The European Commission has slashed its economic growth forecast for the eurozone, warning that the region is increasingly vulnerable to external shocks as Washington’s trade belligerence reverberates across global markets.
In a sobering update released on Monday, Brussels revised its 2025 GDP projection for the 20-member euro area down to 0.9 per cent, a marked drop from the 1.3 per cent forecast issued just months ago. The Commission placed the blame squarely on escalating trade tensions with the United States, which it accused of fuelling economic uncertainty and sapping investor confidence.
The stark forecast comes amid deepening concern in European capitals over President Donald Trump’s second-term economic doctrine, which has seen punitive tariffs imposed on a range of European goods — from German autos to French agricultural exports — under the banner of “American industrial sovereignty.” The White House, for its part, accuses Brussels of maintaining “unfair subsidies” and dragging its feet on opening up key markets to U.S. competition.
For Europe, the economic consequences are real and immediate. Exports, the lifeblood of many eurozone economies, have slowed. Business sentiment surveys point to waning optimism in the manufacturing sector, particularly in Germany, Italy and the Netherlands. And foreign direct investment, once buoyed by Europe’s stable regulatory environment, is beginning to show signs of retreat as global firms hedge their bets in an increasingly volatile trade landscape.
“The European economy was already running in low gear,” said Carsten Brzeski, Chief Eurozone Economist at ING. “Now, with Washington shaking the foundations of open trade, we are in danger of stalling altogether.”
The Commission’s report is laced with warnings about rising costs for consumers and businesses, disrupted supply chains, and growing investor unease. The European Central Bank, which has kept interest rates in negative territory for over a decade, is unlikely to offer much room for manoeuvre in response, given persistent inflationary pressures and the risk of monetary exhaustion.
There is also unease about the political implications of an extended slowdown. Eurozone unemployment, which had been falling steadily since the pandemic, may begin to tick upward again — a worrying prospect for a continent facing a string of high-stakes national elections in 2025 and early 2026.
“Economic grievances fuel political discontent,” said a senior EU diplomat. “If the electorate starts to feel that Europe cannot protect their livelihoods in the face of American aggression, the populists will pounce.”
Indeed, the timing could hardly be worse. A slowdown triggered by U.S. tariffs risks handing further ammunition to those eager to tear up the liberal order and retreat behind national borders.
Some member states have called for a more assertive response. France has floated the idea of a coordinated EU retaliatory package, targeting U.S. tech giants and defence contracts. Germany, however, remains more cautious, wary of further alienating Washington at a time when transatlantic security cooperation — particularly over Ukraine — remains vital.
Behind closed doors, however, the mood is growing less conciliatory. EU officials note that efforts to revive a new transatlantic trade dialogue have been met with silence from Washington, where isolationist rhetoric continues to dominate the agenda. Attempts to circumvent U.S. tariffs through World Trade Organization arbitration are expected to drag on for months, if not years.
With little prospect of a diplomatic breakthrough, some economists believe Europe may be forced to look inward for growth. Calls are mounting for a new wave of EU-wide investment — in green technology, digital infrastructure, and reindustrialisation — to wean the bloc off export dependence and restore momentum to the post-pandemic recovery.
Whether Brussels can muster the political will to do so remains to be seen. For now, Europe finds itself once again learning an old lesson the hard way:
