The global trade war started by the US administration will reduce world and European economic growth, resulting in direct and second-order effects from tariffs for most asset classes, Fitch Ratings says in a new report.
We revised our Eurozone growth forecasts to just 0.6% in 2025, with cuts to individual country growth, including reductions by about 0.2pp for Germany (to -0.1%), Italy (to 0.3%) and Spain (to 2.3%). We cut our expectations for Switzerland’s growth to below 1% for 2025 and 2026. UK growth rates remain above 1%, despite some reductions in our forecasts.
Recently announced US tariffs on imports from European countries, including 20% for the EU (if implemented) and 10% for the UK, will weaken revenue and profit growth for many European corporate sectors. Trade exposure and increasing competition will largely define direct sector consequences, while deteriorating economic growth prospects will have wider implications. The chemical, automotive and hardware technology sectors are likely to be the most affected in Europe. The tariffs will increase pressure on corporate issuers lacking leverage headroom.
European insurers are exposed to second-order effects due to volatility in financial markets, which will pressure insurers’ investment and underwriting results.
Most western European banks are entering this period of weakened growth prospects with increased ratings headroom after several years of sound performance and good asset quality. Only around 4% of bank ratings in western Europe are on Negative Outlook. The overall impact on individual banks will depend on how their domestic economies are affected by the outcome of tariff negotiations, whether steepening yield curves support their net interest margins and whether higher unemployment and corporate default rates threaten asset quality.
Source: Fitch Ratings
