Skip to Content

Goldman Sachs slashes growth forecasts for Germany, UK and wider Europe on Trump win

By Hanna Ziady, CNN

London (CNN) — President-elect Donald Trump’s proposed protectionist policies, including hefty tariffs, will hurt Europe’s economic standing — leaving crisis-hit Germany particularly vulnerable, Goldman Sachs predicts.

Following Trump’s re-election, the investment bank cut its growth forecasts for the region, predicting fresh trade tensions with the United States, pressure on Europe to increase defense spending and a hit to business confidence from higher geopolitical risk. Trump has repeatedly said America pays too much to defend its European allies, has questioned the role of NATO and suggested a quick resolution to Russia’s war in Ukraine, requiring less US spending.

Goldman Sachs expects gross domestic product across the 20 countries that use the euro to expand 0.8% next year, down from the 1.1% it forecast previously.

“Much of the growth drag would come from higher trade policy uncertainty… the actual magnitude of tariff increases might matter less than the uncertainty created by (Trump) threatening to impose tariffs on Europe,” analysts at the bank wrote in a note Wednesday.

Europe’s open economy is seen as especially vulnerable to Trump’s protectionist agenda, with the Republican promising on the campaign trail to slap steep tariffs on all imported goods.

Trump’s combative approach to trade relations also undermines the principles of open trade and competition that have powered global economic growth for decades and been a boon for one of the world’s largest trading blocs, the European Union.

Goldman Sachs’ central expectation is for “a more limited set of tariffs on European economies,” targeting primarily their auto exports. That spells more pain for Germany’s moribund economy and the country’s largest manufacturer, Volkswagen, beset with troubles of its own.

Goldman Sachs now expects the German economy to grow only 0.5% next year because of trade tensions, just over half the 0.9% growth it forecast previously. It also downgraded UK growth in 2025 to 1.4% from 1.6%.

Cars are Germany’s single largest export and the US is the country’s largest export market. VW’s share price fell sharply Wednesday, although it reversed most of the losses Thursday. Although the US accounts for less than 10% of the group’s overall sales, VW sees huge potential for growth in the country, particularly in electric vehicles.

Berenberg forecasts a smaller hit to euro area GDP. The private bank downgraded its growth forecast for next year by a modest 0.1 percentage point to 1%, as “the temporary spillover from more US domestic demand” and a stronger dollar, which makes European exports relatively cheaper, partly offset the effects of tariffs and trade tensions.

“For European businesses, Trump’s return to the White House implies considerable trade policy risks and geopolitical uncertainty,” Berenberg chief economist Holger Schmieding wrote in a note Thursday.

“We assume that Trump will initially impose only selective but headline-grabbing tariffs, while threatening to go much further if China and Europe do not offer him significant concessions in negotiations,” he added.

The-CNN-Wire
™ & © 2024 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

Article Topic Follows: CNN - Business/Consumer

Jump to comments ↓

Author Profile Photo

CNN Newsource

BE PART OF THE CONVERSATION

KVIA ABC 7 is committed to providing a forum for civil and constructive conversation.

Please keep your comments respectful and relevant. You can review our Community Guidelines by clicking here

If you would like to share a story idea, please submit it here.

Skip to content