JPMorgan has joined Goldman Sachs in revising its economic growth forecast for the euro area in 2025, increasing it by 0.1 percentage point to 0.8%. For 2026, the bank now expects growth of 1.2%, an upward revision of 0.3 percentage points.

“This revision is primarily driven by Germany, but we also anticipate slightly stronger growth across the rest of the region due to spillover effects and a somewhat looser fiscal policy,” JPMorgan economists stated in a note released late Friday.

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Last week, German political parties negotiating to form a new government reached an agreement to relax fiscal rules, potentially triggering a borrowing surge of nearly one trillion euros to finance defence and infrastructure investments.

However, JPMorgan cautioned that uncertainty surrounding Donald Trump’s tariff policies could weigh on economic growth in the coming months. Additionally, the bank projects a slight increase in euro area inflation for both this year and next.

On Thursday, the European Central Bank (ECB) made its sixth rate cut since June, lowering the deposit rate to 2.5%. Despite this, the ECB warned of “phenomenal uncertainty,” citing risks such as trade wars and increased defence spending, which could drive inflation higher and potentially delay further policy easing.

In its note, JPMorgan also revised its outlook for ECB rate cuts, no longer expecting a reduction in April. Instead, the bank now anticipates only two rate cuts this year—in June and September—compared to its previous forecast of three.

“We see risks that the potential imposition of U.S. tariffs on European goods could push the ECB toward a live decision in April and back to a back-to-back rate-cut approach,” JPMorgan added.