1、Whil e President Trumps decision to pause the impl ementation of thencountry-specific reciprocal tariffs has provided some rel ief,the Europeaneconomic outl ook has weakened further since our forecast update l ast Friday.The US administration raised tariffs on China sharpl y further;financial condit

2、ionsare notabl y tighter on the week,with European currencies material l y stronger;our US and China teams have downgraded their growth projections;and the EUhas been notabl y more cautious in its approach to retal iation.We therefore downgrade our Euro area real GDP forecast by an additional 0.2%,n

3、impl ying a contraction in Q3 and essential l y no growth for the rest of the year.We now forecast Euro area growth of 0.7%in 2025(vs 0.8%before)and 1.0%in 2026(vs 1.1%).Looking across the Euro area,we downgrade GDP by 0.3%inGermany and Ital y and by 0.1%in France and Spain.Given weaker growth,more

4、cautious EU retal iation,a stronger Euro and morentrade diversion from Asia,we downgrade Euro area core inflation by 0.2pp to1.9%in 2025Q4,0.2pp to 1.8%in 2026Q4 and 0.1pp to 1.9%in 2027Q4.Givenweaker growth and a modest inflation undershoot,we add an ECB rate cut toour forecast to reach a terminal

5、rate of 1.5%(versus 1.75%previousl y).We nowforecast 25bp cuts in April,June,Jul y and September,with risks skewedtowards more rate reductions if the trade tensions continue to buil d.We cut our UK real GDP forecast by a further 0.3%given tighter financialnconditions and weaker growth abroad.We l ow

6、er our GDP growth forecast for2025 by 0.1pp to 0.95%and for 2026 by 0.1pp to 1.0%.We now al so expectfaster disinflation in the UK given l ower energy prices,weaker demand and moretrade diversion.As a resul t,we expect the BoE to l ower Bank Rate to 2.75%(vs3%previousl y).Quarterl y steps remain our