EU lowers outlook for economic growth

The European Commission has sharply marked down its growth forecast for this year and next amid uncertainty over trade and tariff wars that will hurt the European Union's exports.

The commission expects the EU's GDP to grow by only 1.1 percent this year, down from the 1.5 percent expansion it predicted in November. The growth forecast for the 20-member euro zone this year has also been slashed to 0.9 percent from 1.3 percent, according to the Spring 2025 Economic Forecast released on Monday.

"The outlook for growth is revised significantly downward," the commission said. "This largely owes to a weakening global trade outlook and higher trade policy uncertainty."

Valdis Dombrovskis, the commission's executive vice-president and commissioner for economy, said higher tariffs from the United States and trade uncertainty "are weighing on EU exports".

"Risks to the outlook remain tilted to the downside," he said.

Further fragmentation of global trade could mitigate GDP growth and reignite inflationary pressures, according to the forecast. Climate-related disasters are also more frequent and remain a persistent source of downside risk for growth.

The forecast is based on certain assumptions about trade tariffs.

Duties on US imports of goods from the EU, and virtually all other trade partners, were assumed in the model to remain at 10 percent — the level applied on April 9 — with the exception of higher tariffs on steel and aluminum and cars at 25 percent, as well as tariff exemptions on certain products such as pharmaceuticals and microprocessors.

The commission said the tariff rates eventually agreed upon by China and the US on May 12 have turned out to be lower than those assumed in the forecast, but still high enough not to invalidate the assumption of a hit to the US-China trade relationship.

Geneva talks

The forecast was originally set to be released on Friday but was delayed until Monday after China and the US agreed in Geneva to cut each other's tariffs by 115 percent, prompting the commission to revise the forecast.

The EU's exports are expected to grow by only 0.7 percent this year because of low global demand for goods, the commission said. Next year, export growth is set to accelerate to 2.1 percent. Both are down from the 2.2 percent and 3.0 percent growth, respectively, in its November forecast.

The EU's largest economy Germany, which has suffered two consecutive years of recession, is expected to have zero growth this year compared with the November forecast of 0.7 percent. But the growth will be 1.1 percent next year.

The forecast for France and Italy, the bloc's second- and third-largest economies, have also been marked down from 0.8 percent to 0.6 percent and from 1.0 percent to 0.7 percent, respectively, for this year.

US Vice-President JD Vance said on Sunday that he was hopeful about "long-term trade advantages" between the EU and the US, ahead of a meeting in Rome with Italian Prime Minister Giorgia Meloni and European Commission President Ursula von der Leyen.

"I think we'll have a great conversation and hopefully it will be the beginning of some long-term trade negotiations and some long-term trade advantages between both Europe and the United States," Vance said.

Ignacio Garcia Bercero, a nonresident fellow at Bruegel, a Brussels-based think tank, said that in trade talks with the US, the EU can only consider offering tariff reduction on a most-favored-nation basis and cannot accept an agreement that would maintain US tariffs at higher levels than EU tariffs for almost all products — referring to the 10 percent tariff by the US in contrast to the bloc's tariff of below 2 percent.

"The EU, therefore, should challenge the 10 percent tariffs via the World Trade Organization, preferably as part of a broader coalition," Bercero, a former EU trade negotiator, wrote on Bruegel's website.