Trump's tariff onslaught casts shadow over European economy, even in best case scenario

Key Points

• The European Commission cut its 2025 eurozone growth forecast to 0.9% (from 1.3%) and 2026 to 1.4% (from 1.6%) amid President Trump’s tariff proposals.
• Germany’s economy is expected to stagnate with 0% growth this year due to higher energy costs after losing Russian gas, weak infrastructure spending and global competition.
• The proposed 20% U.S. tariffs on European imports have created uncertainty “not seen since the darkest days of the COVID-19 pandemic,” although unemployment is forecast to fall to a record low 5.7% next year.
• Risks are tilted to the downside if negotiations fail to lower tariffs to 10%, while 25% duties on steel and autos and exemptions on chips and pharmaceuticals are assumed to remain.

FRANKFURT, Germany (AP) — U.S. President Donald Trump's tariff offensive has led European officials to cut their growth forecasts for this year and next — even in a best-case scenario in which the highest rates on most goods could be negotiated away.

The forecast for this year for the 20 countries that use the euro currency was cut to 0.9% from the previous forecast in November of 1.3%, the European Union's executive commission said Monday in its regular spring forecast.

The forecast for 2026 was cut to 1.4% from 1.6%.

One reason for the lower growth estimate was the stagnating economy in Germany, where growth is expected to be zero this year after two years of shrinking output. Germany's economy is heavily dependent on exports but has faced strong headwinds from higher energy costs after the loss of Russian natural gas due to the invasion of Ukraine as well from lack of pro-growth infrastructure spending and competition from China in autos and industrial machinery.

The proposal for a 20% U.S. tariff, or import tax, on goods from Europe in addition to its suspension for 90 days have meant uncertainty “not seen since the darkest days of the COVID-19 pandemic,” said Economy Commissioner Valdis Dombrovskis.

He said the European economy remained “resilient” and that the jobs market remained robust, with the commission predicting a fall in unemployment to a record low 5.7% next year.

And the risks are “tilted to the downside,” he said. One reason: The forecast assumes that the proposed 20% rate can be reduced through negotiations with Washington to the base tariff rate imposed on all countries of 10%.

While the EU's top trade official, Maros Sefcovic, has spoken several times with administration officials it remains uncertain how willing Trump might be to reduce the rate. European officials have paused any retaliatory tariffs for 90 days and made a “zero for zero” offer in which each side would drop tariffs on industrial goods such as autos.

The forecast assumed that 25% tariffs on steel and autos from all countries will remain in place, as would exemptions on computer chips and pharmaceuticals.

The eurozone economy grew 0.3% in the first three months of the year, amid hopeful signs of a stronger upswing. But the mood was darkened just two days after the first quarter ended, when Trump on April 2 announced a slew of new, higher than expected tariffs on almost all US trading partners.