By presenting the projections, the European Commissioner of Economics, Valdis Dombrovskis, pointed out that the economic growth of the European Union faces a ‘larger world uncertainty and commercial tensions”
The European Commission announced on Monday (19) a considerable reduction in its growth predictions to 2025 and 2026 in the eurozone, due to the negative impact that the tariffs imposed by will have in commercial flows. Given the new scenario, the Commission – the executive arm of the – reduced growth forecast by 2025 to 0.9%, compared to 1.3% of the previous projection, released in November last year.
For the year 2026, the commission projects a growth of 1.4%, two tenths below the previous forecast. By presenting the projections, European Economics Commissioner Valdis Dombrovskis pointed out that EU’s economic growth faces “greater world uncertainty and commercial tensions.”
He added, however, that the block economy “demonstrates resilience, despite the challenging circumstances we face.” “The unpredictable and apparently arbitrary logic of US tariff ads has raised the uncertainty of world economic policy to levels that were not seen from the darkest moments of Covid-19 pandemic,” he said.
“In other words, we hope trade will be a less important engine of world growth,” said Dombrovskis. In a statement, the commission points out that the scenario “is largely due to a weakening of the global commercial perspective and the greater uncertainty of trade policy.”
The commission mentioned the perspective of a global contraction of growth. “As a result, we hope that EU exports will grow only 0.7% this year,” the note adds. A “greater fragmentation of world trade could mitigate GDP growth and reactivate inflationary pressures,” according to the committee.
The European bloc attempts to stabilize its economic recovery after the widespread collapse caused by the coronavirus pandemic, but the invasion of Russia to Ukraine in 2022 caused the return of uncertainty. The scenario was even more unstable with the ads of the new tariff policy in Washington, which opens the door to a trade war between two traditional partners.
Reforms or “agony”
The weaknesses of the block’s economy, however, not only respond to an adverse geopolitical context. In September last year, former President of the Mario Draghi Central Bank (PCC Central Bank) released a devastating report on the state of the economy in the block. In his study, Draghi showed that the EU should adopt radical reforms if they want to avoid a “slow agony” with gigantic investments in digital innovation and ecological transition, as well as in the defense industry.
Germany’s new head of government Friedrich Merz has launched a colossal plan to modernize infrastructure in Europe’s largest economy and reinforce his army. At the same time, the EU also pledged to implement other draghi recommendations, such as the flexibility of regulations that penalize competitiveness. In addition, it seeks to implement a true unique financing market to prevent the best European startups from moving to the United States to obtain the capital they need.
*With information from AFP
Posted by Victor Oliveira
