Key takeaways
- J.P. Morgan Research has taken 0.4 percentage points off its eurozone GDP forecast — a call that remains unchanged despite the recent U-turn in U.S. trade policy.
- Looking ahead, eurozone growth is likely to pick up into 2026, which suggests the region could successfully avoid a recession.
- Overall, medium-term inflation is moving rapidly toward the European Central Bank’s (ECB) target and could slip slightly below it, suggesting the ECB could cut rates at its next three meetings to 1.5%.
The eurozone economy is facing several cross-currents. While Germany’s fiscal policy reforms are positive for the region’s growth, U.S. tariffs are a clear source of downside risk. With these opposing forces, what is the outlook for the eurozone this year?
What is the forecast for the eurozone economy?
J.P. Morgan Research recently revised its eurozone forecasts downward, and GDP growth is now expected to weigh in at 0.9% for 2025.
Despite the recent 90-day pause in U.S. tariffs and EU retaliatory measures, there is still plenty of uncertainty surrounding trade policy and the growth outlook remains weak. “First, even the 10% across-the-board tariffs and the 25% sector tariffs on autos, steel and aluminum are a big step up from previously. Second, the success of negotiations is uncertain as the U.S. continues to have multiple competing objectives and EU concessions on non-tariff barriers are unlikely. Third, China is excluded from the pause and its tariff rate continues to escalate, creating drags on the euro area economy. Fourth, trade policy uncertainty remains elevated as the situation still feels volatile,” said Greg Fuzesi, euro area economist at J.P. Morgan.
This has prompted J.P. Morgan Research to shave another 0.4 percentage points off its eurozone GDP forecast, taking the total hit to real GDP to 1.5%. “Given the timing of the U.S. weakness, we expect to see the hit over the next four quarters, especially in the second half of 2025,” Fuzesi said. “But all forecasts remain highly conditional on how the trade conflict evolves.”
However, growth is likely to pick up into 2026, supported by European Central Bank (ECB) rate cuts and fiscal easing. This means that in spite of the elevated risk of a U.S. recession, the eurozone could successfully avoid a downturn in the coming months. “That the euro area is still projected to avoid a recession may seem surprising in light of past correlations with U.S. downturns. However, these correlations often reflect synchronized shocks or financial market spill-overs that are not inevitable,” Fuzesi noted.
At the country level, the impacts are likely to vary according to the level of trade exposure — bigger in Germany and Italy, and smaller in France and Spain. German GDP growth is now expected to be 0.1% for 2025, and Spanish GDP growth is projected to be 2.5% according to J.P. Morgan Research.
“While a stronger euro, lower oil prices and lower natural gas prices could pull headline inflation lower in the near term, retaliatory tariffs could work in the other direction and mostly lift core inflation, but this is a one-off price level effect.”
Greg Fuzesi
Euro area economist, J.P. Morgan
What does this mean for eurozone inflation?
Overall, J.P. Morgan Research expects medium-term inflation in the eurozone to fall by a relatively modest 0.1 percentage point, taking it to just below 2%.
“While a stronger euro, lower oil prices and lower natural gas prices could pull headline inflation lower in the near term, retaliatory tariffs could work in the other direction and mostly lift core inflation, but this is a one-off price level effect. Crucially, in the absence of a large inflation hump, second-round effects via wages and inflation expectations are less likely and therefore the medium-term impact could be dominated by the negative hit to demand,” Fuzesi said.
Against this backdrop, J.P. Morgan Research has lowered its terminal rate forecast to 1.5%, and expects the ECB to slash rates back-to-back at its next three meetings, following a cut of 25 basis points (bps) in April. “Even with the tariff pause, the policy rate is still at the top end of the ECB staff’s range for neutral and the disinflation process is on track. A June cut may also not be too contentious,” Fuzesi said.
Further cuts beyond June would dip into accommodative territory, requiring a growth slowdown. “The last two cuts we have in our forecast, in July and September, remain conditional on how tariff negotiations evolve,” Fuzesi added. “Our own sense is that the medium-term inflation impact of the trade war will be on the downside, but the ECB’s view and the tariffs themselves will of course evolve over time.”
Eurozone disinflation is still largely on track
Headline and core inflation in the eurozone is expected to fall in the coming months.
What’s the outlook for the euro?
Despite the eurozone’s mixed growth signals, the outlook for the euro is positive. “After being bearish on EUR for most of 2024, we turned bullish EUR/USD in early March,” said Meera Chandan, co-head of Global FX Strategy at J.P. Morgan.
The recent tariff announcements are likely to weigh on the attractiveness of U.S. assets, and over the medium term, relative real yields are likely to rise in favour of the euro. “The ECB could cut rates, but the stagflationary dynamic in the U.S. is likely to be the more relevant driver for EUR/USD. The relative U.S. asset overweight is a factor that could result in EUR demand,” Chandan noted.
Related insights
-
Global Research
US tariffs: What’s the impact on global trade and the economy?
April 28, 2025
J.P. Morgan Research will bring you the latest updates and analysis of President Trump’s tariff proposals and their economic impact.
-
Global Research
Market outlook 2025: Navigating cross-currents
December 17, 2024
How are markets expected to play out in 2025 against a backdrop of policy uncertainty, geopolitical risks and heightened macroeconomic volatility? Explore the outlook for equities, commodities, currencies, emerging markets and more.
-
Global Research
Global Research
Leveraging cutting-edge technology and innovative tools to bring clients industry-leading analysis and investment advice.
This material (Material) is provided for your information only and does not constitute: (i) an offer to sell, a solicitation of an offer to buy, or a recommendation for any investment product or strategy, or (ii) any investment, legal or tax advice. The information contained herein is as of the date and time referenced in the Material and J.P. Morgan does not undertake any obligation to update such information. J.P. Morgan disclaims any responsibility or liability, whether in contract, tort (including, without limitation, negligence), equity or otherwise, for the quality, accuracy or completeness of the information contained in this Material, and for any reliance on, or uses to which, this Material, is put, and you are solely responsible for any use to which you put such information. Without limiting any of the foregoing, to the fullest extent permitted by applicable law, in no event shall J.P. Morgan have any liability for any special, punitive, indirect, or consequential damages (including lost profits or lost opportunity), in connection with the information contained in this Material, even if notified of the possibility of such damages. Any comments or statements made herein do not necessarily reflect those of J.P. Morgan, its subsidiaries or its affiliates.
All materials and information shared with you are, unless otherwise indicated to you, proprietary and confidential to J.P. Morgan. You are hereby notified that any disclosure, dissemination, copying, distribution, or use of the information provided to you, in whole or in part, other than as expressly permitted by J.P. Morgan, is STRICTLY PROHIBITED. You are permitted to disclose the materials and information to your officers and employees on a need to know basis. Should you have any questions regarding this, please contact your usual J.P. Morgan contact. For further information please visit: https://www.jpmorgan.com/pages/disclosures/materialdisclaimer.
© 2025 JPMorgan Chase & Co. All rights reserved. J.P. Morgan is a marketing name for businesses of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. JPMorgan Chase Bank N.A. (member of FDIC), J.P. Morgan Securities LLC (member of FINRA, NYSE and SIPC), J.P. Morgan Securities plc (member of the London Stock Exchange and authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority and the PRA) and J.P. Morgan SE (authorised by the BaFin and regulated by the BaFin, the German Central Bank and the European Central Bank) are principal subsidiaries of JPMorgan Chase & Co. For legal entity and regulatory disclosures, visit: www.jpmorgan.com/disclosures. For additional regulatory disclosures, please consult: www.jpmorgan.com/disclosures.