Growth Forecast Cut as Export Dependence Deepens Strains

The European Commission sharply reduced its growth outlook on Monday, warning that trade tensions and geopolitical uncertainty risk further weakening the bloc’s fragile economy.

  • Brussels now expects EU GDP to grow just 1.1% in 2025, down from the 1.5% expansion projected in November. The 20-member euro area’s forecast was cut even more sharply, from 1.3% to 0.9%, underscoring the vulnerability of Europe’s economy to global shocks.
  • The downgrade was driven largely by Germany, the EU’s largest economy, where export-heavy industries face mounting pressure following President Donald Trump’s latest round of tariffs.
  • Berlin’s economy is now expected to stagnate in 2025, a dramatic reversal from the 0.7% growth predicted just months ago.

France and Italy also saw downgrades, to 0.6% and 0.7% respectively. Spain, by contrast, was upgraded to 2.6%, buoyed by resilient consumption and stronger investment.

An Export-Dependence And Regulation Problem

Maarten Verwey, the Commission’s director-general for economic and financial affairs, acknowledged that “as the world’s most open economy, the EU is feeling the strain.” Slower global growth and deteriorating sentiment are hitting exporters hard.

  • But critics argue the problem runs deeper. Europe’s chronic dependence on exports leaves its economy dangerously exposed to external shocks, while years of underinvestment have weakened domestic demand.
  • The situation reflects structural vulnerabilities policymakers have long acknowledged but failed to correct.
  • Former European Central Bank president Mario Draghi last year urged the bloc to pursue bold investment initiatives and reduce regulatory obstacles to growth. Yet Brussels has largely fallen into a regulatory trap—churning out new rules that absorb the attention of technocrats but do little to strengthen Europe’s economic base.

At a moment when the continent needs fewer regulations and more investment, policymakers appear hesitant. This hesitancy has left the EU trailing both the U.S. and China in technology, industrial competitiveness, and capital formation.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Christian Lue / Unsplash.