The European Union has been slipping into a recession. Analysts at BCA Research are confident in such bleak prospects. They have detected the onset of a looming moderate recession that could become evident by the middle of this year. Well, let’s wait and see whether the prediction will come true.
The reason for the worsening economic conditions in the EU is the large-scale US tariffs imposed by Donald Trump, which “are exacerbating an already fragile economic environment.”
According to BCA Research analysts, the recent trade measures introduced by the US president will cut corporate profits, slash capital investment, and worsen business sentiment in the region.
New restrictions from Trump’s administration are raising the overall US tariff rate to 22%—the highest level since 1910, experts note. This situation will deal a serious blow to the eurozone. Interestingly, most EU countries are already losing momentum in industrial output, reducing capital expenditure, and dealing with issues in retail trade.
BCA experts warn markets that US tariffs will badly hurt European exporters, especially the automotive sector, where duties reach 25%. According to research by the Peterson Institute for International Economics, tariffs of this scale, like those imposed by the US, will reduce growth by 0.25 percentage points in Germany, by 0.12 percentage points in France, and by 0.15 percentage points in Italy.
Additional pressure is coming from the redirection of Chinese exports. In response to elevated US tariffs (now raised to 64%), Chinese manufacturers are redirecting their shipments to Europe. Against this backdrop, BCA analysts expect a repeat of the US-China trade war scenario from 2018–2019, when such redirection triggered deflation in the eurozone. The current situation makes Europe’s economy more vulnerable. Besides, investor sentiment in the region turned sour long ago. In such an environment, it is difficult to stay hopeful: earnings forecasts are being revised downward, profit margins are shrinking, and capital expenditure plans have to be cut.
Against this background, BCA concludes that the doom and gloom in the EU economy will lead to a broad reduction in investment and a slowdown in eurozone GDP growth.
