Introduction
The European Commission announced a significant downward revision of its growth projections for 2025 and 2026 in the eurozone, attributing this to the negative impact of tariffs imposed by Donald Trump.
Revised Growth Projections
The European Commission, the executive arm of the EU, reduced its growth projection for 2025 to 0.9%, down from the previous estimate of 1.3% released in November of the preceding year. For 2026, the Commission projected a growth rate of 1.4%, which is two decimal points lower than its last projection.
Commissioner Dombrovskis’ Statement
While presenting the projections, European Commissioner for Economy Valdis Dombrovskis highlighted that the EU’s economic growth faces “greater global uncertainty and trade tensions.” He further stated, “The unpredictable and seemingly arbitrary nature of US tariff announcements has elevated global economic policy uncertainty to levels unseen since the darkest moments of the Covid-19 pandemic.”
Impact on Trade and EU Economies
The Commission attributed this scenario mainly to a weakening global trade outlook and increased uncertainty in trade policy. As a result, the EU expects its exports to grow by only 0.7% this year.
- Germany: 0%
- France: 0.6%
- Italy: 0.7%
- Spain: 2.6% (this year), projected to be 2.0% in 2026
The EU aims to stabilize its economic recovery post the coronavirus pandemic, but Russia’s invasion of Ukraine in 2022 has reintroduced uncertainty. Moreover, Trump’s new trade policy in Washington has opened the door to a potential trade war between traditional allies.
EU’s Economic Fragilities and Required Reforms
The EU’s economic vulnerabilities are not solely due to an unfavorable geopolitical context. In September of the previous year, former ECB President Mario Draghi published a scathing report on the EU’s economic state, emphasizing radical reforms to avoid a “slow decline.”
- Massive investments in digital innovation and ecological transition
- Strengthening the defense industry
Germany’s new Chancellor, Friedrich Merz, has launched an ambitious plan to modernize infrastructure and bolster the country’s military. Meanwhile, the EU is committed to implementing other Draghi recommendations, such as relaxing regulations that hinder competitiveness. The EU also seeks to establish a genuine single market for financing, preventing promising European startups from seeking capital in the US.
