JPMorgan joins Goldman, hikes euro area's 2025 economic growth forecast

JPMorgan Boosts Euro Area Growth Forecast for 2025 Following Germany's Reforms

(Reuters) - J.P.Morgan joined Wall-Street peer Goldman Sachs to forecast a boost to the euro area's economic growth for 2025 on the back of Germany's fiscal loosening reforms.

Similar to Goldman, JPM expects growth to increase by 0.1 percentage point to 0.8%. For 2026, JPM expects 1.2% growth, up by 0.3 percentage points.

"This revision is primarily driven by Germany, but we also anticipate slightly stronger growth across the rest of the region from spillovers and slightly looser fiscal policy," said JPM economists in a note dated late Friday.

Last week, the parties in talks to form Germany's new government agreed to try to loosen fiscal rules that would amount to a nearly trillion-euro borrowing boom to fund defence and infrastructure spending.

However, the brokerage also cautioned that uncertainty from Trump's tariff policy could likely weigh on economic growth in the coming months and estimated a slight uptick to the euro area's inflation for this year and next.

Making its sixth cut since June, the European Central Bank (ECB) lowered the deposit rate to 2.5% on Thursday, but warned of "phenomenal uncertainty", including the risk that trade wars and more defence spending could fuel inflation, raising the prospect of a pause in its policy easing next month.

In the same note, JPM said it does not expect the ECB to cut rates in April compared to its earlier projection of a 25 basis point cut. The brokerage expects only two interest rate cuts this year - in June and September - versus its prior estimate of three rate cuts.

"We highlight risks that the potential imposition of US tariffs on European goods could also push them to a live meeting in April and back to the back-to-back approach," JPM added.

(Reporting by Siddarth S in Bengaluru; Editing by Janane Venkatraman)