EU and eurozone: slow and gradual growth. But the Trump effect weighs

Brussels – The good news is that “the European economy is slowly recovering.” Economy Commissioner Paolo Gentiloni breathes a sigh of relief. Uncertainties — external and geopolitical — are still present and have not dissipated. They will continue to overshadow scenarios and expectations. Indeed, they will intensify with Donald Trump’s return to the White House. However, the autumn economic forecasts that the European Commission publicly releases show that “as inflation continues to ease and private consumption and investment growth pick up, growth is set to accelerate gradually over the next two years,” the Italian member of the College of Commissioners sums up.

Gentiloni had offered a preview of the eurozone. Growth was confirmed at 0.8 percent in 2024, as budgeted. It is the only fact in the forecasts, certainly conservative, that cut growth estimates for the eurozone by 0.1 percentage point in 2025 (1.3 percent instead of 1.4 percent) and for the EU as a whole for this year and next (no longer 1 percent and 1.6 percent, but 0.9 percent and 1.5 percent respectively).

Germany’s slowdown weighs on forecasts. Europe’s largest economy at the end of the year is practically at a standstill, moreover with a negative sign: Germany’s GDP is forecast at -0.1 percent at the end of 2024, with 0.7 percent growth expected for 2025, below expectations reflecting a cut from the May forecast (by -0.3 percentage points).

Inflation falls, economy can breathe

Driving this moderate recovery is the easing of inflation. It is true that “price pressures in services remain elevated,” as the European Commission services acknowledge, “but they are expected to moderate from early 2025, led by slowing wage growth and an expected recovery in productivity, and supported by negative base effects.” Expectations are, therefore, for a hopeful decline in consumer, private, and industrial prices. Inflation is expected “to decline toward the [reference 2 percent] target in late 2025 in the euro area and 2026 in the EU.”

Not just Russia, EU fears the ‘Trump effect’

However, the European Union and its eurozone remain hostage to external factors. “Uncertainty and downside risks to the outlook have increased,” the European Commission acknowledges, as scenarios of trade wars with the United States must be added to the ongoing Russian-Ukrainian war that is increasingly complicated to predict in terms of conclusions and the intensifying conflict in the Middle East. There is no outright mention of President-elect Donald Trump. However, the Commission points out that “a further increase in protectionist measures by trading partners could weigh on global trade, with negative impact on the EU’s highly open economy.”
Gentiloni, while presenting the autumn economic forecasts at a press conference, openly speaks of the transatlantic partner. “A possible protectionist shift in US trade policy would be extremely damaging for both economies,” the Commissioner for Economy emphasized, expressing confidence that any negative fallout for the US economy could serve as a reason to refrain from trade wars. While it will not be up to him or his colleagues in the College, he assures that “the Commission will work with the new US administration to promote a strong transatlantic agenda and ensure that international trade channels remain open while making them safer.”

In light of these factors, Gentiloni says clear choices are required that can no longer be delayed. “Looking to the future, strengthening our competitiveness through investment and structural reforms is key to increasing potential growth and managing growing geopolitical risks,” the Economy Commissioner scolds. It means not delaying the implementation of recovery plans nor the path to fiscal consolidation because, he stresses, “any delay in the implementation of the Recovery Plan or a greater-than-expected impact of fiscal consolidation could further restrain the resumption of growth.”

English version by the Translation Service of Withub