Trump tariffs threaten to derail Europe’s growth in 2025, say investment banks
Economic uncertainty looms over the eurozone
Major Wall Street analysts warn that former U.S. President Donald Trump’s proposed tariffs could significantly hinder Europe’s economic growth in 2025. Goldman Sachs projects that the eurozone’s GDP could drop to 0.7%, well below the European Central Bank’s (ECB) December estimate of 1.1%.
The renewed trade uncertainty is unsettling investors and policymakers alike. European companies are already struggling with slow growth, and potential tariffs could further strain profits and investment plans. Analysts from Goldman Sachs and JPMorgan believe that the risk of tariffs and possible European retaliations could severely impact economic prospects.
How much damage could tariffs inflict?
Goldman Sachs estimates that a 10% tariff on all U.S. imports from the EU could shave up to 1% off the eurozone’s growth. The impact would extend beyond GDP figures, affecting corporate earnings and investor confidence.
Stock market analysts at Goldman Sachs foresee a modest 3% growth in European earnings per share in 2025, significantly lower than the consensus estimate of 8%. According to analysts, the direct impact of tariffs is concerning, but the uncertainty surrounding trade policies may be even more damaging. Reduced economic growth and hesitant investment decisions could weaken the broader financial market.
Which sectors are most vulnerable?
The EU accounts for approximately 15% of total U.S. imports. Among the most exposed industries are machinery, pharmaceuticals, chemicals, and the automotive sector. European automakers, in particular, face significant risks if new tariffs are introduced.
High-margin defensive industries, such as healthcare, tend to be more resilient to trade uncertainty. In contrast, cyclical sectors like automobile manufacturing and heavy industry remain especially vulnerable. European blue-chip stocks, including companies like Nestlé, Roche, and ASML, have recently underperformed but often fare better during periods of economic instability.
Could a weaker Euro mitigate the impact?
A depreciating euro might provide some relief for European exporters, particularly multinational companies with substantial global revenues. Goldman Sachs strategists forecast the EUR/USD exchange rate could decline to 0.97 within the next year. The GBP/USD rate may also drop to 1.20.
However, the relationship between a weaker euro and European stock performance remains complex. Historically, a strong U.S. dollar correlates with underperformance in non-U.S. markets. Additionally, the rising risk premium associated with a falling euro could neutralize potential gains from currency conversion.
How might the EU respond to the tariffs?
Uncertainty surrounds how the EU might counter new U.S. tariffs. JPMorgan economist Nora Szentivanyi states that “the motivation, targets, timing, and tariff rates remain unclear.” Nonetheless, the European Commission has indicated that it would respond decisively to any U.S.-imposed trade restrictions.
If the EU follows its 2018 strategy, it could implement targeted retaliatory tariffs. Energy imports may remain untouched, while products strategically important to Trump’s voter base could face steep duties. Some goods could see tariff rates exceeding 50%.
Eurozone’s Economic Outlook Faces Growing Risks
JPMorgan already factors in a 0.5 percentage point drag on eurozone growth over the next year due to trade policy uncertainty. However, escalating tariff threats could worsen the economic outlook even further.
On Tuesday, U.S. Treasury Secretary Scott Bessent met with ECB President Christine Lagarde to discuss economic priorities and transatlantic trade relations. While no concrete details emerged, the meeting underscores the increasing attention paid to U.S.-EU trade tensions.
As markets await further developments, investors and businesses must prepare for a turbulent economic landscape in 2025. The ongoing uncertainty over trade policies threatens to amplify existing economic challenges, making strategic planning more crucial than ever.
