European economy withstands Trump in the first quarter

L'Orient-Le Jour

02-05-2025

Europe's economic activity withstood better than expected at the beginning of the year against Donald Trump's sudden announcements on tariffs, but the impact of trade tensions is expected to keep it in near-stagnation this year.
The eurozone's gross domestic product (GDP) grew by 0.4% in the first quarter compared to the previous three months, Eurostat announced on Wednesday.
Analysts surveyed by Bloomberg had expected an average growth of 0.2% from January to March for the 20 countries sharing the single currency, after a +0.2% increase in the last quarter of 2024.
For the entire EU, growth reached 0.3%, after 0.4% from October to December, according to the European statistics office.
This solid performance seems linked to early purchases in the United States, before the tariffs came into effect in March and April. But for the whole year, the prospects remain bleak.
The EU is in negotiations with the U.S. administration to obtain the lifting of the surtaxes, which currently stand at 25% on cars, aluminum, and steel and 10% on all other products.
Europe has been mired for two years in stagnation, hampered notably by rising energy costs following Russia's invasion of Ukraine. And the expected rebound this year appears very limited...
On April 22, the International Monetary Fund lowered its growth forecasts for the eurozone by 0.2 points to 0.8% in 2025, after 0.4% in 2024, anticipating the impact of trade tensions.
- "Significant slowdown" ahead -
"The economy started the year on a stronger footing than expected. Nevertheless, we anticipate a significant slowdown in growth over the next six months, given that the US tariffs introduced in April will affect activity," commented Franziska Palmas for Capital Economics on Wednesday.
Many companies sent more goods at the beginning of the year to avoid the additional taxes imposed by Trump.
For example, exports from Ireland to the U.S. jumped by 210% in February. These consist of 90% chemical and pharmaceutical products.
The good performance of the European economy in the first quarter "is partly due to a 3.2% increase in GDP in Ireland, where the boost from anticipating US tariffs was likely significant," noted Palmas.
Among the main economies, Spain once again stood out, with GDP growth of 0.6% compared to the previous quarter.
France, hampered by political instability and a planned budgetary austerity measure, dragged down the eurozone with only 0.1% GDP growth from January to March.
Germany (+0.2%) and Italy (+0.3%), although below the European average, performed much better than expected. Unlike France, these two countries benefit from a very internationally effective manufacturing sector.
Expansion in Europe "was probably supported by the continued monetary easing of the European Central Bank (ECB), as well as the increase in activity from exporters before the implementation of US tariffs," estimates Sam Miley of the Centre for Economics and Business Research (Cebr).
The ECB cut its rates on April 17 for the sixth consecutive time, hoping to counter the effect of trade tensions with the U.S.
Trump's tariff offensive weighs on the economy, with a "risk of a decrease in exports, investments, and consumption," warned the president of the monetary institution Christine Lagarde, adding that the degraded financial climate could further hinder activity.