The ongoing global trade war, initiated by the US administration, poses a significant threat to economic growth in both the global and European contexts, according to a recent report by Fitch Ratings. The organization has revised its growth forecasts for the Eurozone, expecting an expansion of only 0.6% by 2025. This outlook includes notable cuts for individual countries: Germany’s growth is projected to decline by approximately 0.2 percentage points to -0.1%, while Italy is slated for a 0.3% growth and Spain for a 2.3% growth rate. For Switzerland, growth estimates have been reduced to below 1% for both 2025 and 2026.
In contrast, UK growth rates are still expected to remain above 1%, albeit with some downward adjustments. The recently announced US tariffs on imports from European nations—20% if applied to the EU and 10% for the UK—will likely depress revenue and profit growth across various corporate sectors in Europe. The impact will vary by sector, with trade exposure and intensifying competition shaping immediate consequences. The chemical, automotive, and hardware technology industries are expected to be among the most adversely affected.
Corporations with limited leverage will feel increased pressure due to these tariffs. Additionally, European insurers are facing second-order effects stemming from market volatility, which could adversely impact their investment and underwriting outcomes. Meanwhile, most Western European banks are entering this challenging growth phase with enhanced ratings headroom after a period of strong performance and solid asset quality. Currently, only about 4% of bank ratings in the region have a Negative Outlook.
The ultimate effects on individual banks will hinge on domestic economic conditions influenced by tariff negotiation results, the potential benefits from steepening yield curves, and the risk posed to asset quality from rising unemployment and corporate defaults.