A poll of 72 economists conducted by the Financial Times showed that a possible global trade war and regional political paralysis are the two major threats facing the euro zone economy in 2025.
US President-elect Trump has promised to impose tariffs of up to 20% on all US imports once he returns to the White House on January 20, with tariffs on China rising to 60%.
If Trump keeps his word, the tariffs would represent the most significant rise in U.S. protectionism since the Great Depression and could trigger retaliation elsewhere.
The euro zone, which has a huge trade surplus with the United States, is considered to be facing a serious threat not only from higher tariffs, but also from China dumping cheap products on the global market due to Trump’s actions.
“A second Trump presidency is now the biggest political and economic risk,” said Mujtaba Rahman, managing director of Europe at analyst Eurasia Group. “Europe will face the risk of tariffs and Trump’s push for a more aggressive decoupling from China.”
Economists surveyed by the Financial Times almost take a trade conflict triggered by U.S. tariffs as a given: 69% think it is possible, while 68% warn that such a scenario is a possibility. area’s biggest threat next year.
Almost all respondents (81%) said a second Trump term would put pressure on euro zone economic growth.
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Economists say the impact of Trump’s trade policies could weaken European output before they are implemented. “The anticipation of Trump’s tariffs . . . provides a strong incentive for companies to wait to invest until some of the uncertainty is resolved,” said Tomasz Wieladek of T Rowe Price. ”
On average, 72 respondents expect the eurozone economy to grow by just 0.9%. That would be the third consecutive year of below-average growth and below the 1.1% forecast by ECB staff in December.
But it is widely believed that a single currency area can avoid a recession. The biggest outlier is John Llewellyn, a former senior economist at the OECD and Lehman Brothers and now a partner at Independent Economics.
Llewellyn expects the euro zone economy to shrink by 1% next year compared with the beginning of the year. He said that “investors are currently unfoundedly complacent about the results that President Trump may bring.”
“Economic stability is much more fragile than modern people realize,” he said.
A majority of economists surveyed (61%) support European Central Bank President Christine Lagarde’s call for EU policymakers to engage in trade talks with Trump to avoid a full-blown trade war.
“[The EU] It may be desirable to include threats of retaliation as part of negotiations. But ultimately, tariffs are self-inflicted and the EU would be better off not using them,” said Isabelle Mateos y Lago, chief economist at BNP Paribas.
Several economists pointed out that the EU has extensive experience in trade negotiations and its status as one of the world’s largest trading blocs. “The EU is far from being in a weak position,” said Christian Dastmann, director of the Rockwool Foundation, a Berlin-based economic think tank.
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However, a few warn that pursuing a trade deal with the United States will only encourage more aggressive action. “Trump has the mentality of a playground bully,” said Kamil Koval, senior economist at Moody’s.
Carsten Brzeski, global head of macro at ING Bank, said tariffs are not the only threat to the European economy from the United States in 2024. .
In addition to geopolitical risks, nearly a third of respondents cited Europe’s inability to solve its own problems as a major risk.
Ulrich Carter, chief economist at Deka Bank in Germany, said Europe will soon resemble the “late Habsburg Empire”. It is economically and technologically backward, plagued by bureaucracy and dominated by “melancholy memories of past greatness”.
When asked about potential reasons for optimism, one in five cited falling interest rates and some hope of rising consumer demand.
A similar proportion of analysts believe Germany’s snap election in February could lead to adjustments to the country’s strict constitutional debt brake policy and increased investment.
“If the new coalition can come up with a coherent reform plan and lift the debt brake, Germany’s psychological repression could be reversed,” said Moritz Kraemer of German bank LBBW.
However, Marcel Fratzscher, director of the Berlin economic think tank DIW, is less optimistic. “Don’t expect the new German government to act immediately and provide a much-needed confidence boost,” he said.
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While the centre-right Christian Democratic Union is expected to emerge as the strongest party, coalition negotiations are likely to be complex and could drag on for months. Furthermore, CDU leader and leading candidate Friedrich Merz has so far shown limited interest in debt brake reform.
Paradoxically, one in five economists hopes the gloom will be a blessing in disguise, as the situation could get so bad that Europe might finally begin the necessary reforms.
“The hostile international political climate provides opportunities for European governance,” said Lena Komileva, chief economist at (g+) Economic Consulting.
LBBW’s Cramer emphasized that “expectations are now so low that some upside surprises are also possible.”
Additional reporting by Alexander Vladkov in Frankfurt
Data visualization, by Martin Stabe
