Eurozone Key Themes 2025: Facing up to a looming trade storm

After a long period in which the European economy has been largely shaped by massive exogenous shocks – the coronavirus pandemic, supply-chain problems, energy crisis – we’re back to an environment in which more traditional growth drivers will largely dictate the outlook.

Download our report to explore the critical questions that will determine the Eurozone economic recovery in 2025:

• What will drive the Eurozone’s economic growth in 2025? With fiscal and monetary policy pulling in opposite directions, the economy will receive very limited support from the policy mix. Ultimately, however, the region’s growth prospects will largely rest on European consumers’ willingness and capacity to spend. German elections in early 2025 offer a rare opportunity for a substantial change in fiscal policy. Meanwhile, France’s struggle to rein in its fiscal deficit amid political paralysis has led us to permanently revise our forecasts for French risk spreads.
• How will Trump’s presidency and tariffs impact the Eurozone? Could there be a trade war between the US and the Eurozone? Tariffs are a major threat to the European economy, but the direct impact will probably be felt more forcefully from 2026 onwards given the time they will likely take to implement. We think the Trump administration will refrain from implementing his most extreme proposals, as the EU will attempt to reach a negotiated agreement. But risks of a more severe trade war are real. In our report, we show the results of model simulations involving reciprocal 20% tariffs between the US and the EU, which show that growth and trade would be significantly impacted.
• What is the Eurozone’s inflation outlook, and how will it influence the ECB’s decisions on rate cuts? With food and energy inflation back under control, services is the last inflationary pocket. In our report, we explain why our current inflation forecasts are below both the consensus and the ECB’s projections, allowing the ECB to continue to cut rates at a quick pace.