Last-minute trade deal with the US leaves Eurozone outlook unchanged

We don’t plan material changes to our Eurozone baseline forecast of 1.1% GDP growth this year and 0.8% in 2026 in response to the EU-US trade deal.

The EU clinched a last-minute trade deal with the US on Sunday, before the threatened US tariff rate of 30% on EU imports would have come into force in early August. The deal is neutral for our forecast as the positives and negatives broadly offset each other. The most positive aspect of the agreement is that it tempers some of the tail downside risks and gives some more certainty to corporate planners. But at this early stage, we are unconvinced that this easing in uncertainty will be enough to avoid a notable drag on investment next year.

What you will learn:

• The agreement removes some of the tail downside risks. But the deal is short on details, which will need to be thrashed out over coming weeks, risking new volatility. There’re already question marks on the agreed pharma and steel tariffs. Promised energy purchases and investment commitments also face implementation risks.
• It is also worthwhile to note that we see significant implementation risks as regards the EU’s energy purchase and investment promises. EU Commission President von der Leyen said the 750bn would apply over a three-year horizon. But that looks like a highly ambitious target given current purchases amount to under 100bn. This is unlikely to be an immediate issue but could see trade tensions revive in the future.
• Elevated uncertainty will drag on capex next year, a key reason for our below-consensus GDP call.
• Reduced inflation risks should raise odds of additional ECB rate cuts. Inflationary EU retaliation looks to be off the table.