IMF upgrades growth forecast for euro zone on back of Irish GDP numbers

Irish Times

a day ago

The
International Monetary Fund (IMF)
has upgraded its growth forecast for the euro zone on the back of a 'strong GDP out-turn in Ireland'.
In its latest assessment of global economic conditions, the Washington-based institution said it expected growth in the euro zone to accelerate to 1 per cent in 2025 and 1.2 per cent in 2026.
'This is an upward revision of 0.2 [of a] percentage point for 2025, but it is largely driven by the strong GDP (gross domestic product) out-turn in Ireland in the first quarter of the year,' it said, even as it noted that Ireland represents less than 5 per cent of euro zone GDP.
The Irish economy grew at a rapid rate of 7.4 per cent in the first quarter, one of the largest quarterly expansions on record, as exporters, particularly in the pharma sector, rushed to get produce into the US in advance of incoming
tariffs
.
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Separately, the IMF's chief economist, Pierre-Olivier Gourinchas, warned that political inference in central banks could trigger wider financial instability.
In a veiled warning to US President
Donald Trump
and his repeated attacks on
US Federal Reserve
chairman
Jerome Powell
, Mr Gourinchas said central bank independence was a cornerstone of the global financial system.
He warned that too many countries were now carrying high levels of debt which left them 'vulnerable to a sudden tightening in financial conditions'.
'Such tightening becomes even more likely if central bank independence – a cornerstone of macroeconomic, monetary and financial stability – is undermined,' he said.
Mr Trump has launched a series of verbal attacks on Mr Powell, whom he initially appointed, demanding interest rate cuts while hinting he will replace the US Fed chief. He has called Mr Powell a 'moron', a 'numbskull' and a 'disaster' while insisting his term in charge 'cannot come fast enough'.
While Mr Trump is not the first US president to try to pressure the Fed, his attacks have been more public and have caused markets to wobble.
In its report, the IMF upgraded its forecasts for global growth on the back of recent trade deals between the US and its various trading partners while warning the outlook remained 'tenuous'.
Global growth is projected at 3 per cent for 2025 and 3.1 per cent in 2026, 0.2 of a point and 0.1 higher than its forecast in April.
'This reflects stronger-than-expected front-loading in anticipation of higher tariffs; lower average effective US tariff rates than announced in April; an improvement in financial conditions, including due to a weaker US dollar; and fiscal expansion in some major jurisdictions,' the fund said.
It predicted global inflation would fall to 4.2 per cent in 2025 and 3.6 per cent in 2026, a path similar to the one projected in April.
However, it warned the overall picture 'hides notable cross-country differences, with forecasts predicting inflation will remain above target in the United States and be more subdued in other large economies'.
It also warned that risks to the outlook were tilted to the downside and that any rebound in effective tariff rates could lead to weaker growth.
'Elevated uncertainty could start weighing more heavily on activity, also as deadlines for additional tariffs expire without progress on substantial, permanent agreements,' it said while warning that geopolitical tensions could disrupt global supply chains and push commodity prices up.
'Larger fiscal deficits or increased risk aversion could raise long-term interest rates and tighten global financial conditions,' the IMF said. 'Combined with fragmentation concerns, this could reignite volatility in financial markets.'