EU cuts economic growth forecasts amid tariff uncertainty

"This represents a considerable downgrade compared to the Autumn 2024 Forecast, largely due to the impact of increased tariffs and the heightened uncertainty caused by the recent abrupt changes in US trade policy and the unpredictability of the tariffs’ final configuration," the report said.

The report also projected the EU's gross domestic product (GDP) to grow by 1.1% in 2025 and 1.5% in 2026.

In the Autumn 2024 report, the EU was expected to grow by 1.5% in 2025 and 1.8% in 2026, while the euro area was forecast to expand by 1.3% in 2025 and 1.6% in 2026.

Inflation is expected to reach 2.3% in the EU and 2.1% in the eurozone this year, before falling to 1.9% in the EU and 1.7% in the eurozone in 2026.

Stating that the world was largely unprepared for the protectionist shift in US trade policy, the report said the tariff increases announced on April 2 sent shockwaves through the global economy.

Recalling that the tariffs were suspended following a strong reaction from financial markets, the report said the shift in US trade policy created uncertainty and placed a heavy burden on the global outlook.

Noting that the agreement between the US and China to partially withdraw tariffs on May 12 was a positive development, the report said tariffs still remain high and are likely to gradually reduce US-China trade flows.

The EU, the world's most open economy, is feeling the strain. Weak economic expansion in global markets will inevitably slow export growth, it added.

Pointing out that risks to the economic outlook remain on the downside, the report warned that further fragmentation of global trade could dampen growth and reignite inflationary pressures.

Türkiye's inflation expected to continue declining

The report also included evaluations on the Turkish economy, noting that the decline in inflation is expected to continue due to tight monetary and fiscal policies as well as lower energy prices.

It added that Türkiye’s budget deficit is expected to decrease, while public debt will remain at moderate levels.

The Turkish economy is projected to grow by 2.8% in 2025 and 3.5% in 2026.