The European Central Bank (ECB) has warned of risks to eurozone growth due to rising trade frictions and regulatory barriers, as well as uncertainty over US trade policy and slowing global demand. Despite easing inflation, policymakers are cautious and have not pre-committed to rate cuts. The ECB highlighted that global trade momentum weakened at the end of 2024, with US imports providing temporary relief for European exporters. However, uncertainty over trade policies under the new US administration may have led firms to frontload imports. Eurozone economic activity remains sluggish, with weak industrial production and business investment, along with weakening sentiment among businesses and consumers. Though inflation remains above the ECB’s target, policymakers are waiting for clearer evidence of price stability before considering further monetary policy easing. The ECB also emphasized long-term competitiveness challenges facing the eurozone, including regulatory burdens and financial constraints on European firms compared to their US counterparts. The ECB welcomed the European Commission’s Competitiveness Compass and called for concrete policy action to boost investment and strengthen the Single Market. Europe’s young, high-growth firms are scaling up more slowly than their US counterparts, partly due to financial constraints and fragmented regulatory frameworks.
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