"I risks to growth economic remain facing downwards. A further escalation of trade tensions on a global scale and the associated uncertainties could weaken growth in the euro area by slowing down exports and squeezing investments and consumption". This is clearly stated by the European Central Bank in his last economic bulletin, in which, however, it underlines how inflation is moving towards a lasting stabilization.
ECB Bulletin: Wars and tariffs overshadow growth
According to the ECB, “a deterioration of market confidence financial markets could lead to tighter financing conditions and greater risk aversion, as well as reduce the propensity of businesses and families to invest and consume”. But at the centre of the scene are geopolitical tensions, namely “the unjustified war of Russia versus Ukraine and the tragic conflict in Middle East” which “remain between the main sources of uncertainty. Conversely, a rapid easing of trade and geopolitical tensions could improve sentiment and boost activity.” “Further increases in defense and infrastructure spending, along with productivity-enhancing reforms, would also contribute to growth.”
In this context, “the outlook for economic growth in the euro area is clouded by trade tensions and by the high level of uncertainty at a global level". explains the Eurotower in the economic bulletin in which it underlines that considering the whole year 2025, these effects "would be partly compensated by amore vigorous economic activity than expected in the first quarter, which likely reflects at least in part the frontloading of exports in anticipation of higher tariffs.”
In the medium term – the ECB notes – economic activity should be supported by new budget measures recently announced. The baseline scenario of the June projections assumes that US tariffs on EU goods, raised to 10%, remain in place throughout the projection horizon. “Along with elevated trade policy uncertainty and the recent appreciation of the euro, Higher tariffs will hit exports, on investment and, to a lesser extent, on consumption in the euro area. In contrast, new public spending on infrastructure and defense, especially in Germany, should stimulate domestic demand in the area from 2026 onwards".
ECB: inflation stable
“The Board of Directors is determined to ensure that inflation stabilizes in a lasting manner on the 2% medium-term target”. In its economic bulletin, the ECB as “especially in the current conditions of exceptional uncertainty, the appropriate monetary policy stance will be defined following a data-driven approach, under which decisions are taken from time to time at each meeting”.
No constraints on a particular rate path, but “the Governing Council stands ready to adjust all the tools at its disposal within its mandate to ensure that inflation stabilises on a lasting basis in line with its medium-term aim and to preserve the smooth functioning of the monetary policy transmission mechanism”.
“Measures of underlying inflation overwhelmingly suggest that inflation will stabilise on a sustained basis around the Governing Council's medium-term aim of 2%. cost of labor – the report highlights – is gradually moderating, as indicated by updated data on contractual wages and available national data on labour costs per employee. “The ECB wage index signals a further slowdown in contractual wages in 2025, while the projections formulated in June point to a decline in wage growth to a level below 3 percent in 2026 and 2027. While on the one hand the energy prices more contained and the strengthening of the euro put downward pressure on inflation in the short term, on the other hand in 2027 inflation should return in line with the aim”.
