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European economy may face tough year

The European economy is entering a challenging phase. Analysts at Goldman Sachs are confident about this. They claim that 2025 will be another difficult period for the region's economy. Well, time will tell if their predictions come true!

The bank highlights several factors behind the expected slowdown in growth. At the top of the list is the impact of tariffs planned by newly elected US President Donald Trump, along with structural problems in the region's manufacturing sector and prolonged fiscal tightening in the eurozone.

Goldman Sachs predicts that the European economy will grow by 0.8% this year, while the UK economy will expand by 1%. Preliminary estimates suggest both figures will fall below the consensus forecast.

Experts note that in 2024, the eurozone labor market showed greater resilience than expected. However, wage growth in the EU slowed, though this is seen as a temporary issue.

As for core inflation in the eurozone, it dropped significantly in the autumn of 2024. This prompted the ECB to cut rates by 100 basis points over the year. In 2025, Goldman Sachs currency strategists expect further rate cuts of 25 basis points, bringing them to 1.75% by July. Analysts believe there is even room for more aggressive cuts if economic conditions worsen.

In the United Kingdom, the economic situation looks much better. Wage growth and inflation in the services sector have remained robust. Against this backdrop, the Bank of England has been cautious, avoiding drastic moves on interest rates. Last year, it cut rates only twice. However, changes could be on the horizon. Goldman Sachs anticipates additional quarterly rate cuts, as a cooling labor market eases core inflation more than expected.

Specialists observe that last year was lackluster in terms of economic growth for both the eurozone and the UK. At the start of 2024, economic activity seemed promising, with real incomes rising and financial conditions improving, sparking hopes for recovery. However, those hopes proved short-lived.

From mid-2024 onwards, economic growth in the EU and the UK turned negative. Consumers became cautious, energy prices surged, and competition from China intensified. As a result, economic growth in the eurozone and the UK lagged behind the US, and catching up now looks like a daunting task.

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