US Trade Policy Adds to Developed Europe’s Economic Recovery Challenges
US trade policy presents another hurdle to the economic recovery in developed Europe in 2025, Fitch Ratings says in a new report. Easier financing conditions should offer some support to growth and could facilitate increased M&A activity.
The likely introduction of broad-based US tariffs on EU imports will reduce the contribution of net trade to Eurozone GDP, dent confidence and investment and compound German exporters’ challenges.
The potential for more extensive US tariffs than envisaged adds risk to our 1.2% baseline eurozone 2025 GDP growth forecast.
High household savings rates and political uncertainty have also held back the recovery in some large European economies, although structural improvements have increased Spain’s GDP potential.
“Concerns about growth coupled with confidence that inflation is returning to target mean we expect the ECB to reduce the deposit rate to 1.75%, below our 2% estimate for the neutral rate, by July”.
Fitch said rate cuts should support the availability of credit and boost activity in sectors such as housing and construction.
“Our baseline expectations are for stable corporate credit metrics in 2025. Easier financing conditions could facilitate M&A if weaker earnings prompt managements to consider acquisitions in response to shareholder pressure.
“M&A can weigh on credit metrics and reduce leverage headroom. Fitch assesses credit implications case-by-case and M&A and asset disposals drove several corporate rating actions in 4Q24.
Fitch stated that trade tensions that weaken consumption and pricing power are key risks to our ‘neutral’ sector outlook for European corporates. New tariffs may primarily affect sectors that export to the US or depend on imports of intermediate parts.
High sector exposure does not automatically indicate rating pressures on Fitch-rated corporates, which are often large, diversified companies that could mitigate revenue and margin pressures by adjusting strategy and financial policy. Interbank Rates Slow as Remita, FAAC Credits Boost Liquidity
