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Eurozone - Frontloading at the front of the year
Despite high uncertainty, the eurozone economic recovery is unfolding broadly as expected. The first signs of frontloading are visible, providing a temporary boost to activity. Growth still subdued but on a recovery path, while inflationary pressures continue to slowly ease. The ECB is expected to pause as it nears neutral, though the April meeting will be a close call.
Global Monthly - This is getting complicated
The outlook is getting muddied by rising US recession risk on the one hand, and eurozone defence spending on the other. In the near-term, growth is being distorted by trade frontloading. This is leading to a partial unwind of the Fed-ECB policy divergence narrative that was driving markets. Despite the massive policy shifts of the past month, we are keeping our forecasts unchanged for now, and plan to do a full review after the US’s so-called ‘Liberation Day’ tariff announcement on 2 April. Spotlights: 1) Are tariffs really the end game? We explore the feasibility of a ‘Mar-a-Lago Accord’; 2) Will defence spending revitalise eurozone growth? We think it could, but from 2026 onwards.
Key views Global Monthly 26 March 2025
US tariff threats have surprised even our pessimistic expectations, with the most important announcement still to come on 2 April. China, the EU and the US’s neighbours are expected to bear the brunt. For the eurozone, a new upside risk comes from likely significant increases in defence spending, and in Germany new infrastructure spending. This will blunt the impact of tariff rises. Global trade and growth are also initially benefiting from a frontloading ahead of tariff rises, but a sharp slowdown is expected later in 2025. Domestic demand is in the meantime recovering in the eurozone and China, helped by falling interest rates, and in China, targeted fiscal measures. Inflation in the US is expected to reaccelerate, but to fall below target in the eurozone. This is likely to drive a divergence in Fed & ECB policy, with Fed policy staying on hold from here, and the ECB continuing to cut rates.
Eurozone - PMIs rise on industrial optimism and frontloading
Euro Macro: The eurozone composite PMI for March moved further into expansionary territory at 50.4 up from 50.2 in February.
Macro Watch - Can defence spending revitalise the eurozone economy?
Higher defence spending will likely significantly lift growth in 2026, in both the eurozone and the Netherlands. A lot will depend on how quickly spending ramps up, and the extent to which Europe can re-tool industry. All else equal, this is likely to mean the ECB cutting interest rates less than we currently expect.
The Week Ahead - 24 - 28 March 2025
These are the Key Macro Events for the upcoming week.
ESG Economist - German election result to slow down but not derail climate policy
The next German coalition government will likely include the CDU/CSU and the SPD, reviving the famous GroKo (Grand Coalition), and following on the heels of what was considered as one of the most “climate ambitious governments” in the world.
Starting shots fired in US-EU trade war
The US decision to proceed with a planned 25% tariff on all imports of steel and aluminium triggered an immediate retaliation by the EU, targeted at politically sensitive US exports. Though the tariffs cover all US imports, this is the first that brings the EU directly into the fray. There are two key things to note about these tariffs.
Global manufacturing - New disruptions on the horizon
Global manufacturing PMI rose to eight-month high in February. Both DMs and EMs show gains, but Canadian and Mexican PMIs sharply down on US tariffs. Improvements at both supply and demand side; export PMIs down for US, Canada, Mexico. Price components suggest pressures from industrial goods’ prices are building again. Spot container tariffs keep falling so far. US port fee plans may lead to serious disruptions in global shipping.
Macro Watch - What is the macro impact of all this uncertainty?
Uncertainty negatively impacts the macroeconomy, even without any actual policy changes. Households consume less and firms invest less, putting a further drag on future growth. The US is expected to face the biggest impact on economic activity, with the partial relocation of investment to the eurozone dampening the negative effects for the single-currency area.