Heightened international coverage uncertainty and commerce tensions are overshadowing the European Union’s financial development prospects. The European Fee revised its outlook for the eurozone to 0.9% from the earlier forecast of 1.3% in November. For 2026, the eurozone is anticipated to broaden by 1.4% as an alternative of the beforehand anticipated 1.6%.
The EU is forecast to continue to grow at a modest charge this yr, at 1.1%. The EU’s govt physique forecast that development will decide up in 2026 and attain 1.5%. The Fee mentioned this on Monday in its spring forecast.
The sharp slowdown in international commerce, fuelled by international tensions, will depart its mark on Europe, too. The Fee is anticipating EU exports to develop by solely 0.7% this yr, with a renewed contraction in exports of products partially offset by the resilience of providers exports, as they’re much less affected by commerce tensions. In 2026, export development is about to speed up to 2.1%.
Investments are anticipated to choose up this yr, and personal consumption is forecast to be barely extra strong than projected in autumn, reaching 1.5% in 2025 and 1.6% in 2026.
Inflation is anticipated to decelerate, with headline inflation descending to 2.1% within the eurozone in 2025 and additional to 1.7% in 2026. Within the EU, costs are anticipated to observe an analogous path, falling slightly below 2% in 2026.
The European Fee highlighted that the labour market stays strong, and it expects the unemployment charge to hit a file low of 5.7% in 2026.
How are the strongest economies performing?
One purpose for the decrease development estimate is because of Germany’s stagnating financial system, the place development is anticipated to be zero this yr after two years of shrinking output.
The EU’s largest financial system is closely depending on exports however has confronted sturdy headwinds from increased vitality prices after the lack of Russian pure fuel as a result of invasion of Ukraine, in addition to from a scarcity of pro-growth infrastructure spending and competitors from China in autos and industrial equipment.
France, the second-biggest financial system within the bloc, is about for 0.6% development this yr, adopted by 1.3% in 2026, whereas Spain is anticipated to have GDP development of two.6% this yr.
The perfect performing economies within the EU embrace Poland, Eire, Denmark and Malta this yr.
How US commerce tariffs are hitting the European financial system
The proposal for a 20% US tariff on imported items from Europe, along with its suspension for 90 days, has meant uncertainty “not seen for the reason that darkest days of the COVID-19 pandemic,” Financial system Commissioner, Valdis Dombrovskis, mentioned.
The European Fee’s forecast assumes that the proposed 20% charge may be lowered by negotiations with Washington to the bottom tariff charge imposed on all international locations of 10%.
Whereas the EU’s prime commerce official, Maros Sefcovic, has spoken a number of occasions with administration officers, it stays unsure how keen Trump may be to scale back the speed.
The forecast assumed that 25% tariffs on metal and autos from all international locations will stay in place, as would exemptions on laptop chips and prescribed drugs.
The report says that additional fragmentation of world commerce and climate-related disasters might hit the EU’s GDP development additional and reignite inflationary pressures.
However, the EU’s financial system might broaden greater than anticipated if the EU-US commerce tensions de-escalate quicker than anticipated. In the meantime, faster enlargement of the EU’s commerce with different international locations, in addition to elevated defence spending, might additionally enhance the bloc’s financial prospects.