Euro zone economic growth will pick up in 2025 and 2026 and inflation will continue to slow, the European Commission forecast on Friday, but noted risks to global trade from U.S. protectionism and to energy prices from the Middle East.
U.S. President-elect Donald Trump has floated the idea of a 10% or more tariff on all goods imported into the U.S, which is Europe's main trading partner.
"Geopolitical risks and policy uncertainty have further increased. In addition to the risks related to the wars in Ukraine and the Middle East, a further increase in protectionist measures by trading partners could weigh on international trade," the Commission said in it regular economic forecast.
"With its structural dependence on energy imports and high degree of openness, the EU is especially vulnerable," it said.
The Commission expects the economy of the 20 countries that share the euro to grow 0.8% in 2024 and accelerate to 1.3% in 2025 and 1.6% in 2026.
Europe's biggest economy Germany, after two years of contracting output in 2023 and 2024, is to growth 0.7% in 2025 and 1.3% in 2026, the Commission forecast. Growth in second biggest France is to slow to 0.8% in 2025 from 1.1% seen in 2024 before rebounding to 1.4% in 2026.
At the same time consumer inflation, which the European Central Bank wants to keep at 2% over the medium term, is to decelerate to 2.1% next year from 2.4% expected in 2024 and slow further to 1.9% in 2026, the Commission said.
The aggregated euro zone budget deficit, which under EU rules every country should keep below 3% of GDP, is to shrink to that threshold level for the whole euro zone this year and then continue down to 2.9% in 2025 and 2.8% in 2026.
Aggregated euro zone public debt, however, will continue to rise from 89.1% of GDP expected this year to 89.6% next year and 90.0% in 2026, the Commission forecast.
