Investing.com - The Eurozone currency area is projected to dip into a recession in the second half of 2025 despite a partial 90-day pause on U.S. President Donald Trump’s sweeping reciprocal tariffs, according to analysts at Barclays (LON:BARC).
In a note to clients, the analysts led by Silvia Ardagna argued that they are waiting for updates on negotiations around Trump’s tariff plans "before reassessing the impact" of the policy changes on Eurozone economic output.
The comments come as the European Central Bank is widely expected to slash its key deposit rate by 25 basis points to 2.25% at an upcoming gathering this week.
Increasing risks to growth, as well as signs of stabilizing inflation in the Eurozone, have been cited by analysts as reasons for the ECB to slash borrowing costs.
Trump has slapped -- but then postponed -- a 20% tariff on the European Union, which counts several Eurozone countries among its members, as part of his so-called "reciprocal" levies. The EU still faces universal 10% tariffs as well as a 25% duty on steel and aluminum and cars.
"We anticipate that the ECB will modify the assessment of the degree of policy restriction in the statement indicating that policy rates are at the upper bound of the staff estimates of the nominal neutral rate, and remain noncommittal on the rate path ahead, with the appropriate policy stance -- whether restrictive, neutral, or accommodative -- being determined on a meeting-by-meeting basis," the Barclays strategists wrote.
ECB policymakers may be persuaded to bring borrowing costs down below 2% later this year, depending on the trajectory of Trump’s tariff policy, other analysts have suggested in recent days.
The ECB is reportedly becoming more concerned that the bloc’s economy -- which was already struggling with a period of tepid activity prior to Trump’s tariffs -- could be sharply hit by the new U.S. duties. Last week, Bank of Finland governor and ECB policymaker Olli Rehn said that Trump’s trade actions have exacerbated downside risks.
Writing in a note to clients, analysts at Capital Economics flagged that "higher U.S. tariffs will be a substantial drag on the Eurozone economy this year."