How much will Trump’s tariffs hinder EU growth?

Heightened global policy uncertainty and trade tensions are overshadowing the European Union’s economic growth prospects. The European Commission revised its outlook for the eurozone to 0.9% from the previous forecast of 1.3% in November. For 2026, the eurozone is expected to expand by 1.4% instead of the previously expected 1.6%.

The EU is forecast to keep growing at a modest rate this year, at 1.1%. The EU’s executive body forecast that growth will pick up in 2026 and reach 1.5%. The Commission said this on Monday in its spring forecast.

The sharp slowdown in global trade, fuelled by global tensions, will leave its mark on Europe, too. The Commission is expecting EU exports to grow by only 0.7% this year, with a renewed contraction in exports of goods partially offset by the resilience of services exports, as they are less affected by trade tensions. In 2026, export growth is set to accelerate to 2.1%.

Investments are expected to pick up this year, and private consumption is forecast to be slightly more robust than projected in autumn, reaching 1.5% in 2025 and 1.6% in 2026.

Inflation is expected to slow down, with headline inflation descending to 2.1% in the eurozone in 2025 and further to 1.7% in 2026. In the EU, prices are expected to follow a similar path, falling just below 2% in 2026.

The European Commission highlighted that the labour market remains robust, and it expects the unemployment rate to hit a record low of 5.7% in 2026.

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One reason for the lower growth estimate is due to Germany’s stagnating economy, where growth is expected to be zero this year after two years of shrinking output.

The EU’s largest economy is heavily dependent on exports but has faced strong headwinds from higher energy costs after the loss of Russian natural gas due to the invasion of Ukraine, as well as from a lack of pro-growth infrastructure spending and competition from China in autos and industrial machinery.

France, the second-biggest economy in the bloc, is set for 0.6% growth this year, followed by 1.3% in 2026, while Spain is expected to have GDP growth of 2.6% this year.

The best performing economies in the EU include Poland, Ireland, Denmark and Malta this year.

The proposal for a 20% US tariff on imported goods from Europe, in addition to its suspension for 90 days, has meant uncertainty “not seen since the darkest days of the COVID-19 pandemic,” Economy Commissioner, Valdis Dombrovskis, said.