Economic growth has been fairly resilient to tariffs so far and, as long as tariffs stay around the 15% agreed in the EU-US trade deal, the hit to activity should be small. But growth will be sluggish over the rest of this year and next as low confidence and slowing income growth weigh on consumption, while euro-zone exporters struggle with deteriorating competitiveness. Germany’s fiscal stimulus should provide a temporary boost to growth next year, but we don’t think that higher defence spending will do much to raise growth prospects elsewhere. Meanwhile, we think that inflation will undershoot the 2% target in 2026 as energy prices decline. The ECB will probably look through this and keep monetary policy unchanged, but the risks are skewed towards lower inflation and interest rates.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services