Euro Zone Economic Outlook

BRUSSELS (Reuters) – The European Commission forecasted that economic growth in the Euro zone will increase in 2025 and 2026, while inflation continues to decline. However, risks such as U.S. protectionism and fluctuating energy prices from the Middle East have been noted.

U.S. President-elect Donald Trump has proposed a potential tariff of 10% or more on all imports, which could impact Europe, its main trading partner.

The Commission highlighted that geopolitical risks and policy uncertainty are escalating. In addition to concerns about conflicts in Ukraine and the Middle East, growing protectionism from trade partners could significantly hinder international trade. As the EU relies heavily on energy imports and is highly open to global markets, it is particularly vulnerable.

The Commission anticipates that the economy of the 20 Euro area countries will grow by 0.8% in 2024, rising to 1.3% in 2025, and reaching 1.6% in 2026. Germany, Europe's largest economy, is forecasted to grow by 0.7% in 2025 and 1.3% in 2026 following two years of decline in 2023 and 2024. France's growth is expected to slow to 0.8% in 2025, down from 1.1% in 2024, before rebounding to 1.4% in 2026.

Consumer inflation, which the European Central Bank aims to maintain at around 2% in the medium term, is predicted to decrease from 2.4% in 2024 to 2.1% in 2025, and further down to 1.9% in 2026.

The aggregated Euro zone budget deficit is projected to shrink to below the EU threshold of 3% of GDP this year and continue declining to 2.9% in 2025 and 2.8% in 2026. However, the overall public debt is expected to rise from 89.1% of GDP this year to 89.6% next year, and reach 90.0% in 2026.