The clear victory for president Trump overnight poses significant downside risks to the growth outlook for the eurozone – and especially that of export-orientated Germany and the Netherlands, ABN AMRO’s economists note.
Downside risks to eurozone growth and inflation increase
“Trump’s flagship policy is for a universal tariff on all US imports, with a rate that (depending on which speech you listen to) has ranged from 10-20%. We estimate that a 10% universal tariff would lead to a sharp fall in eurozone exports, and hit eurozone growth to the tune of 1.5pp over the coming years, meaning the economy would likely see a renewed stagnation instead of continuing along its recovery path.”
“While it remains highly uncertain to what degree Trump will go ahead with his tariff plans, the high likelihood that his Republican party will gain a House majority to accompany its new Senate majority significantly raises the risk that he goes ahead with the full tariff agenda. We are currently reviewing our base case for the US and eurozone economies and will have much more to say on this over the coming weeks.”
“For now, we judge the downside risks to eurozone growth and inflation to have significantly increased, which would mean the ECB cutting rates at a potentially faster pace and/or rates going even lower than our current expectation for a 1.5% terminal rate. We will give further updates in due course. In the meantime, see our previous write-up here on what Trump would mean for Europe.”
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