EU Commission sees euro zone economy picking up, warns of US protectionism

7:33 am Friday, November 15th, 2024

By Jan Strupczewski

BRUSSELS (Reuters) -Euro zone economic growth will pick up in 2025 and 2026 and inflation will slow, the European Commission forecast on Friday, but warned a protectionist U.S. trade policy under the Trump administration could be “extremely harmful”.

U.S. President-elect Donald Trump, who will take office on Jan 20, has floated the idea of a tariff of 10% or more on all goods imported into the U.S, which is Europe’s main trading partner.

“The level of integration between our economies is such that EU-U.S. trade relations are a stabilising economic and political force,” European Economic Commissioner Paolo Gentiloni told a press conference.

“And in this context, a possible protectionist turn in U.S. trade policy would be extremely harmful for both economies,” he said.

Gentiloni said Germany and Italy would be the most affected by a potential increase in U.S. tariffs because they exported the most to the United States and tariffs would compound the problems manufacturers there were already facing.

But tariffs could also have a negative impact on the U.S. economy itself by stoking inflation, Gentiloni said.

Despite such risks, 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, which the Commission expects to contract for a second consecutive year in 2024, is forecast to grow 0.7% in 2025 and 1.3% in 2026. Growth in France is set to slow to 0.8% in 2025 from 1.1% seen in 2024 before rebounding to 1.4% in 2026.

Consumer inflation, which the European Central Bank wants to keep at 2% over the medium term, is set 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 projected 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.

(Reporting by Jan StrupczewskiEditing by Christina Fincher)