Germany has recently passed a significant infrastructure spending bill, allocating 500 billion euros (approximately $548 billion), which is expected to provide some growth support over the next two years.

Kammer emphasized that trade tensions and tariffs are the primary factors affecting the economic outlook, overshadowing the positive fiscal developments in Germany.

In light of these challenges, the IMF has revised its growth forecasts for the euro area, lowering expectations by 0.2 percentage points for both 2025 and 2026, predicting growth rates of 0.8% and 1.2% respectively.

Changes to Germany's debt rules will facilitate increased defense spending and substantial investments, potentially revitalizing the sluggish euro zone economy.

Despite the anticipated benefits from infrastructure spending, U.S. tariffs are expected to hinder global growth and trade flows, contributing to uncertainty in the overall economic outlook.

Policymakers at the European Central Bank (ECB) have acknowledged that while inflation trends appear positive, the overall economic outlook has become more uncertain due to the impact of tariffs.

In response to the economic situation, the IMF recommends that the ECB implement one more interest rate cut of 25 basis points this summer, bringing the key rate to 2.00%, before maintaining that rate unless significant economic shocks occur.

Alfred Kammer, the IMF's Europe director, noted that while increased German infrastructure spending will boost Europe's economy, it will not be enough to counteract the negative effects of U.S. tariffs.