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EU cuts growth forecasts amid rising US tariffs and global trade uncertainty

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The European Commission has revised on Monday (19 May) its economic growth projections downward for 2025, citing increased US tariffs and escalating trade tensions as primary factors, writes Runfeng Huang.

Key forecast revisions:

  • Eurozone growth: Projected at 0.9% for 2025, down from the previous estimate of 1.3%.
  • EU-wide growth: Expected to be 1.1% in 2025, a decrease from the earlier forecast of 1.5%.
  • Inflation: Anticipated to decline from 2.4% in 2024 to 2.1% in 2025 and further to 1.7% in 2026 within the eurozone.
  • Exports: Growth is expected to slow to 0.7% in 2025, with a potential rebound to 2.1% by 2026.

The Commission attributes these adjustments to the impact of heightened US tariffs and the resulting uncertainty in global trade dynamics. Valdis Dombrovskis, EU Commissioner for Economic Affairs, noted that "higher U.S. tariffs and trade uncertainty are weighing on EU exports," leading to a significant downgrade in growth expectations.

European Central Bank policymaker José Luis Escrivá expressed concerns over the broader implications of US trade policies, emphasizing that such measures pose risks to global financial stability and economic growth. He highlighted that the unpredictability of these policies undermines investor confidence and could have adverse effects on both the US and European economies.

Analysts from Goldman Sachs have also weighed in, suggesting that the negative impact of ongoing tariffs may offset any potential economic benefits from proposed US tax cuts and fiscal stimulus measures. They caution that the drag from tariffs could negate the anticipated boost from fiscal policies.

The European Commission warns that continued trade tensions and policy unpredictability could further dampen economic prospects, potentially rekindling inflationary pressures and exacerbating financial market volatility.

Sources: Politico, The Guardian, European Commission, Reuters, Business Insider, China Daily

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