EU-US Trade Deal Better Than No Deal

Yesterday (July 27), President of the European Commission, Ursula von der Leyen and US President, Donal d Trump, reached an agreement on US tariffs to be applied on EU exports to the United States. To sum up, both parties agreed to apply tariffs of 15% on EU goods across the board, with few exceptions. This deal is slightly above our baseline scenario of 10% . It is also above the baseline scenario of the ECB in its June projections but below its severe scenario. As a result, we see a limited impact on growth with respect to our current forecasts for this year and 2026 for the euro area as a whole, hiding however cross-country and sectoral heterogeneity. On the basis of the current information, and because no retaliatory measure by the EU is anticipated, the impact of the EU-US trade deal is unlikely to deviate inflation from our baseline scenario in 2025 and only marginally in 2026 (of around -0.1 percentage point, also according to ECB June projections). That said, the second-round effects of this deal would be important to monitor as this could trigger a Euro appreciation and further decrease in energy prices, hence maintaining disinflationary pressures. In this context, the ECB projections of 1.6% for HICP in 2026 would be -albeit mildly – revised downwards, reinforcing our view of another ECB rate cut in September.