Trump Tariffs Prompt EU to Cut 2025 Eurozone Growth Forecast
The EU has significantly reduced its economic growth forecast for the Eurozone in 2025, projecting a growth of only 0.9 percent, down from the previously expected 1.3 percent. This revision is primarily attributed to escalating global trade tensions, particularly those initiated by US President Donald Trump's tariffs. The European Commission also adjusted its growth prediction for 2026, lowering it to 1.4 percent from the initial 1.6 percent forecasted in November of the previous year.
EU economy chief Valdis Dombrovskis noted that despite a robust labor market and increasing wages, growth is expected to be moderate in 2025. Trump's imposition of 25-percent levies on steel, aluminum, and auto imports from the European Union and other regions has created substantial trade policy uncertainty. The EU is also bracing for potential additional tariffs unless a resolution is reached with Washington. In April, Trump announced a 20-percent levy on most EU goods, along with increased duties on numerous other nations, although this measure has been temporarily frozen until July to facilitate negotiations. A baseline 10-percent tariff on imports from around the world, including the 27-country EU, remains in effect.
Germany, the largest economy in the bloc, is now expected to experience zero growth in 2025, a significant downturn from the 0.7 percent growth predicted earlier. Dombrovskis emphasized that the risks to the economic outlook remain skewed to the downside, necessitating decisive action by the EU to enhance its competitiveness. The commission's focus has shifted from climate change initiatives to improving competitivity, with the aim of streamlining operations for businesses amid fierce competition from Chinese and American firms.
The EU's revised forecast also takes into account the US-China trade war, which involved the implementation of higher levies on each other's goods before a temporary de-escalation. While the tariff rates eventually agreed upon by China and the US on May 12 were lower than initially anticipated, they are still substantial enough to negatively impact the US-China trade relationship. In addition to trade tensions, the EU has cautioned that the increasing frequency of climate-related disasters, such as forest fires and floods, could impede economic growth.
Regarding inflation, the commission anticipates a decrease to 2.1 percent in the 20-country single currency area, which remains unchanged from the previous forecast and is close to the European Central Bank's (ECB) target of two percent. Inflation among the Eurozone members has decreased significantly from the double-digit highs observed in late 2022, reaching 2.2 percent in April. The EU has also lowered its inflation forecast for 2026 to 1.7 percent, from the previous 1.9 percent. However, Brussels has cautioned that further global trade tensions could potentially
