The European Commission has sharply downgraded its 2025 economic growth forecast for the eurozone, citing escalating global trade tensions driven by U.S. President Donald Trump’s renewed tariff agenda and broader geopolitical instability.
In its spring economic forecast released Monday, the Commission now expects the eurozone’s economy to expand by just 0.9% in 2025, down from the 1.3% forecast in November. The outlook for 2026 has also been trimmed to 1.4%, from an earlier estimate of 1.6%.
“Growth will continue, underpinned by strong labour markets and rising wages, but at a subdued pace due to weaker global demand and heightened trade policy uncertainty,” said Valdis Dombrovskis, EU Commissioner for the Economy.
The downgrade follows a wave of U.S. tariff announcements by President Trump, who in April imposed a 20% levy on most EU goods, and maintained a baseline 10% global import tariff, pending negotiations. He has also threatened additional 25% tariffs on steel, aluminum, and autos unless a comprehensive trade agreement is reached by July.
While these duties are currently on hold, the risk of a collapse in talks has rattled markets and policymakers, with the EU now bracing for prolonged trade friction — similar to the damaging U.S.-China tariff war in previous years.
According to Bloomberg and Politico Europe, senior EU officials are pressing for an urgent diplomatic push to avoid a full-blown trade escalation that could further weaken Europe’s fragile recovery.
In a particularly stark revision, the EU now expects Germany — the eurozone’s largest economy — to register zero growth in 2025, a significant drop from the 0.7% previously forecast. Weak industrial output, high energy prices, and global export uncertainty continue to weigh on Germany’s manufacturing sector.
This mirrors data from the German Ifo Institute and Reuters, which recently warned that Berlin’s economic rebound is “uncomfortably sluggish,” with prolonged structural issues hampering competitiveness.
“Risks remain tilted to the downside. Europe must take decisive steps to boost its competitiveness in a rapidly evolving global economy,” Dombrovskis stressed, underscoring the EU’s new policy pivot toward business deregulation and industrial innovation.
Despite sluggish growth, inflation in the eurozone is expected to ease to 2.1% in 2025, in line with the European Central Bank’s 2% target. That’s unchanged from previous forecasts, while the 2026 inflation estimate was revised down to 1.7% from 1.9%.
Consumer prices have cooled considerably since peaking above 10% in 2022, driven by easing energy costs and tighter monetary policy. However, Brussels warned that further global trade disruptions or climate-related disasters — such as the worsening frequency of wildfires and floods — could reignite inflationary pressures.
“While inflation is moderating, persistent external shocks remain a key threat,” the Commission said in a statement. “Climate instability and trade fragmentation are no longer hypothetical risks — they are active forces shaping the economic landscape.”
After years of focusing on green transitions and digital policy, EU leaders are now shifting gears toward restoring economic competitiveness, particularly in light of growing pressure from U.S. industrial policy and Chinese tech dominance.
The Commission is expected to unveil a package of competitiveness reforms later this year, aimed at reducing regulatory burdens and strengthening EU industry participation in strategic sectors like AI, clean tech, and defense.
