The European Commission on Friday forecasted modest financial development and continued declines in inflation for the eurozone in 2025 however cautioned about growing dangers stemming from geopolitical tensions.
The government arm of the European Union that runs the affairs of the 27-nation bloc significantly warned a protectionist U.S. commerce coverage beneath the Trump administration could possibly be “extremely harmful.”
U.S. President-elect Donald Trump, who will take workplace on Jan 20, has floated the concept of a tariff of 10% or extra on all items imported into the U.S, which is Europe’s fundamental buying and selling accomplice.
“The level of integration between our economies is such that EU-U.S. trade relations are a stabilizing economic and political force,” European Economic Commissioner Paolo Gentiloni advised a press convention.
“And in this context, a possible protectionist turn in U.S. trade policy would be extremely harmful for both economies,” he stated.
Forecasts by the Commission confirmed eurozone development accelerating barely to 1.3% in 2025, up from 0.8% this yr, whereas inflation within the 20-country single foreign money space was seen easing to 2.1%, down from 2.4% anticipated in 2024.
It is seen slowing additional to 1.9% in 2026, the Commission stated.
“With the EU economy steadily recovering, growth should pick up more speed next year,” European Commission Vice President Valdis Dombrovskis stated.
“Still, given today’s high geopolitical uncertainty and many risks, we cannot afford to be complacent. We need to deal with longstanding structural challenges.”
The development determine was nearly unchanged from the final forecast the EU government physique printed in June, when it envisaged financial exercise would enhance by 1.4% in 2025.
On Friday, it stated home demand was projected to drive future development, anticipated to achieve 1.6% within the eurozone in 2026.
“As the purchasing power of wages gradually recovers and interest rates decline, consumption is set to expand further,” it stated. “Investment is expected to rebound on the back of strong corporate balance sheets, recovering profits and improving credit conditions.”
Inflation has dropped considerably over the previous two years after reaching 8.4% in 2022, following Russia’s invasion of Ukraine, and 5.4% in 2023.
The anticipated additional slowdown would carry it very near the European Central Bank’s (ECB) 2% goal in 2025.
Eurozone unemployment was projected to face at 6.5% in 2024, then edge additional down to six.3% in 2025 and 2026, the fee stated.
But it additionally warned its outlook was subjected to rising “uncertainty and downside risks” linked to an ever-tenser geopolitical context, with Russia’s conflict in Ukraine and conflicts within the Middle East persevering with to imperil stability and power safety.
‘Narrow path’
Trump’s imminent return to the White House has loomed giant on the EU’s financial prospects.
“A further increase in protectionist measures by trading partners could upend global trade, weighing on the EU’s highly open economy,” the Commission stated.
Trump repeatedly professed his love for tariffs on the marketing campaign path, threatening to focus on the European Union particularly.
“The commission will engage with the new administration with a great spirit of cooperation, but also with the idea that we have to defend our strength as an economy which is open to trade,” stated Gentiloni.
He stated Germany and Italy can be essentially the most affected by a possible enhance in U.S. tariffs as a result of they exported essentially the most to the United States and tariffs would compound the issues producers there have been already going through.
But tariffs may even have a damaging influence on the U.S. economic system itself by stoking inflation, Gentiloni stated.
Europe’s greatest economic system Germany, which the Commission expects to contract for a second consecutive yr in 2024, is forecast to develop 0.7% in 2025 and 1.3% in 2026.
Germany is to carry early elections in February after a political disaster, as producers, significantly within the automotive sector, have been hit exhausting by rising competitors in key market China, particularly on electrical automobiles.
Growth in France is ready to gradual to 0.8% in 2025 from 1.1% seen in 2024 earlier than rebounding to 1.4% in 2026.
The aggregated eurozone funds deficit, which beneath EU guidelines each nation ought to preserve under 3% of GDP, is projected to shrink to that threshold degree for the entire eurozone this yr after which proceed all the way down to 2.9% in 2025 and a pair of.8% in 2026.
Aggregated eurozone public debt, nonetheless, will proceed to rise from 89.1% of GDP anticipated this yr to 89.6% subsequent yr and 90.0% in 2026, the Commission forecast.
On the home entrance, the Commission warned that “policy uncertainty and structural challenges” within the manufacturing sector may additional weigh on competitiveness, development and the labor market.
“Member states will have to walk a narrow path of bringing down debt levels while supporting growth,” Gentiloni stated.
“Strengthening our competitiveness through investments and structural reforms is crucial to lift potential growth and navigate rising geopolitical risks.”
A landmark report by former Italian prime minister Mario Draghi this yr raised the alarm over Europe’s failure to maintain up with the United States, underlining the EU’s low productiveness and financial slowdown.
It stated Europe should make investments as much as 800 billion euros ($863 billion) extra a yr to keep away from falling additional behind.
Source: www.dailysabah.com