Resilience or bracing for worse

The Eurozone economy started the year on a strong footing, despite tariff hikes and threats. Yet economic resilience is largely because of, rather than despite lingering uncertainty related to the trade war and Q1’s growth spurt seems bound to be reversed in Q2. We believe tariffs are here to stay, but the level is uncertain. We think the EU can avoid a 50% tariff hike on its exports to the US, but a full-fledged deal lifting all tariffs is unlikely. We forecast the Eurozone economy to grow by 0.8% in 2025 and 0.7% in 2026. Inflation is expected to average 2% in 2025 and 2.3% in 2026. If Europe keeps a steady hand, it could benefit from US policy weakness.