THE EUROZONE ECONOMY increased its growth in the first three months of the year — only to see hopes for an ongoing recovery quickly dashed by US President Donald Trump’s trade war.

Gross domestic product in the 20 eurozone countries grew 0.4% in the first quarter, improving on 0.2% growth in the last part of 2024, according to official figures released by European Union statistics agency Eurostat.

But on 2 April, just two days after the end of the quarter, Trump announced an onslaught of new tariffs on almost every US trading partner and hit goods imported from the EU with a 20% tariff rate.

That has led to widespread downgrading of Europe’s growth outlook for the year, since the economy is heavily dependent on exports and the US is its largest single export destination.

With inflation down to 2.2%, the European Central Bank has been lowering the cost of credit for consumers and businesses by cutting its benchmark interest rate seven times in its current easing cycle, most recently by a quarter of a percentage point on 17 April.

On top of that, the German parliament has approved a €500 billion investment fund that is exempt from the country’s constitutional limits on debt.

That decision by the incoming coalition of the centre-right Union bloc and the Social Democrats has raised hopes of additional spending on pro-growth infrastructure over the coming years.

Before Trump’s announcement, hopeful signs for the Eurozone economy had included a strong job market, with unemployment low at 6.1%, and consumers beginning to spend more after several years of holding back because of inflation. 

Although Trump has announced a 90-day pause on what he calls his “reciprocal” tariffs – so named because they are based on how he feels other countries have been treating the US – the prospects that the EU can strike a bargain to reduce the 20% figure are uncertain.

Meanwhile, other tariffs – such as a 25% rate on steel and aluminium and on cars, both of them for all trading partners, including Europe – remain in place.

The European Commission’s economic sentiment indicator sagged to 93.6 in March, its lowest level since December.

That drop in sentiment is “another illustration of how the last four weeks of tariff tensions and uncertainty have entirely wiped out the tentative return of optimism in the eurozone”, said Carsten Brzeski, global head of macro at ING bank.

“Unless there are major changes in US trade policy, sentiment as well as economic activity in the eurozone will remain subdued over the coming months,” Brzeski said.