During the presentation of the spring economic forecasts, Valdis Dombrovskis, the Commissioner for Economy, emphasized the urgency for the European Union to implement decisive measures to bolster competitiveness and secure long-term prosperity.
In his address, Dombrovskis outlined five key insights from the forecasts, highlighting the impact of American tariffs and the importance of defense investments. He noted that the first takeaway is the presence of “hidden global uncertainty.”
For his second point, he assured that “the EU economy remains resilient despite the challenging circumstances,” forecasting moderate growth for this year and a boost in the following year. He projected the EU’s GDP growth at 1.1% for 2025 and 1.5% for 2026, with the euro area anticipated to grow by 0.9% this year and 1.4% next year.
Discussing the labor market as his third message, he stated it “continues to be strong, with increasing job opportunities and rising real wages.” He also noted that “inflation is declining more quickly than anticipated, thanks in part to lower energy prices.” However, he cautioned that the economic outlook is still facing downward pressure, particularly due to trade tensions.
Effects of American Tariffs
The forecast indicates that these trade tensions “are impeding global economic activity,” which has led to a downward revision of global growth and trade forecasts. Growth outside the EU is now estimated at 3.2% for both 2025 and 2026, a 0.4 percentage point decrease from the previous autumn forecast. The revisions for global imports are even more pronounced, he explained.
Dombrovskis warned that “trade disputes between the US and the EU, as well as between the US and China, could dampen GDP growth and trigger renewed inflationary pressures.” However, he suggested that “if EU-US trade tensions escalate or if the EU expands its trade through new agreements, it could mitigate some of these negative effects on EU growth.”
The forecasts suggest that trade levels will remain elevated in early 2025, likely due to preemptive purchases in anticipation of tariffs, although trade is expected to be less of a catalyst for global growth moving forward.
He pointed out that “increased US tariffs and ongoing trade uncertainty are affecting EU exports,” while import forecasts for 2025 have also been revised downward. As a consequence, net exports are expected to detract nearly 0.5% from growth, a burden that is projected to ease in 2026. “This marks a considerable shift from our autumn forecasts,” Dombrovskis added.
Shock Simulation
“Isolating the impacts of tariffs, rising uncertainty, and stricter financial conditions on growth and inflation is challenging,” noted the Commissioner. However, he shared that “a simulation exercise helps us assess the effects of various shocks.” He discussed the simulation relating to American tariffs announced on April 2, indicating that “universal tariffs would significantly contract global trade and economic activity, potentially reducing global GDP by 0.4% below baseline levels and decreasing global trade by 2.9% by the end of 2026. The findings suggest that such measures would be detrimental to all parties involved.”
Defense Spending
Dombrovskis also indicated that “increased defense spending could positively influence growth,” serving as a secondary benefit alongside the primary objective of enhancing EU-US security.
A specific study conducted by the Commission analyzed the potential economic impact of heightened defense budgets in the EU, highlighting an increase from 1.4% of GDP in 2024 to 1.6% in 2025 and 2026.
He added that activating the national escape clause would permit member states to raise defense spending by up to 1.5 percentage points of GDP annually from 2025 to 2028. By the time of the forecasts, many member states—including Belgium, Bulgaria, Denmark, Germany, Estonia, Greece, Latvia, Lithuania, Hungary, Poland, Portugal, Slovenia, Slovakia, and Finland—had already decided to pursue this activation.
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