Navigating the Eurozone Earnings Downturn: Strategic Sectors for Resilience Amid Tariff Uncertainty

The Eurozone's economic outlook in 2025 is shaped by a paradox: modest GDP growth of 1.1% amid a high-tariff environment that threatens to stifle global trade. U.S. tariffs, now reaching century-high levels, have introduced volatility to markets, with the S&P 500 and Nasdaq dropping 12% and 13%, respectively, in early 2025. Yet, within this uncertainty lies an opportunity for investors to rebalance portfolios toward sectors that defy macroeconomic headwinds. UBS and the IMF highlight defensive equities and real assets—particularly in residential real estate, healthcare logistics, and logistics infrastructure—as key areas of resilience.

The Case for Defensive Sectors

The Eurozone's first-quarter GDP growth of 0.4% QoQ, while modest, underscores the region's ability to adapt to trade tensions. However, the long-term risks of tariffs—such as inflationary pressures and reduced capital flows—necessitate a strategic shift in asset allocation. UBS projects Eurozone inflation to trough at 1.4% in early 2026, but the path to normalization remains uneven. Here, sectors with inelastic demand and structural growth drivers emerge as safe havens.

1. Residential Real Estate: A Pillar of Stability

Residential real estate has outperformed other real estate sectors in 2025, with capital values rising 2.7% year-on-year and rental growth hitting 6.4%. This resilience stems from demographic tailwinds: the Eurozone's aging population is driving demand for age-friendly housing, while urbanization continues to strain supply in prime locations. Germany, for instance, faces a critical housing shortage in cities like Berlin and Munich, where rental growth has outpaced inflation.

The European Central Bank's projected rate cuts to 1.75% by year-end 2025 will further bolster residential real estate valuations, reducing borrowing costs and attracting capital. UBS notes that residential REITs, such as those focused on urban housing and retirement communities, are less exposed to trade disruptions than industrial or office assets.

2. Healthcare Logistics: A Long-Term Growth Engine

The healthcare logistics sector is gaining traction as an under-the-radar play. With Europe's population aged 65+ expected to grow by 50 million over the next 25 years, demand for life sciences real estate (LSRE)—including pharmaceutical research facilities and medical storage hubs—is surging. Belgium's Aedifica SA, for example, is pursuing a €6 billion merger with Cofinimmo SA, a healthcare property peer, to consolidate its position in this niche.

The IMF highlights that healthcare logistics is less sensitive to trade cycles, as aging populations and healthcare innovation drive demand. Aedifica's portfolio, which includes assets in the U.K. and Germany, is well-positioned to benefit from this trend. Meanwhile, UBS analysts note that LSRE yields, currently at 3.2%, are attractive in a low-interest-rate environment.

3. Logistics Infrastructure: Resilience Through Domestic Demand

While global trade faces headwinds, domestic logistics infrastructure in the Eurozone is thriving. The shift toward nearshoring and e-commerce has boosted demand for warehouse and distribution centers. LondonMetric Property Plc, a UK-based logistics REIT, recently acquired Urban Logistics Reit Plc to strengthen its foothold in this sector. The combined entity now holds a €4.5 billion portfolio, with a focus on high-traffic urban areas.

UBS forecasts that logistics real estate will see 17% year-on-year investment growth in 2025, driven by e-commerce and supply chain reconfiguration. Unlike industrial real estate, which faces pressure from reduced international trade, logistics infrastructure is insulated by domestic demand.

Portfolio Rebalancing: Key Considerations

Investors seeking to hedge against tariff-driven volatility should prioritize sectors with structural demand and low sensitivity to trade cycles. Here's how to approach the rebalancing:

1. Residential REITs: Target firms with exposure to urban housing shortages and age-friendly housing. Germany's Vonovia SE and France's Icade are prime examples.
2. Healthcare Logistics: Allocate to companies like Aedifica SA or Hines European Real Estate Fund, which specialize in LSRE.
3. Logistics Infrastructure: Consider LondonMetric Property Plc or Prologis, which dominate high-demand logistics hubs.

Conclusion: Building a Resilient Portfolio

The Eurozone's earnings downturn is not a collapse but a recalibration. By focusing on defensive sectors like residential real estate, healthcare logistics, and logistics infrastructure, investors can navigate tariff uncertainty while capitalizing on long-term demographic and technological trends. UBS and the IMF both underscore that these sectors will outperform in a low-growth environment, offering both capital preservation and growth potential.

As the ECB's rate cuts and fiscal stimulus plans take effect, now is the time to rebalance portfolios toward these resilient plays. The key lies in identifying under-the-radar opportunities—those with strong fundamentals, structural demand, and a clear path to scale. In a world of uncertainty, these sectors provide the stability needed to weather the storm.