Trump tariffs force EU to cut 2025 eurozone growth forecast

The EU on Monday sharply cut its eurozone economic growth forecast for 2025 because of global trade tensions sparked by US President Donald Trump's sweeping tariffs.

The European Commission said the 20-country single currency area's economy should grow 0.9 percent in 2025 -- down from a previous forecast of 1.3 percent -- due to "a weakening global trade outlook and higher trade policy uncertainty".

The EU also lowered its prediction for eurozone growth in 2026 to 1.4 percent, down from 1.6 percent expected in November last year.

"Underpinned by a robust labour market and rising wages, growth is expected to continue in 2025, albeit at a moderate pace," EU economy chief Valdis Dombrovskis said.

Trump has hit the European Union and others with 25-percent levies on steel, aluminium and auto imports, and the bloc faces sweeping additional tariffs unless it reaches a deal with Washington.

The US leader announced a 20-percent levy on most EU goods in April, along with higher duties on dozens of other nations.

That measure has since been frozen until July to allow negotiations, but Trump has kept a "baseline" 10 percent tariff on imports from around the world, including the 27-country EU.

The EU also said Germany, the bloc's biggest economy, would not grow at all in 2025, a significantly sharp reduction from the 0.7 percent predicted last year.

"The risks to the outlook remain tilted to the downside, so the EU must take decisive action to boost our competitiveness," Dombrovskis said.

After a previous mandate focused on fighting climate change, the commission's focus has pivoted to competitivity, seeking to make life for businesses easier in the face of fierce competition from Chinese and American firms.

Inflation slowdown

Explaining the thinking behind Monday's forecast, the EU also pointed to the US-China trade war during which the two sides hiked levies on each other's goods before slashing them in a temporary de-escalation.

"The tariff rates eventually agreed by China and the US on 12 May have turned out to be lower than those assumed, but still high enough not to invalidate the assumption of a hit to the US-China trade relationship," the commission said.

Beyond trade tensions, the EU warned the greater frequency of climate-related disasters such as forest fires and floods risked hurting economic growth.

The commission said it expected inflation in the 20-country single currency area to ease to 2.1 percent, unchanged from the previous prediction and very close to the European Central Bank's (ECB) two-percent target.

Inflation among the 20 members of the eurozone has slowed down sharply from the double-digit highs seen in late 2022 and sat at 2.2 percent in April.

The EU cut its 2026 inflation forecast to 1.7 percent, from 1.9 percent.

Brussels warned further global trade tensions could "reignite inflationary pressures".

Source: AFP