By David Mchugh
Frankfurt, Germany (AP) — European economy grew stronger in the first three months of the year, but there was hope for a continued recovery quickly suppressed by US President Donald Trump’s trade war.
Official figures released on Wednesday by Eurostat, 20 eurozone countries’ gross domestic product rose 0.4% in the first quarter, with a growth rate of 0.2% in the final part of 2024.
But on April 2, just two days after the end of the quarter, Trump announced a new onslaught of tariffs on almost all US trading partners, striking goods imported from the EU at a 20% tariff rate. As a result, the economy relies heavily on exports, and the US relies on its largest single export destination, leading to a wide downgrade of Europe’s growth outlook that year.
Trump has announced a 90-day suspension on what he calls his “mutual” tariffs, but expects the EU to be able to hit bargains to reduce the 20% figure, based on what other countries feel they are dealing with the US.
Meanwhile, other tariffs – both of all trading partners, including Europe, including steel and aluminum, and 25% rates for cars, remain. The cost of customs is paid by companies importing European goods such as automobiles and pharmaceuticals. This requires a decision to swallow the cost in the form of a higher price or hand it over to the consumer.
As a result, indicators of business and consumer optimism in Europe have fallen. The European Commission’s economic emotional indicator settled at 93.6 in March, the lowest level since December. That drop in sentiment is “another example of how the past four weeks of tariff tensions and uncertainty have completely wiped out the tentative return of eurozone optimism.”
“If there is no major change in US trade policy, it will remain restrained for the next few months, just like economic activity in the eurozone,” Bruzeski said.
Before Trump’s announcement, the hopeful indications included a strong job market. The unemployment rate was 6.1%, and consumers began to spend more after years of restraint on inflation.
As inflation falls to 2.2%, the European Central Bank has reduced its credit costs for consumers and businesses by cutting benchmark rates seven times in the current easing cycle and recently reducing its benchmark rates seven times by a quarter point on April 17th.
Additionally, the German Parliament has approved an EUR 50 billion ($570 billion) investment fund that will be exempt from the country’s constitutional restrictions on debt. That decision by the Central Right Coalition Bloc and the new Social Democrat coalition raised hopes of additional spending on growth-enhancing infrastructure over the coming years.
But Trump’s tariffs have lowered expectations for Germany, the eurozone’s biggest economy and the child of its economic problems. The government, which was sent under Prime Minister Olaf Scholz, has reduced this year’s growth estimate to zero after power output has been reduced over the past two years. Congress is expected to elect Central Right Union leader Friedrich Merz as prime minister on May 6, following the national election on February 23rd.
Original issue: April 30, 2025, 1:12pm EDT
