Eu’s sluggish Economy Faces Moderate Growth Slowdown from US Trade Tensions

President Donald Trump Has Persified with His Policy of Imposing Higher Tariffs on Trading Partners, So The Eu Faces a Potential Still Below The 50% Rate Threatened in May.

The eu have avoided Direct retaliation to-Date. We Expert this Cautiooos Approach to Continue, Even As The Eu Prepares Possible Counter-Measures. Neverthaless, The Approach Risks Growing Tariff Asymmetries Particularly if US Levies on Eu Goods Rise More Quickly Than Eu Levies on US Exports.

Scope Ratings’ Model-Based Estimates Suggest that the Implementation of A 15% US Tariff Wuld Trim Euro Area and Eu Growth Within A Year by Increasing The Effective US Propossed Across-The-Board 30% Rate (Figure 1). This Estimate Assumes Threatened Levies on Pharmaceutical Exports Go Into Effect.

The MOST-EXPED EUNOMIES Are Those with a large Trade Surplus and/or Significant Trade with The Us Effect on Global Supply Chains.

Among the eu’s Four Largest Economies-Germany, France, Italy and Spain-Germany and Italy are the most vulnerable, each facing an entimetened Short-Term Output Loss of 0.4pps. The Higher Tariffs Will Reduce Spain’s Output by A Modrate 0.3pps in the Medium Run. France is experted to experience a more modest cumulative redup in output of 0.2pps in the medium term.

Trade tensions undesions underpinned the Reduction of Last Month of Scope’s Forecast for the For the 12525252525252525252525252525252525252525252525252525252525252525252525252525252525252525252525252525252525 Germany and Higher Defence Spending Across The EU.

Source: Financial Times, OECD, Scope Ratings Estimates US-EU Preliminal Agreement Probable Considering this, IT Appears Likely Thats and Eu Will Achiev Some of A Framework Agreement Even IF This Involves Average US Levies of Above 10%. A preliminal agroment by 1 august remains rymly Possible. Neverthaless, Given the Seesawing US TRADE Policies of the Recent MONHS, THE WHITE HOUSE MIGHT IN ALTERNATIVE SCENARIO FIRSTLY IMPOSE The 30% Levies, Potentally Temporaria ON Agreement After 1 August.

Any preliminal agroment is Likely to Contain Many Caveats and Carve-Outs-with Limited Enforceability-Serving Only to Avert Further Worst-Case Escalation and Acti.

The eu have several Ways to retaliate in the scenario of a woreding trade war, from the newly introduced but yet-to-be-be-disa Export Controls, Thought We Expert Any Such Retaliation to Remain Gradual.

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Dennis Shen Is The Chair of the Macro Economic Council and Lead Global Economist of Scope Group. The Rating Agency’s Macroeconomic Council Brings Together The Company’s Credit Opinions from Multiple Issuer Classes: Sovereign and Public Sector, Fincial Institute, Corporate Finance. Arne Platteau, Analyst in Credit Policy at Scope Rathings, Contributed to this Research.