The International Monetary Fund's latest World Economic Outlook, released on Wednesday, offers a mixed picture for Europe's largest economies. While Italy's growth projections remain stable at 0.5% for both 2026 and 2027, the Fund has revised downward its estimates for France and Germany, citing persistent headwinds from energy costs and geopolitical tensions.
Petya Koeva Brooks, the IMF's deputy director of research, described Italy's figures as "modest but expected." She noted that investments under the National Recovery and Resilience Plan (NRRP) continue to buoy economic activity, but cautioned that "higher energy and food prices and elevated uncertainty are weighing on household consumption." Inflation in Italy is now projected to remain above target until 2028, partly due to the country's reliance on energy imports.
France and Germany Face Headwinds
France's GDP is expected to grow by just 0.6% in 2026, a reduction of 0.3 percentage points from the IMF's April forecast. For 2027, the Fund projects a modest recovery to 0.9%. Germany, meanwhile, is forecast to expand by 0.7% this year and 1.0% in 2027. These downgrades reflect broader challenges across the eurozone, including weak industrial output and subdued consumer demand.
The IMF's report underscores the uneven recovery within the EU. Spain stands out with stronger projections of 2.1% growth in 2026 and 1.8% in 2027, driven by robust services and tourism sectors. As Italy leads European tourism in 2026, its southern regions like Calabria and Sardinia are seeing a surge in visitors, though this has not yet translated into broader economic momentum.
Global Inflation and Geopolitical Risks
The IMF has raised its global inflation forecast for 2026 to 4.7%, up from 4.1% in 2025, before a projected decline to 3.9% in 2027. The Fund warns that "the disinflation trend under way since the start of 2024 has come to a halt," with energy and commodity prices—particularly fertilisers and foodstuffs—driving the uptick. Fertiliser prices could rise by 26% in 2026, and food prices by 8%, due to higher energy and transport costs.
Geopolitical tensions in the Middle East are identified as the most immediate risk. "An escalation in geopolitical tensions would harm growth and worsen inflationary pressures," the outlook states. However, it notes that a smoother-than-expected reopening of the Strait of Hormuz could lower commodity prices and improve growth prospects. The IMF's warnings come as OPEC+ modestly boosts output, with oil prices returning to pre-war levels, offering some relief but not eliminating uncertainty.
Broader Global Context
Beyond Europe, the IMF projects China's economy will grow by 4.6% in 2026 and 4.1% in 2027, confirming a slowdown from last year's 5%. Brazil is expected to expand by 2.4% in 2026 before slipping to 0.4% in 2027. African economies show wide divergence, with Nigeria forecast to grow 4.3% in 2027 versus just 1.3% for South Africa.
The Fund concludes with policy recommendations for central banks: "Policy priorities are to restore price stability, backed by clear communication, central bank independence and robust financial supervision, while rebuilding fiscal buffers and using fiscal policy tools sparingly." For Europe, this means navigating a delicate balance between supporting growth and containing inflation, a challenge that will test the resilience of both national governments and EU institutions.
