Speaking to a European Parliament committe, ECB President Christine Lagarde warned that US tariffs of 25% on European imports could have a significant negative impact on the Eurozone economy, cutting growth by around 0.3% in the first year.
If the EU responds with retaliatory tariffs, the impact could deepen, reducing Eurozone GDP growth by as much as 0.5%.
While the sharpest impact would be felt in the first year, Lagarde emphasized that the effects would be long-lasting, leaving a “persistent negative effect on the level of output”.
Beyond growth concerns, inflation outlook would also become highly uncertain in such a scenario.
In the short term, EU retaliatory measures and a weaker Euro—stemming from lower US demand for European products—could push inflation higher by around 0.5%.
In the medium term, weaker economic activity would dampen price pressures, ultimately counteracting the initial inflationary impact.
