Lagarde: “Eurozone growth weak; US tariffs could weaken it further”

Brussels – There will be no sustained growth in the Eurozone; on the contrary, it will be weak and uncertain. The specter of an open and aggressive trade war with the United States would weaken it further, so any 12-star policy reasoning must consider this. The president of the European Central Bank, Christine Lagarde, warns against the temptation, while understandable, to respond to the threats of US President Donald Trump.

At a Committee on Economic and Monetary Affairs hearing at the European Parliament, Lagarde said her staff expects growth of 0.9 percent in 2025, 1.2 percent in 2026, and 1.3 percent in 2027. However, these estimates are “subject to considerable uncertainty, also owing to the trade policy environment.” The impact of the tariff war weighs considerably.

The ECB’s analysis, Lagarde tells MEPs, suggests that US tariffs of 25 percent on EU imports “would lower euro area growth by about 0.3 percentage points in the first year.”  A European response in the form of raising tariffs on US imports “would further increase this to about half a percentage point.” These considerations confirm the findings of European Parliament researchers, who already warned of the risks of European retaliation.

Not least, a resumption of the inflationary spiral would compound the growth erosion. In Frankfurt, the ECB also calculated this impact. In the short term, EU retaliatory measures and a weaker euro exchange rate – resulting from lower US demand for European products – “could lift inflation by around half a percentage point,” Lagarde notes.