The eurozone economy is at risk of recession amid increasing trade tensions and weakening growth prospects. Citi Research has revised its forecasts, reducing the region's expected GDP growth for 2025 from 1% to 0.8%, and for 2026 from 1.3% to 0.6%. The inflation rate is projected to be 1.6% in 2026, which is 0.2 percentage points lower than the March estimates. The main reason was the introduction of new tariffs on European exports by the United States. Approximately 310 billion euros of goods are subject to a 20% tariff, while cars and spare parts worth 42 billion euros are subject to a 25% levy. Citi forecasts a 50% reduction in eurozone exports to the United States, which will lead to a 4.5 percentage point drop in total exports and a 0.6% decline in GDP. The global nature of the tariffs is also putting pressure on other partners, including China, where the growth forecast for 2025 has been lowered to 4.2%. Tightening financial conditions and increasing uncertainty are forcing European companies to postpone investments, which could reduce GDP by 1 percentage point over five to six quarters from 2025. Citi expects an easing of monetary policy, suggesting a reduction in interest rates to 1.5%. This is the third major shock to the eurozone in five years, following the pandemic and the energy crisis.
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