Europe is facing mounting concerns about the prospects for the economy due to the cumulative impact of trade threats and higher tariffs imposed by the US, along with the challenges of persistent weakness in Germany and political turmoil in France.
The eurozone economy will grow less than expected next year, the EU executive predicted on Monday, as risks from international trade and geopolitical tensions weigh on the single currency area.
The European Commission forecast the 20-country single currency area to grow by 1.2% in 2026, down from a previous forecast of 1.4%.
Output will rise 1.3% in 2025, 1.2% in 2026 and 1.4% in 2027, the European Union’s executive arm said in its autumn outlook. That’s an upgrade for this year compared with May’s prediction, and a small downgrade for 2026.
Inflation is seen at 2.1% in 2025, as previously forecast, and should stick close to the European Central Bank’s 2% target over the next two years. 
The EU expects US trade policy moves and responses by “key players like China will dampen global trade”, according to its EU economy chief Valdis Dombrovskis.
Struck in July, the deal with US President Donald Trump means EU exports face a baseline US levy of 15%, rather than a threatened 30%, which would have wrought havoc on the European economy.
For the entire 27-country EU, growth of 1.4% is seen in 2026, slightly lower than the 1.5% predicted in May.
For Germany, trade uncertainty is just one part of the story. 
Despite a spending binge on defence and infrastructure in Europe’s biggest economy, what could have been the first meaningful year of growth since the aftermath of the pandemic is now looking less impressive. The government’s Council of Economic Experts has lowered its outlook for expansion in 2026 to below 1%.
But the Commission forecasts the export-driven economy to grow by 1.2% next year, slightly up from the 1.1% past prediction. In France, Europe’s No 2 economy, political instability is an ongoing challenge. 
While growth is proving resilient, uncertainty is shaving about 0.5 percentage point off expansion, with domestic political and budget turbulence accounting for at least 0.2 point of that, according to the Bank of France. In the Commission’s forecast, France is faring a little better, with growth of 0.7% expected this year and 0.9% in 2026.
But while the outlook for this year improved from 0.6%, the commission cut its growth forecast for France for 2026 from 1.3%.
Over a decade of economic stagnation has seen Italy’s economic growth fall far behind that of regional rivals, resulting in steadily declining goods output and exports and lower power consumption by many of the country’s businesses.
Italy’s gross domestic product in 2025 is roughly flat compared to 2008, at around $2.4tn, according from the International Monetary Fund (IMF) data.
Europe is still lagging behind the US and China.
The IMF in October predicted the US economy would grow by 2.1% next year. Even though it anticipated that China’s economy would slow this year, the IMF predicted the Asian powerhouse would grow by 4.2% in 2026.
For sure, Europe is facing significant economic challenges, including sluggish growth, high public debt in some nations, and a decline in global competitiveness, but it is generally considered resilient and stable rather than being in a state of overall “economic trouble” or collapse. The EU has also demonstrated strong political commitment to unity and has tools, such as the Next Generation EU recovery fund, to manage stress.
Looking forward, the European Commission believes that the ramping up of Europe’s competitiveness paired with higher defence spending “focused on EU production” and new trade deals “could bolster economic activity more than projected”.