US policy adds to developed Europe's recovery challenges: Fitch

The likely introduction of broad-based US tariffs on EU imports will reduce the contribution of net trade to eurozone gross domestic product (GDP), dent confidence and investment and compound German exporters’ challenges, the global rating agency said.

The potential for more extensive US tariffs than envisaged adds risk to Fitch’s 1.2-per cent baseline eurozone 2025 GDP growth forecast, it said in a release.

High household savings rates and political uncertainty have also held back the recovery in some large European economies, although structural improvements have increased Spain’s GDP potential.

Concerns about growth coupled with confidence that inflation is returning to target mean Fitch Ratings expects ECB to reduce the deposit rate to 1.75 per cent—below its 2-per cent estimate for the neutral rate—by July.

The rating agency’s baseline expectations are for stable corporate credit metrics in 2025. Easier financing conditions could facilitate M&A if weaker earnings prompt managements to consider acquisitions in response to shareholder pressure.

Trade tensions that weaken consumption and pricing power are key risks to Fitch’s ‘neutral’ sector outlook for European corporations. New tariffs may primarily affect sectors that export to the United States or depend on imports of intermediate parts.

High sector exposure does not automatically indicate rating pressures on Fitch-rated corporations, which are often large, diversified companies that could mitigate revenue and margin pressures by adjusting strategy and financial policy.

Fibre2Fashion News Desk (DS)