The eurozone economy, valued at €14.6 trillion, is projected to decline by a total of 0.4% of GDP from 2025 to 2026 due to economic uncertainty, as per the latest report by S&P Global. Before the announcement of 25% tariffs on US car imports, S&P Global revised down its initial forecast for the eurozone from 1.2% to 0.9% for 2025 citing this uncertainty.

Sylvain Broyer, Chief EMEA Economist, expressed that the uncertainty itself poses a larger threat to the European economy than the tariffs alone. However, there are positive signs in Europe as well. The introduction of fiscal stimulus in Germany and the EU could result in a GDP growth of 1.4% in 2026.

Broyer discussed the potential impact of US tariffs on the European recovery, noting that different scenarios could influence the bloc's economy. In a worst-case scenario of US tariffs rising to 25% on all EU imports, GDP growth in the eurozone would be limited to 0.5% in 2025 and 1.2% in 2026.

S&P Global already factored in a 10% tariff on cars and car parts in their forecast but stated that an additional 15% tariff would have a minimal effect on the current figures. Broyer highlighted that Germany would be significantly more affected than the rest of the eurozone due to its higher reliance on US car exports.

Despite the challenges, there is growing confidence in Europe driven by decreasing interest rates, inflation, and a robust labor market. Expected fiscal stimulus, particularly in the defense sector, is boosting this confidence. EU member states are likely to increase defense spending by 1% of GDP starting in 2026, which could elevate eurozone GDP by 0.1%, 0.2%, and 0.3% in 2026, 2027, and 2028 respectively.

S&P Global also anticipated a rate hike by the ECB in the near future. It forecasted a cut in rates one more time this year before anticipating two rate hikes in the latter half of 2026. A strong recovery in credit demand is expected, with fiscal stimulus potentially pushing the economy towards an unsustainable growth rate.