European Central Bank warns of sharp slowdown in global trade

The European Central Bank (ECB) has warned of a significant slowdown in global economic outlook over the next two years, attributing it primarily to US tariffs and rising uncertainty surrounding international trade policies.

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According to the ECB's June 2025 macroeconomic projections, global import growth is now expected to reach 3.1 per cent in 2025, down by 0.4 percentage points from previous estimates.

The outlook for 2026 is more severe, with growth forecast to drop to 1.7 per cent, a sharp downward revision of 1.4 percentage points.

The ECB attributes the slowdown to the impact of recent US tariff increases on various imports and broader policy uncertainty across international trade channels.

On the other hand, the ECB noted several positive factors that could support the eurozone economy and enhance its resilience. These include increased government spending on defence and infrastructure, rising real household income, a strong labour market, and improving financing conditions.

Meanwhile a marked spike in uncertainty across global trade, defense, international co-operation and regulation policies could prove challenging for financial stability, according to the May 2025 Financial Stability Review, published by the European Central Bank (ECB).

Frequent shifts and reversals in tariff policy, alongside significant changes in the geopolitical environment, could have major economic and financial impacts. While global macroeconomic imbalances remain a long-standing issue in the policy debate, it is not clear that tariffs are the best-placed policy instrument to address them.