UBS Lifts Its 2025 Eurozone GDP Forecasts, While Cutting Slightly for Next Year

12:29 PM EDT, 08/06/2025 (MT Newswires) -- UBS said it raised its eurozone gross domestic product forecast for this year by 0.4pp to 1.1%, but cut 2026 by 0.1pp to 0.9%.

The bank's 2027 forecast is unchanged at 1.5%.

The upward revision for 2025 might initially appear counterintuitive, stated UBS. The United States-European Union trade deal implies an average tariff for EU exports to the U.S.of about 15% -- worse than the bank had factored in so far (11%).

As a result, UBS has cut its quarterly GDP growth numbers for Q3 and Q4 2025 from a sluggish 0.1% quarter over quarter to zero. But crucially, this negative effect is over-compensated by the very strong (revised) Q1 2025 GDP rate of 0.6% quarter over quarter.

As a consequence, the bank's 2025 forecast goes up for entirely backward-looking reasons. Weaker growth in H2 2025 implies negative carryover for 2026 growth and causes the 0.1pp downgrade to 0.9% for next year. It has left the 2026/2027 quarter-over-quarter growth trajectory unchanged.

UBS believes that fiscal stimulus in support of defense (across the EU) and infrastructure (in Germany) will increasingly boost growth in 2026/27, which is also reflected in its unchanged 2027 GDP forecast of 1.5%. As such, the bank continues to estimate eurozone growth to follow a J-curve pattern -- first down as higher U.S. tariffs bite, but then up as the fiscal stimulus unfolds its impact.

UBS has recently changed its European Central Bank call and no longer expects the ECB to cut rates by 25bps to 1.75% on Sept. 11, or in the following months -- as such, the bank now thinks the ECB easing cycle has ended, at 2%.

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