EU 2026 Growth Outlook Downgraded Amid Higher-Than-Forecast U.S. Tariffs

The European Commission’s Autumn 2025 Economic Forecast [4] revised 2025 eurozone growth upward amid resilient private consumption and investment, with Germany’s forecast upgraded to 0.2% [1]. However, 2026 growth was downgraded due to higher U.S. tariffs [5], which are expected to hit export-reliant sectors hardest—particularly manufacturing (steel, machinery, automobiles) [1][3]. The ECB estimates a cumulative 0.7 percentage point impact on eurozone growth between 2025–2027 [3], with BusinessEurope surveys showing a 0.5–0.6 percentage point GDP hit in 2026 (vs. just 0.03 pp in 2025) [2][3].

1. Delayed Tariff Impact
   : The 2026 downturn reflects a lag in tariff effects, as businesses delay investments and adjust supply chains [3].
2. Size-Based Resilience
   : Larger EU firms with diversified supply chains outperform smaller exporters, increasing sector concentration [3].
3. Relative Advantage Offset
   : While the EU has lower trade-weighted tariffs on U.S. exports than most economies, uncertainty undermines this benefit [4].
4. Market Diversification
   : EU firms are shifting focus to intra-EU and Asian markets, creating new competitive pressures in those regions [1].

• EU exporters lose U.S. market share to domestic competitors [2].
• Smaller firms face higher barriers to entry, leading to sector concentration [3].
• Higher prices for consumers due to tariff pass-through [4].

• Policy stimulus for export sectors and renewed trade negotiations [4].
• Diversification to faster-growing Asian markets [1].
• Intra-EU trade expansion to mitigate U.S. reliance [1].

Critical data points include the ECB’s cumulative 0.7 pp growth impact (2025–2027), BusinessEurope’s 2026 GDP hit, and EU policymakers’ focus on supply chain resilience. Stakeholders should prioritize diversification and policy engagement to navigate tensions.