The International Monetary Fund (IMF) has just issued a stark warning: Europe’s economy is teetering on the edge of stagnation. Without decisive policy action, the region’s growth prospects over the next several years could turn out to be even weaker than currently expected.

In its latest forecast, the IMF projects that the eurozone’s GDP growth in 2025 will slow to just 0.8%, dipping slightly from 0.9% in 2024. Germany—the region’s economic engine—is expected to expand by a mere 0.3% next year. While low unemployment and easing inflation are providing some support, sluggish domestic demand, uncertain export performance, and rising geopolitical tensions are dampening the impact of policy stimulus.

The IMF was particularly critical of the European Union’s internal market. While the single market was designed to facilitate the free flow of goods and services, the IMF says regulatory and structural differences among countries continue to act as hidden barriers—equivalent to a 44% tariff on goods and a staggering 110% on services. These obstacles, the report argues, limit business growth and stifle innovation. Removing these hidden hurdles and deepening economic integration could boost the EU’s GDP by around 3% over the next decade, especially when combined with reforms in labor, finance, and capital movement.

In addition to calling for a more functional internal market, the IMF also pressed European governments to speed up structural reforms. These include improving workforce mobility, investing in human capital, and aligning fiscal spending with long-term productivity goals. Collectively, these measures could deliver a mid-term GDP increase of roughly 5.7%.

Another major point raised concerns Europe’s heavy reliance on the U.S. economy. Any major shift in American policy or economic trajectory could indirectly harm European businesses and expose vulnerabilities within Europe’s financial system. While European banks are currently well-capitalized and liquid, the rising importance of non-bank financial institutions introduces new risks that demand stronger regulation and oversight.

Digital technology was flagged as a strategic vulnerability. Europe’s dependence on American tech infrastructure is growing increasingly problematic—especially in light of the U.S.’s “America First” policies. According to the IMF, this is no longer just an economic issue, but a broader strategic risk. Europe must step up its efforts to build a competitive tech sector, enhance its research and development capabilities, and diversify supply chains to secure its long-term competitiveness.

Far from being a routine critique, the IMF’s message comes as a wake-up call. Faced with slow growth and mounting external pressures, the EU still has a window of opportunity. By embracing structural reforms, investing in innovation, and enhancing fiscal resilience, Europe can carve out a path to recovery. But time is of the essence—2024 is shaping up to be a pivotal year, and the continent’s leaders must act with urgency and resolve to reignite the economy.