Europe saw faster economic growth early this year but Trump’s tariffs have dimmed its prospects
Europe experienced an economic growth of 0.4% in the first quarter of the year, an improvement from the previous 0.2% growth, but the announcement of new tariffs by US President Donald Trump quickly dampened recovery prospects. Trump's trade war, particularly the 20% tariff on goods from the European Union, led to a downgrade in Europe's economic growth outlook, heavily reliant on exports to the US, its largest trading partner. While there is a temporary 90-day pause on these tariffs, uncertainty remains about the EU's ability to negotiate a reduction. Consumer and business optimism indicators in Europe have declined as a result of the tariffs and the uncertainty they bring. Despite some positive signs such as low unemployment and reduced inflation, the tariffs have notably lowered growth expectations for Germany, the eurozone's largest economy, with projections reduced to zero growth for the year.
Europe's economy showed a modest recovery with a 0.4% GDP growth in the first quarter of the year, an improvement from the 0.2% growth in the last quarter of 2024, but this was overshadowed by the introduction of US tariffs.
President Trump's imposition of a 20% tariff on goods imported from the EU, alongside other tariffs on steel, aluminum, and cars, has led to a negative revision of Europe's economic growth outlook due to its heavy dependence on exports to the US.
A temporary 90-day halt on the tariffs has been announced, but the possibility of the EU negotiating a reduction from the 20% tariff rate remains uncertain, maintaining a cloud of uncertainty over economic prospects.
The European Commission's economic sentiment indicator dropped to 93.6 in March, its lowest since December, as business and consumer optimism waned due to tariff tensions and the resulting economic uncertainty.
Despite favorable conditions such as a low unemployment rate of 6.1% and reduced inflation encouraging consumer spending, the tariffs have caused the German government to lower its growth estimate to zero, highlighting the adverse impact on Europe's largest economy.