The world is still reeling from the economic chaos unleashed by former US President Donald Trump's trade policies, and Europe is no exception. But as the continent assesses the damage, a year after Trump's reelection, a controversial question arises: How much of the region's economic woes can be attributed to Trump's trade wars, and how much is due to other factors?
The EU's economic forecast for 2026 is due for an update, and the outlook is not promising. Bloomberg reports that officials are set to revise growth predictions downward, citing a year of trade tensions and higher tariffs imposed by the US. But here's where it gets interesting: the EU's own decisions and internal challenges also play a significant role.
The May forecasts were already cautious due to Trump's infamous 'Liberation Day' announcement, which sent markets into a frenzy. Brussels officials eventually agreed to a 15% tariff on most EU goods, a move that has had a less severe impact than feared. However, the European Commission's earlier prediction of a 0.9% GDP increase in the euro area may now be revised upwards.
But the optimism doesn't extend to 2026. Hopes for a mild recovery are fading, with the European Central Bank predicting a more modest 1% growth. Frankfurt officials attribute this to elevated uncertainty, higher tariffs, a stronger euro, and increased global competition.
Germany's economic story is a complex one. Despite increased defense and infrastructure spending, the country's growth prospects are diminishing. The Council of Economic Experts has lowered its expansion outlook for 2026, citing various factors. This is a far cry from the anticipated post-pandemic recovery.
France, the EU's second-largest economy, faces its own challenges. Political instability is a persistent issue, and while growth remains resilient, uncertainty is taking a toll. The Bank of France estimates that uncertainty shaves off 0.5 percentage points from expansion, with domestic political and budget turbulence contributing significantly.
Italy, however, offers a glimmer of hope. The country has reduced its deficit faster than expected and may even receive an upgrade from Moody's Ratings. But the EU's public finance outlook predicts that France will have the region's worst deficit.
Bloomberg Economics weighs in, predicting a sluggish final quarter for the euro area in 2025. They attribute this to elevated uncertainty and reduced purchases from the US, potentially leading to soft business investment and weak external demand.
The global economic landscape is filled with other noteworthy developments. Japan's GDP may contract, UK inflation is slowing, and there are delays in US jobs data. Meanwhile, interest rate cuts are on the horizon in several countries, from Egypt to South Africa.
In the US and Canada, economic data calendars are being updated. The Bureau of Labor Statistics and the Census Bureau will release key reports, but the recent government shutdown has caused delays in data collection. This lack of timely data is influencing Federal Reserve policymakers, who are considering holding interest rates steady.
Canada's inflation is expected to exceed the central bank's target, but policymakers remain cautious. Prime Minister Mark Carney's budget is set to pass, offering insights into the country's economic direction.
Japan's economic data will reveal a contraction in the third quarter, prompting a stimulus package. Thailand's growth has slowed, affected by tourism and US tariffs. Inflation in Japan remains a concern, keeping the country on the path toward rate hikes.
Australia's wage data and trade statistics from various countries will provide further insights. Bank Indonesia will decide on its easing cycle, while the Reserve Bank of Australia's minutes will reveal its pause in rate adjustments. China is expected to maintain its loan prime rates.
Switzerland's economy is in the spotlight after a tumultuous week. GDP data may show a contraction due to Trump's tariffs, and trade data will be closely watched. The central bank's president will address monetary policy.
In the UK, inflation is expected to weaken, potentially confirming the Bank of England's assessment. Public finance data will be released ahead of the Chancellor's budget, and BOE officials will make appearances.
The euro zone will also see several ECB speakers, including Vice President Luis de Guindos and President Christine Lagarde. PMI flash readings and negotiated wages will be key data points.
The week ahead is filled with economic updates and policy decisions worldwide. Hungary and Angola may adjust their rates, while South Africa and Egypt are poised for interest rate cuts. Latin America's economic outlook is mixed, with Brazil's growth streak potentially ending and other countries navigating political and economic challenges.
As the world navigates the aftermath of Trump's trade policies, the question remains: How will Europe and other regions recover, and what lessons will be learned from this chaotic chapter in global economics?
