Alongside a weaker global economy, growth in Europe will suffer from the effects of the U.S.-led trade war, says Fitch Ratings.
In a new report, the rating agency said that global growth is now expected to drop below 2% for 2025 and its forecast for Eurozone growth has been cut to just 0.6%, driven by weaker outlooks for Germany, Italy and Spain.
“The global trade war started by the U.S. administration will reduce world and European economic growth, resulting in direct and second-order effects from tariffs for most asset classes,” Fitch said.
As a result, the German economy is now seen contracting by 0.1% for the year, it said.
Amid weaker growth in other parts of the region, Switzerland is also now forecast to see growth of less than 1% this year and next, Fitch said.
The report also noted that higher U.S. tariffs on imports from Europe will “weaken revenue and profit growth” for many corporate sectors.
“Trade exposure and increasing competition will largely define direct sector consequences, while deteriorating economic growth prospects will have wider implications,” it said.
The sectors with the greatest direct exposure include the chemical, auto and hardware technology industries.
There will also be knock-on effects for the financial industry due to heightened market volatility.
Insurers will see increased pressure on their investment and underwriting businesses, as a result, Fitch said.
As for banks, most “are entering this period of weakened growth prospects with increased ratings headroom after several years of sound performance and good asset quality,” Fitch said, noting that only 4% of bank credit ratings have negative outlooks.
“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,” it said.