1、1JUNE 2025Europe can withstand tariff shockEUROPEAN ECONOMIC OUTLOOKEUROPEAN ECONOMIC OUTLOOKMichel Martinez,PhDChief European EconomistPhone:+33 1 56 37 34 JUNE 2025Please see important disclaimer and disclosures at the end of the document.Anatoli AnnenkovEuropean Economist/ECB WatcherPhone:+44 20

2、7676 Sam CartwrightEuro Economist,UK economistPhone:+44 20 7762 Fabien BossyChief France/ESG EconomistPhone:+33 1 58 98 28 Source:Image generated by ChatGPT based on SG Cross Asset Research authors instructions2JUNE 2025EURO AREA EURO AREA-EUROPE CAN WITHSTAND TARIFF SHOCKEUROPE CAN WITHSTAND TARIFF

3、 SHOCK Growth outlook Firm consumption,stabilising housing market to offset tariff impact We look for GDP growth of 1.2%this year,1.0%next year,and an average of 1.2%for 2027-2029.Hence,GDP growth should print above potential(0.5-0.8%p.a.),even if constrained by a shrinking labour force.This year,th

4、e growth profile promises to be bumpy due to the exports pattern around Liberation Day,but we expect underlying domestic demand to benefit from a continuing consumption recovery and stabilising housing market.We estimate the direct impact of a 10%US tariff on Europe at 0.25%of GDP.This year,we expec

5、t Germany and France to continue underperforming,while Spain,Ireland,the Baltic nations and the eastern European countries in particular could materially outperform the euro area thanks to stronger consumption.Risks remain mainly tilted to the downside in the near term linked to uncertainty around U

6、S trade policies and domestic political fragmentation.However,we see medium-term risks as tilted to the upside.We assume that the share of defence spending in European NATO countries will increase from 2.0%of GDP to 2.5%by 2027.We expect higher fiscal spending in Germany,particularly on infrastructu