Trump’s tariffs hit eurozone growth: 2025 forecasts cut by 0.4 percentage points

Brussels – US tariffs, the ongoing Russian-Ukrainian war, tensions in the Middle East. The global winds blowing over the European Union and its eurozone are the kind that brings doubt, uncertainty, and downside risks. So, the European Commission, in its Spring Economic Forecasts, cut growth estimates: in 2025, it sees an expansion in the eurozone of 0.9 percent and 1.4 percent in 2026. In November, it had forecast 1.3 percent and 1.6 percent growth, respectively.

Similar revisions were made for the gross domestic product of the EU. Brussels now sees GDP expansion of 1.1 percent (instead of 1.5 percent) and 2026 growth of 1.5 percent (instead of 1.8 percent). EU growth thus cut by 0.4 percentage points for next year and 0.3 percentage points.

Fear of Trump’s tariffs

It is nothing new, but the tariffs that Donald Trump’s administration threatens have left the EU holding its breath and cannot leave insiders indifferent. Even with the appropriate optimism and hopes that an agreement with Washington will eventually be found, “the Spring Forecast is based on certain assumptions about trade tariffs,” the European Commission admits in the document. Therefore, the forecasts are as if the restrictive measures were already in place — specifically the 10 percent on EU goods imported into the US.

 “The outlook for growth is revised significantly downward,” according to a statement accompanying the forecast. “This largely owes to a weakening global trade outlook and higher trade policy uncertainty.” As a result, fewer exports are expected, with the associated negative spillovers. 

Global weakening also weighs. Eurozone, Germany stagnate

Also weighing on the immediate future of the EU is the business environment of the rest of the world. Global growth outside the EU is now projected at 3.2 percent for both 2025 and 2026, down from the 3.6 percent rate forecast in the fall of 2024. This downward revision “largely reflects a weakened outlook for both the US and China,” the EU experts said, adding that the slowdown in global trade is even sharper. 

For the EU, a problem is the sharp German slowdown. As much as growth is expected to moderate, and the EU executive predicts that in 2025 most member states will return to growth, Austria (-0.3 percent) is expected to contract and Germany to stagnate (0 percent) after a slight recession (-0.2 percent) at the end of 2024. The difficulty of Europe’s leading economy is a weakening factor for others.

 Doubts about defense spending

The European Commission does not doubt that defense has become a new priority. Still, unlike tariff-based scenarios, it cannot calculate how — and to what extent — increased government spending may change the health of public finances. Many member states have already asked to suspend the internal stability pact to finance the defense sector. However, “their defense spending plans remained insufficiently detailed to be included in the framework,” admits Economy Commissioner Valdis Dombrovskis. “The same is true for Germany.”

Inflation, good news

The scenario is, therefore, full of uncertainties and difficulties. Not least because, Dombrovskis admits, “it is not easy” to predict exactly what may happen in detail. A reference to the political moves of US President Donald Trump, but not just that. Against this backdrop, encouraging news comes from inflationary trends. Thanks to an appreciation of the euro and a reduction in energy costs, the rate is expected to stand in the eurozone at 2.4 percent at the end of this year, 2.1 percent in 2025, and fall to 1.8 percent in 2026.