"Trump's victory reduces economic growth in Europe" - Goldman Sachs predicts high tariffs and trade uncertainty for the eurozone
President-elect Donald Trump's proposed protectionist policies, including high tariffs, will damage Europe's economic position, leaving crisis-hit Germany particularly vulnerable, Goldman Sachs predicts.
Following Trump's re-election, the investment bank cut growth forecasts for the region, predicting new trade tensions with the United States, pressure on Europe to increase defense spending and a blow to business confidence from heightened geopolitical risk. Trump has repeatedly said America pays too much to protect European allies, while also questioning the role of NATO. He has suggested a quick resolution to Russia's war in Ukraine that would require less US spending.
Goldman Sachs expects gross domestic product in the 20 countries that use the euro to expand by 0.8% next year, up from the 1.1% it previously forecast. “Most of the drag on growth would come from higher trade policy uncertainty. The actual increase in tariffs may matter less than the uncertainty created by Trump threatening to impose tariffs on Europe," analysts explain.
Europe's open economy is seen as particularly vulnerable to Trump's protectionist agenda, with the Republican promising on the campaign trail to impose high tariffs on all imported goods. This "belligerent" 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 to one of the world's largest trading blocs, the European Union.
Goldman Sachs' central expectation is for "a more limited set of tariffs for European economies", mainly targeting their auto exports. That spells more pain for Germany's battered economy and the country's biggest automaker, Volkswagen.
Goldman Sachs expects the German economy to grow just 0.5% next year due to trade tensions, just over half the 0.9% growth it previously forecast. Cars are Germany's main export product, with the United States representing the largest market for them.
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