A potential global trade war and regional political paralysis are the two biggest threats facing the eurozone economy in 2025, according to a Financial Times poll of 72 economists.
US President-elect Donald Trump has pledged to impose tariffs of up to 20% on all US imports, while increasing tariffs to 60% on China, once he returns to the White House on January 20.
If Trump is true to his word, the tariffs would represent the most significant rise in American protectionism since the Great Depression era and raise the possibility of retaliation elsewhere.
The eurozone, which maintains a large trade surplus with the United States, is seen as highly vulnerable not only to high tariffs but also to the threat of China flooding global markets with cheap products in response to Trump's actions.
“A second Trump presidency is now the single biggest political and economic risk,” said Mujtaba Rahman, managing director for Europe at analysts Eurasia Group. “Europe will be hit with tariffs and pressure from Trump to force more aggressive decoupling from China.”
A Trade conflict Economists polled by the Financial Times almost take it for granted that US tariffs will occur: 69 percent of respondents consider it likely, while 68 percent warn that such a scenario is the biggest threat to the region in the coming year.
Almost all respondents – 81 percent – said a second Trump term would impact eurozone growth.
Economists say that the repercussions of Trump's trade policies are likely to affect production in Europe even before they are implemented. “Trump Tariffs Forecast.” . . “It provides companies with a strong incentive to wait with investments until some of the uncertainties are resolved,” said Thomas Vieladek of T Rowe Price.
On average, 72 participants are expected Eurozone economy To expand by only 0.9 percent. This would be the third year of below-average growth in a row, and is below the 1.1 per cent that ECB staff had forecast in December.
But there is broad consensus that the single currency area can avoid a recession. John Llewellyn, a former senior economist at the OECD and Lehman Brothers who is now a partner at Independent Economics, is the biggest exception.
Llewellyn predicted that the eurozone economy would end next year 1 percent lower than it was at the start, and said that “investors at present are feeling unjustifiably complacent about what President Trump is likely to bring.”
He added: “Economic stability is much more fragile than the modern generation realizes.”
Most economists surveyed – 61 percent – support European Central Bank President Christine Lagarde's call for EU policymakers to participate in trade negotiations with Trump to avoid an all-out trade war.
“(The European Union) may want to use the threat of retaliation as part of the negotiations. “Tariffs are self-harm, and it would be better for the EU not to use them,” said Isabel Mateus y Lago, chief economist at BNP Paribas.
Many economists point to the EU's extensive experience in trade talks and its position as one of the world's largest trading blocs. “The EU is not in a weak position,” said Christian Dostmann, director of the Berlin-based Rockwall Economic Research Foundation.
However, a vocal minority warned that seeking a trade deal with the United States would only encourage more aggressive actions. “Trump has the mentality of a bully on the playground,” said Kamil Kovar, chief economist at Moody's.
Tariffs will not be the only threat to the European economy emanating from the United States in 2024, said Carsten Brzeski, global head of macroeconomics at ING Bank. “US tax cuts, deregulation and lower energy prices will make the US economy more attractive compared to the US economy.” Eurozone.”
Besides geopolitical risks, Europe's inability to solve its internal problems is considered a major risk by nearly a third of all those surveyed.
Ulrich Katter, chief economist at Germany's Deka Bank, said Europe would soon resemble “the late Habsburg empire.” It was economically and technologically backward, bogged down by bureaucracy, and dominated by “the dismal memory of its former greatness.”
When asked about possible reasons for optimism, one in five cited low interest rates and some hope of rising consumer demand.
A similar percentage of analysts believe that early elections in Germany in February could lead to amendments to the country's strict constitutional limits on debt and increased investment.
“It is possible to overcome the psychological depression in Germany if a new coalition can deliver a coherent reform program and lift the debt brake,” said Moritz Cramer of German bank LBBW.
However, Marcel Frascher, director of the Berlin-based economic research center DIW, was less optimistic. “Don't expect the new German government to hit the ground running and provide a much-needed boost to confidence,” he said.
While the center-right Christian Democratic Union (CDU) is poised to be the strongest party, coalition negotiations could be complex and could drag on for several months. Moreover, CDU leader and main candidate Friedrich Merz has so far shown only limited willingness to make changes to the debt brake.
Ironically, a fifth of economists hope that this gloom will turn into a blessing in disguise when the situation may become so bad that Europe may eventually embark on the necessary reforms.
“The hostile international political climate represents an opportunity for European governance,” said Lena Komileva, chief economist at economic consulting firm g+.
LBBW's Cramer stressed that expectations “are now so low everywhere that there is also some potential for surprises on the upside.”
Additional reporting by Alexander Vladkov in Frankfurt
Data visualization by Martin Stubby
