Summary
At the start of H2 2025, Europe finds itself in an odd position: The European Union’s insulation from US tariffs means weaker exports will only cause a -0.2% decline in its GDP in 2025. A decline in eurozone inflation in 2025 and 2026 and deposit rate controls from the European Central Bank will minimize the impact of trade tension, while higher defense spending will boost real GDP. However, challenges persist: Tariffs will affect the UK, we expect export growth to slow in Q2 and Q3 2025 due to the euro’s appreciation against the US dollar, and European defense and cloud businesses must reduce their US dependence.
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