Key Questions for the Eurozone Economy for 2025 By Investing.com
Investing.com – The euro zone economy faces a delicate balancing act in 2025, according to UBS. Growth is expected to stabilize, but numerous uncertainties loom.
The bank’s analysts believe that the key questions for the region’s economy revolve around consumer spending, inflation, foreign trade risks and the impact of political changes.
They explain that a key focus is whether the consumer recovery will gain momentum.
UBS expects “growth this year to be close to trend at 0.9%” as “household consumption” picks up pace due to strong wage growth and falling interest rates.
UBS is the region’s main driver of economic activity and says a robust recovery in consumer spending could lay the foundation for more sustainable expansion despite challenges elsewhere in the economy.
However, they add that the prospect of renewed trade tensions with the US, particularly under President-elect Trump, remains a major concern.
UBS warns that tariffs, particularly on the EU’s goods exports, could hurt the economy, although analysts suggest the impact would likely be contained.
A scenario with “selective tariffs” targeting certain sectors could lead to a modest GDP loss of 0.2% to 0.5%, according to the bank. However, UBS does not believe that these risks could plunge the euro zone into recession.
On the monetary policy front, the European Central Bank (ECB) is expected to further cut interest rates and potentially reduce the deposit rate to 2%. While inflation pressures have eased, UBS says the risk of further economic challenges could lead to further rate cuts, although the risks to this outlook are considered “balanced”.
In the political arena, the upcoming elections in Germany and the ongoing instability in France could cause further uncertainty.
UBS suggests a change in German leadership could lead to a “more decisive approach to economic policy.” Meanwhile, the ongoing war in Ukraine also remains a wild card, and any move toward peace could lift sentiment in Europe.
