EU-US Tariff Deal Boosts Eurozone Growth Forecasts to 1.1% and 1.2% for 2025 and 2026

The United States and the European Union have reached a 15% tariff agreement on goods exported from the EU to the US, which has been deemed better than expected. The effective tariff rate on EU exports to the US has increased from approximately 10% to around 16%, slightly lower than previously anticipated. This adjustment has led to a reduction in the estimated impact of trade tensions on the eurozone's real GDP, from -0.6% to -0.4%.

This agreement is expected to have a positive impact on the European economy. Consequently, the growth forecasts for 2025 and 2026 have been raised by 0.1 percentage points each, to 1.1% and 1.2% respectively. This adjustment also increases the likelihood that the European Central Bank will maintain interest rates unchanged in September.

The automotive industry is a significant beneficiary of the agreement, with tariffs on cars being reduced from 27.5% to 15%. This reduction is particularly beneficial for Germany and Italy, which together account for 74% of the EU's car exports to the US. The agreement also temporarily exempts pharmaceutical products from the new tariffs until 2027, benefiting regions such as Ireland, Germany, Belgium, and Italy, which collectively export over 80% of the EU's pharmaceutical products to the US.

Tariffs on steel and aluminum products remain at their current level of 50%. However, the EU has committed to reducing export barriers for metals through tariff reductions and quota systems, aiming to lower trade barriers between the EU and the US. Additionally, certain EU exports, including aircraft and aircraft components, semiconductor equipment, specific chemicals, certain generic drugs, some agricultural products, natural resources, and key raw materials, will enjoy zero tariffs.

As part of the agreement, the EU has pledged to purchase 75 billion dollars worth of US energy products over the next three years, invest 60 billion dollars in the US, and procure a significant amount of US military goods. This commitment represents a substantial increase in EU energy imports from the US, which is expected to be challenging to achieve.

The agreement's impact on the economy is better than expected, with a smaller effective tariff increase, reduced trade policy uncertainty, and better-than-expected economic activity data. This led to an upward revision of the growth forecast for the third quarter of 2025 by 0.1 percentage points, the fourth quarter by 0.2 percentage points, and the first quarter of 2026 by 0.1 percentage points. This results in annual average growth forecasts of 1.1% for 2025 and 1.2% for 2026.

In terms of inflation, the agreement is expected to have a slightly negative impact on 2026, but the impact is anticipated to remain unchanged in 2027. Overall, the agreement increases the likelihood that the European Central Bank will maintain interest rates unchanged in September, aligning with the prediction that further rate cuts are unlikely.