The U.S. economy is showing resilience after bouncing back from the COVID-19 pandemic but the eurozone’s prospects are gloomier due to recent crises and deeper problems, according to IMF forecasts released Tuesday.
In its latest World Economic Outlook report, the International Monetary Fund revised its 2025 eurozone growth forecast down from 1.5% in July to 1.2% as challenges in manufacturing bog down countries such as Germany.
In contrast, the world’s biggest economy is anticipated to grow 2.2% next year.
The United States and eurozone have seen their paths diverge over the past two years, with the U.S. economy logging 2.9% growth in 2023, significantly above the eurozone’s 0.4%, IMF figures show.
The fund expects the U.S. economy to expand by 2.8% in 2024, again higher than the euro area’s 0.8% growth forecast.
This is because “Europe has experienced two shocks, while the United States has only experienced one,” EY chief economist Gregory Daco told AFP.
After rebounding from the pandemic, which led to historic recessions around the world, European countries took a hit from the effects of Russia’s full-scale invasion of Ukraine in February 2022.
This once again sharply raised energy prices and snarled supply chains in the region, with the United States experiencing less of an impact given its distance from the conflict and greater energy independence.
Germany stalls
In particular, the war has made a significant impact on the eurozone’s biggest economy — Germany — which saw its economy shrink in 2023.
The German economy is set to see no growth this year, only expanding 0.8% in 2025, said the IMF’s latest report.
The 2025 figure was revised down from July’s projection of 1.3% growth.
“Persistent weakness in manufacturing weighs on growth for countries such as Germany and Italy,” said the IMF.
Although Italy’s domestic demand is set to benefit from a European Union-financed recovery plan, “Germany is experiencing strain from fiscal consolidation and a sharp decline in real estate prices,” the fund said.
But it noted that “in the euro area, growth seems to have reached its lowest point in 2023.”
France, the second-biggest EU economy, is projected to post modest growth of 1.1% for this year and the next.
US advantages
Daco of EY said the United States benefits from more favorable structural factors: “In view of its population growth, investment rate and productivity, it has growth prospects that are double those of Europe.”
He pointed to a younger U.S. population and greater competitiveness.
Other factors include Washington’s support for households and businesses during the pandemic, which have helped to prop up consumption.
Funds from the government’s CHIPS and Science Act as well as Inflation Reduction Act — to boost domestic semiconductor and clean energy industries, respectively — are also stimulating the economy, he said.
Meanwhile, Europe is struggling to contend with these major initiatives.
A report by former European Central Bank President Mario Draghi, unveiled in September, aims to limit Europe’s economic gap with the United States.
“It is crucial to swiftly follow up, with concrete and ambitious structural policies, on Mario Draghi’s proposals for enhancing European competitiveness,” said ECB President Christine Lagarde last Thursday.
