlook, the IMF downgraded its projection for Ukraine up to 2 percent this year compared with the November forecast, which was 2.5-3.5 percent. Could you please elaborate on the aspects that have affected the current forecast? What share of this is due to the global and regional slowdown, domestic factors, war, or external support? And secondly, may I ask you to comment on the issue of debt restructuring for Ukraine? Do you have communication with the Ukrainian government on this, and how do you evaluate the risks for Ukraine if they couldn’t reach a deal on this issue? Thank you.
MS. PEREZ: Let me see if there’s any other questions on Ukraine. The lady in the third row. Thank you.
QUESTIONER: I also want to ask you about the crisis and there are — have many — many different cases, many countries have had their debt written off. And do you recommend the creditors write off part of Ukraine’s debt, and is this option being considered now? Thank you.
MR. KAMMER: So, let me start with a question on growth first. What we are seeing is lower growth momentum carrying forward from 2024. That is a reflection of the bombing of the energy infrastructure and that is hampering the economy. It’s also reflecting a very tight labor market and it’s reflecting continued uncertainty of the length of the war and how the war will evolve and affect the economy. And that is clearly weighing on growth in 2025.
I should say, of course, and emphasize again that the Ukraine economic team, Minister of Finance, Central Bank Governor are doing an extraordinary job to maintain macro stability under these conditions and also to prepare the economy for a post-war reconstruction period. And important for that is the need to work on the medium-term national revenue strategy because Ukraine will need revenue in order to provide all of the necessary service of a modern state and their support the reconstruction. So, I think that’s very important. But praise again for the economic team to operate and attain macro stability in this difficult situation.
On the debt part, what we are seeing is that there is a credible process underway with private creditors that is proceeding, and that is an important element of the Fund program. So that in the end, under the Fund program, we are going to see that sustainability in Ukraine emerging.
MS. PEREZ: Thank you. We’re going to go to this side of the room. The lady in the second row. Thank you.
QUESTIONER: Hi, good morning. A question on the UK. There’s a lot of speculation in the UK about a potential trade deal with the U.S. Will it make any difference to growth? And our finance minister was on the radio this morning saying our trading relationship with Europe was arguably even more important because they’re nearer to us. Do you agree with that?
MR. KAMMER: Helge?
MR. BERGER: We agree with everybody who concludes that more trade is better than less trade. We understand that trade has been sort of in the past and will be in the future, I’m sure, an engine for growth and productivity improvements. So, in that spirit, sort of any trade agreements that the UK will be concluding with any country going forward that will improve sort of the trading relationships that they already have are very welcome. And we would generally encourage all countries to follow this path.
MS. PEREZ: Thank you. We’re going to go. The gentleman in the second row.
QUESTIONER: Hi. I was just wondering, during the meetings this week, there seem to be differing opinions among European leaders about the prospects of a trade deal with the United States. The French saying they think perhaps a deal might be some way off. The Germans expressing more optimism. I just wondered from your vantage point how important you think it is that a deal be done for growth for the European Union and for Europe more broadly. Thank you.
MR. KAMMER: Yeah, so clearly our message is more trade is better. Trade tensions are bad for growth. And so, we are encouraging to have constructive negotiations. And the U.S. is a large trading partner of the European Union, so we are hoping that there will be successful negotiations taking place. And in our discussions with European leaders, I don’t sense any difference of views with regard to the importance of that relationship and that an effort needs to be made to de-escalate and to negotiate a deal.
MS. PEREZ: We’re going to go online now. Go ahead please. You can unmute yourself.
QUESTIONER: Good morning. Thank you so much. Trade between Russia and Europe has shrunk dramatically due to sanctions and counter-sanctions. How does the IMF characterize the current state of Russia-Europe trade flows? Are we essentially seeing a permanent decoupling of the Russian economy from its European trading partners, or are there still significant economic interactions that could influence the outlook? Moreover, what does the IMF foresee for the future of these trade relations? Is any normalization expected within the forecast horizon, taking into account U.S. tariffs, or will they remain at minimal levels? Thank you.
MR. KAMMER: So, it would be speculative on my side to pronounce on what the future will bring with regard to the European Russian relations. Fact is that there has been a decoupling taking place, or trade has been reduced quite considerably. And Russia, in response, has increased domestic production, import substitution, and reoriented trade relations, in particular to China and India. So that has taken place. When we are looking at the Russian economy, what we are seeing is a quite sharp slowdown this year from last year’s growth, and that shows the strain the war is imposing on the Russian economy. Importantly, what we see is if this isolation of Russia is going to continue, it will impact, of course, on the transfer of technology. And we are forecasting that potential growth in Russia has fallen significantly to 1.2 percent. And with such a potential growth rate, it will not converge to Western European living standards. Thank you.
MS. PEREZ: Thanks. We’re going to go with the first row. The gentleman in the jacket, please.
QUESTIONER: Thank you. Italy’s growth forecast was cut in half, almost from 0.7 to 0.4. Was it just on account of trade or for other factors? And if you have any policy recommendation for the government. And also, another question on the ECB, you are recommending that they cut 2 percent. Most economists expect the rate to go down below 2 percent. Are you suggesting they should stay at that level.
MR. KAMMER: Yeah, maybe I’ll start with the ECB question, and Helge can take the question on the growth performance of Italy. So, what we are seeing is that inflation is coming down as expected. The uncertainty at this stage is at the wage side. But here we also see a slowdown, and we are expecting wages to converge to projections by the end of this year. And the bottom line of this is that we expect that the inflation target of 2 percent will be sustainably met in the second half of 2025. We will see that headline inflation may be a bit below and that reflects the impact of lower energy prices. We will see that core inflation may stay a bit above 2. The bottom line on our side is we are looking at a monetary policy stance which will maintain sustainably this inflation rate at 2 percent. And we are seeing that can be achieved with another 25-basis point cut and then hold at 2 percent. We don’t see a need for going lower than 2 percent.
This, of course, is subject to major shocks affecting the monetary policy stance in the future. We should not forget. And we are emphasizing major shocks because the impact on monetary policy on inflation is not going to become evident within the first 18 months. So, this is a long-term endeavor whenever you are changing the monetary stance.
MS. PEREZ: Helge.
MR. BERGER: Italy. So, thanks for the question. The downgrade as in 2025, this year, 2.4 from 0.7, and next year from 0.9 to 0.8, is roughly in line what we have seen in other countries. So, there are two factors at play. One is the trade tensions. They have a direct element, so there’s an exposure to tariffs. But there’s also trade uncertainty. And this uncertainty has also left its marks on financial conditions which have tightened. So, all these factors sort of slow down growth.
In ’26, the downgrade is a bit lower because some of these effects are less urgent. But we also do have some countervailing factors such as the NRP public investment surging as the program comes to an end. And that’s something we welcome. The government is making good progress in this area, and we like the public investment and reforms attached to it. It is also clear that after ’26, when this program is over, there is an opportunity to ramp up domestic structural reforms. The country has a comprehensive agenda which we encourage it to continue on. That includes reforms in education and upskilling, includes business environment reforms. And finally, labor market participation is a perennial issue in Italy, as we heard. It’s also an issue in other countries, but I think Italy is part of this.
MS. PEREZ: Thank you. We’re going to go towards the back of the room. The lady in the light green jacket, please.
QUESTIONER: Thank you. I would like to ask about Turkish economy. In the World Economic Outlook report, unlike most countries, we see a slight upward revision in Türkiye’s growth forecast this year. And the country’s economic growth is also projected to accelerate next year. How do you assess the current state of Turkish economy? Also, how does the IMF view the country’s progress in controlling inflation?
MR. KAMMER: Yeah, so what we are seeing under growth performance is to some extent a carryover from a very strong momentum in the second half of 2024. And that led to a growth upgrade, a small one, but compensating. And that is important for the negative impact of tariffs and uncertainty on the outlook.
With regard to the government’s disinflation program that is moving forward. The economic team is implementing disinflation program. Our recommendation remains, disinflation should happen faster and that requires a tighter macroeconomic policy mix. And the linchpin of that needs to be tighter fiscal policy. And why do we advocate that? The longer the disinflation effort is dragging out the longer the time of vulnerability and being hit by shocks which we don’t know yet to even think about it. So, disinflation program accelerate linchpin is tied to fiscal policy.
MS. PEREZ: Thank you. We’re going to go with the gentleman on the fifth row. Thank you.
QUESTIONER: Good afternoon. Mr. Kammer, you strongly advocate trade agreements between Europe and other countries. As you well know, France is quite reluctant to sign the Mercosur Agreement. The whole political spectrum is very reluctant, saying that there are issues on farming and environment. What would you say to convince France and other maybe reluctant countries to sign this Mercosur Agreement?
MR. KAMMER: Yeah, I would say first, it’s not just Mercosur. Mercosur is one aspect. There are other trade agreements in place. And when you’re looking at the success of technology and of trade in terms of lifting up living standards globally, is just immense. It’s not just putting people out of poverty, it is helping the rich world also grow richer.
There’s no question that whenever you have technological changes or when you are getting rid of trade barriers, that some sectors and some industries and the people working there will be negatively affected. And on that our recommendation has always been and continues to be, and this has to be a continuous focus when you’re looking at the transformation which will be triggered by technological progress and artificial intelligence in particular, to make sure that the people have a social safety net to fall into. It’s one part.
But then also, and that is as important, and that needs to be strengthened, to upskill skills of the labor force so that they find jobs in growing new dynamic sectors. And that has to be a focus. If I see one model which works and worked very well in the global economy, it’s the Flexicurity program in Denmark, which allows workers to move to jobs quickly, including getting the reskilling and upskilling. And I think that needs to be the focus.
But it’s very clear we need to take care of those who are displaced and who are losing their jobs. And we know how to do this, but it needs to be done.
MS. PEREZ: Thank you. We’re going to go to the first row here, please.
QUESTIONER: Thank you. In the context of European and European market integration, do you see that it’s possible Bulgaria to become next member of the euro area in the next year? Thank you.
MR. KAMMER: The answer is definitely yes. But Helge, you may want to elaborate.
MR. BERGER: Thanks for the setup. So, yes, we’re following this closely, of course. I think it’s clear that Bulgaria has made major progress towards fulfilling the conditions for the access to the eurozone. We have seen deficits in line with the EU fiscal framework of 3 percent. We have seen inflation coming down. So, the next step is for the European authorities to speak to this, the European Commission, the ECB, will speak to accession and then we expect the process to continue.
From our end, this would be a welcome step for the country. EU accession, sorry, euro accession means lower trading costs, more beneficial environment for the FDI flows, and so on. So, there’s, there are a lot of upsides for the country, but of course it should enter strongly, just as strongly as it has performed in the last few years. That means sort of taking care of fiscal policy, remain prudent, have an open eye on any financial sector risks that could come, including from accession, and last, not least, sort of work to complete the structural form agenda that the government has. You know, you want to enter the euro, but you want to enter it on a strong footing.
MS. PEREZ: Thank you. We’re going to go online now. Olena, please unmute yourself.
QUESTIONER: Hi, everyone. I have a question related to Europe. Although you mentioned that increased defense spending is an upside risk, do you think that trade wars and tariffs can undermine its role for growth on European continent? And if we compare, how do you evaluate the implementation of your policy recommendations by Europe comparing to the previous outlook?
MR. KAMMER: Sorry, I didn’t get the last part.
QUESTIONER: How do you evaluate the implementing of policy recommendations in Europe comparing to your previous outlook?
MR. KAMMER: Okay, good. So, clearly tariffs do have an impact and the longer they last, the more pronounced the impact will be, including on the medium-term outlook. And therefore, our call on talking in terms of de-escalating and negotiating agreements, but also in general the idea of trade matters and more trade is better to look for new opportunities to lower trade barriers.
When it comes to our recommendations with regard to Europe, I would say on the macroeconomic front, both on the monetary policy side and also on the fiscal policy side, the right steps were taken, and the right steps are being implemented. And clearly, on the monetary policy side, they are already showing the results. Monetary policy, again, showed that it works in order to bring inflation down. That was doubted at one point in time over the last few years.
Where we seem to be repeating our policy recommendations is under EU reforms and also under structural reform sides. And those reform areas are more difficult to tackle. They are facing political economy considerations and resistance. And so, clearly what we are happy about is that there is a shared diagnostic and there is a shared understanding of the policy solutions.
And I could tell you in our discussion with the European policymakers during these meetings, that is the case. They all agree on the diagnostics and they all agree also on what needs to be done on the policy solution side. And what we discussed was, so how to actually do it. There’s willingness to do it, but it is some of the things are technical. But there’s a lot of resistance, of course, from certain sectors and in certain countries towards change. And what one needs to consider is maybe have a bigger approach to that and to start not discussing and negotiating just individual areas of reform where you have perceived winners and losers, but to think about more of a package deal where everybody can see something which is a win situation, and they need to make compromise on other parts.
I think on our side, what we are trying to do in messaging, it is very little understood, and it’s not really communicated by policymakers and politicians of the huge value an integrated single market is created for Europe. You usually hear a point towards net contribution to a very small European budget, which is 1 percent of European GDP. That is just a rounding mistake in the bigger scheme of things, of what wealth that single market already has created for all of the member countries and what it can create in the future by deepening this market. And I think that is something where we are trying to help policymakers with, to change that narrative that Europe is a burden. No. Europe is a winner for all the 27 countries which are participating in the European Union. And I think that’s an important message to make.
MS. PEREZ: Thank you. We’re running out of time, so we’ll take one or two more questions. We’re going to go with the gentleman on the fifth row, please.
QUESTIONER: Thanks. I have two questions. One is, could you a little bit elaborate more on your policy advice? For example, in Austria we have a big debate about should wage costs go down in order to bring back industry. But if I’m correct, I hear that you see more potential in kind of a stronger integration in Europe.
And my second question is, I was just at the Peterson Institute where they said basically that this 10 percent appreciation of the euro versus the dollar is more or less equivalent to the 20 percent additional tax. So what was your assumption on the exchange rate of the dollar and the euro? And is there a danger that this might lead to more trouble if the dollar keeps getting weaker? Thanks.
MR. KAMMER: Mm-hmm. Oya, do you want to take this question?
MS. CELASUN: Sure. On the Austrian side, basically what we have, we’ve recently concluded a consultation with Austria and the reforms that we found to be the most important ones were to lift female and elderly labor force participation because Austria, like others, is aging rapidly. And for that, childcare and elder care availability and access are very important. Also, Austria is yet another country where we would see a strong push, we would like to see a strong push for European integration. Especially the regulatory growth financing environment for startups need to be bolstered and that those require, in our view, reforms at the European level.
On the second side, I don’t think I caught everything.
MR. KAMMER: Okay. So, on the euro, first of all, we shouldn’t translate swings and volatility into long-term trends. We need to be careful about that. But, of course, the exchange rate will have an impact on Europe, including on the inflation outlook, if persistent. But what I would point towards is, there is a narrative out there that Europe is not competitive. And that narrative is actually wrong. Europe is competitive. Europe has a current account surplus versus the rest of the world. What we are arguing is that Europe has a gap in its productivity and in particular a gap in labor productivity. And it is that to focus on in order to actually create more income. And that’s the important stuff.
Now, how to deal with changes in the external environment. The key message to Europe for that is external shocks are going to persist. Transformations will have to take place because technology is moving, energy security needs to be established. The green transition is a key policy priority for Europe. And for that we need a more dynamic business sector. And we don’t have that in Europe. When you’re looking at startups in particular, it’s not that Europe doesn’t have the capacity to innovate, it does. Does Europe have the startups? Europe has the startups. But we don’t have the environment for these startups to flourish. They don’t need bank loans, bank loans need collateral. And many of the startups are in the intellectual sphere in terms of what they’re providing. And so, what you need for that is risk capital, equity and venture capital for those startups to move forward. Many will die, but there will be winners, and they need to scale up. And for that you need to have this risk capital. And what happens right now is they’re going to the U.S. for that. And that’s one part of the business dynamism which is actually taken away from Europe because companies cannot scale up. We have these internal barriers.
And companies cannot scale up because we have the financial barriers. And the financial barriers are, in Europe, we don’t have deep capital markets which can provide debt risk capital to these young startups. We have an abundance of small and medium-sized enterprises in Europe and when you’re looking at comparison to the U.S. these small and medium term and medium sized enterprises, they are old, and their productivity is not that high. But the young spectrum is missing. And when we have successes, then you need to for these success stories to have the market to operate in and scale up. We don’t yet. And you need the capital for those companies to grow to scale. And again, many of these companies who reach that state, they list at the New York Stock Exchange because European capital markets are too small.
So, if I point towards a big issue in order to address many of the problems we are seeing in the future, it must be a more dynamic business sector, including more exit of firms which are not viable.
MS. PEREZ: Thank you so much. I’m afraid we’re going to have to leave it here, but please do come to us bilaterally for the questions we couldn’t take. I would like to thank our speakers and thank you here, joining us, and colleagues joining us online with this. We can wrap it up. Have a good day everyone.
MR. KAMMER: Thank you.
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Camila Perez
Phone: +1 202 623-7100Email: MEDIA@IMF.org
@IMFSpokesperson
https://www.imf.org/en/News/Articles/2025/04/25/tr-04252025-eur-press-briefing-transcript
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