The impact of Donald Trump's trade policies on Europe is a story of uncertainty and economic challenges. One year after his reelection, the European Union is assessing the damage to its economy, and the outlook is not as dire as initially feared. However, the path to recovery is still uncertain, with growth forecasts for 2026 looking less optimistic.
A Year of Trade Chaos and Its Aftermath
The EU officials are set to release their growth predictions for 2026 in Brussels, taking into account the cumulative effects of Trump's trade threats and increased tariffs. This comes at a time when Germany, Europe's largest economy, is facing a potential slowdown, despite its spending spree on defense and infrastructure. The government's experts have lowered their growth expectations for 2026 to below 1%.
France, the second-largest economy in Europe, is dealing with political instability, which is shaving off approximately 0.5% from its expansion. The Bank of France attributes at least 0.2% of this uncertainty to domestic political and budget turbulence.
The Euro Area's Growth Story
The European Commission had previously predicted a 0.9% increase in gross domestic product for the euro area in 2025, and this estimate is likely to be revised upwards. However, the growth for 2026 is now expected to be milder than initially predicted, with the European Central Bank anticipating only 1% growth in its last forecasting round.
Trade Uncertainty and Beyond
Trade uncertainty is just one aspect of the economic challenges Europe is facing. Frankfurt officials highlighted other factors, such as elevated uncertainty, higher effective tariffs, a stronger euro, and increased global competition, which are expected to hinder growth in the current quarter.
But here's where it gets controversial: despite these challenges, Italy has managed to bring its budget deficit down to the EU's 3% ceiling faster than anticipated. In fact, Moody's Ratings may even upgrade Italy on Friday, a move that could spark differing opinions among economists and investors.
A Global Economic Snapshot
Beyond Europe, the global economy is facing its own set of challenges and opportunities. Japan's GDP may contract, UK inflation is slowing, and US jobs numbers are long overdue. Interest rate cuts are also on the horizon for countries like Egypt and South Africa.
In the US and Canada, investors and policymakers await further updates to economic data calendars. The dearth of official data has led to comments from Federal Reserve policymakers suggesting they may hold the line on interest rates at their next meeting.
Canada's inflation data for October may show a reading above the central bank's 2% target, but policymakers have indicated that rates are at the right level as long as their forecasts hold true. The trade war with the US is also impacting Canada's real estate market and consumption patterns.
Regional Focus: Asia and Beyond
Japan's economy is expected to have shrunk at an annualized pace of 2.4% in the third quarter, marking its first contraction since early 2024. This provides an impetus for Prime Minister Sanae Takaichi to unveil a stimulus package later this month.
Thailand's economic growth is also slowing, with data expected to show a year-on-year growth of 1.7% in the third quarter, weighed down by sagging tourism and US tariffs.
In India, manufacturing activity is likely to remain expansionary, while Australia will publish wage data for the third quarter. Trade statistics from various countries, including Singapore, Japan, and New Zealand, will also be released.
Monetary Policy Decisions
Hungary is expected to keep its rate at an EU high of 6.5%, while Angola's central bank may cut its benchmark rate to bolster the economy. The South African Reserve Bank is anticipated to resume its easing cycle with a 25-basis-point reduction, and Egypt is also expected to lower its benchmark rate.
EMEA and Latin America
In the EMEA region, several European Central Bank speakers are scheduled to address the economic outlook, including Vice President Luis de Guindos and President Christine Lagarde. Flash readings of PMI numbers and negotiated wages will also be released.
In Latin America, Brazil's growth story may be coming to an end, with 16 straight quarters of growth now facing headwinds from tight financial conditions and slower public spending. Central banks in Uruguay, Paraguay, and Mexico are also making monetary policy decisions, with Banxico delivering its 11th straight rate cut.
The upcoming week will provide further insights into the global economy, with key data releases and policy decisions shaping the economic landscape.
