Good morning everyone. Let me begin with the five key messages contained in our Spring Economic Forecast.
First, heightened global uncertainty and trade tensions are weighing on EU growth.
Second, the EU economy remains resilient despite the challenging circumstances we face.
We expect moderate growth this year, and an acceleration of growth next year.
- EU GDP is expected to grow by 1.1% in 2025 and 1.5% in 2026.
- The euro area economy is expected to grow by 0.9% this year and 1.4% next year.
Third, the labour market remains robust.
More jobs are being created and real wages are rising - this means more Europeans at work, and more money in their pockets.
Fourth, inflation is falling faster than expected, driven by lower energy prices.
Fifth and finally, risks to the outlook remain tilted to the downside, particularly due to trade tensions.
The Spring Forecast highlights the need for the Union to take swift and decisive measures to bolster competitiveness and secure long-term prosperity.
The time for this action is now.
Let's begin with a look at the impact of tariffs and uncertainty.
Since taking office in January, the new US administration has raised tariffs on goods imports from an increasing number of trade partners, and on specific goods.
The unpredictable and seemingly arbitrary rationale behind the US tariff announcements has driven global economic policy uncertainty to levels not seen since the darkest moments of the COVID-19 pandemic.
The average tariff rate the US puts on imports is higher today than at any point since the 1930s.
The US tariff announcements in April have also resulted in very high levels of volatility in financial markets.
This market volatility remains elevated and sentiment is fragile, as uncertainty over the US trade and broader economic policy still looms large.
These developments obviously weigh on global economic activity and trade.
The Spring Forecast has revised global growth and trade down.
Global growth outside the EU is now projected to reach 3.2% in both 2025 and 2026.
This represents a downward revision of 0.4 percentage points from the Autumn Forecast.
Downward revisions to global imports have been much more significant.
Although trade growth remained robust in the first quarter of 2025, likely due to advance purchases ahead of tariffs, global imports are now expected to expand at a rate well below global economic activity over the forecast horizon.
In other words, trade is expected to be a less important driver of global growth.
Europe should respond by removing barriers in our internal market to make domestic demand an even larger driver of economic growth.
Closer to home, the Spring Forecast revises the EU's GDP growth to 1.1% in this year and 1.5% in 2026.
This amounts to a downward revision of 0.7 percentage points in cumulative terms for 2025-26.
Higher US tariffs and trade uncertainty are weighing on EU exports.
They are combining with structural headwinds to competitiveness in certain industries.
Imports are also revised down.
In 2025, net exports subtract nearly 0.5% from growth, a drag that fades in 2026.
This is a significant change from our autumn forecast.
Public consumption is set to slow from 1.7% in 2025 to 1.3% in 2026, providing a weaker boost to growth.
Growth will rely on domestic demand, especially private consumption.
Gross fixed capital formation is expected to rebound after a 1.9% decline in 2024, but markedly less than projected in autumn.
Let me say a few more words on the drivers of consumption and investment.
The good news is that our labour markets are performing strongly.
Despite modest GDP growth in 2024, the EU economy still added 1.7 million jobs.
Employment is set to expand by around 1% in the period 2025 to 2026, representing another two million jobs over the forecast horizon.
The unemployment rate is expected to fall to 5.7% in 2026, a new historic low.
The creation of more jobs and the reduction of unemployment are clearly positive trends for young people who are transitioning into the workforce and seeking to establish their careers.
Tight labour markets and recovering productivity are supporting wage growth.
After growth of 5.3% in 2024, nominal wages are set to rise by 3.9% this year and 3.0% next year.
Real wages are set to fully recover lost purchasing power in almost all Member States.
This is welcome news for European consumers, who have faced significant pressure on their household budgets in recent years as rising costs eroded their purchasing power.
Private consumption is also making an important contribution to growth.
A resilient labour market and stronger wage growth is expected to result in a higher growth in private consumption than had been projected in the Autumn Forecast.
It is now projected to grow by 1.5% in 2025 and further strengthen in 2026.
However, uncertainty is keeping the saving rate higher, holding back a stronger rebound.
Turning to investment, gross fixed capital formation is expected to grow by 1.5% this year and 2.4% next year.
This follows a 1.9% decline in 2024, but is still weaker than in the autumn forecast as low capacity-utilisation and high uncertainty have dampened investment.
Elevated uncertainty and a tightening of financial conditions have also exerted a drag on investment growth.
Of course, more investment ultimately means a more prosperous and competitive European economy.
More investment means higher quality, more productive jobs for European citizens.
Conversely, weaker investment is a cause for concern.
That is why a key pillar of the European Commission's Competitiveness Compass is to attract and encourage investment in the European economy, particularly investment directed at innovation.
This underlines the importance of the European Commission's Savings and Investments Union strategy.
We need to allow the estimated €10 trillion in household savings to go to work to boost investment, growth and competitiveness, while helping citizens earn a higher return on their savings.
We forecast that infrastructure and R&D investment should expand more vigorously, helped by the ongoing Recovery and Resilience Facility and a stronger role for cohesion funding in the years ahead.
However, equipment investment is set to remain weak and should expand only slightly this year.
This underscores the need to step up our work to boost the competitiveness of our manufacturing sector.
Residential construction is poised to recover in 2025 and expand further in 2026 as credit conditions for households are more favourable than for corporates, and rising home prices restore profitability.
Construction indicators suggest the turnaround is already underway.
All in all, the Recovery and Resilience Facility drive a substantial share of the expansion in investment.
Looking ahead, we expect cohesion funding to play an increasingly important role in driving investment in the years ahead.
This underpins the value and importance of public policies that support investment in challenging and uncertain times.
Inflation continues to decline.
Again, this represents good news for European consumers who have seen their purchasing power severely eroded by rising inflation in recent years.
Headline inflation in the euro area is expected to decrease from 2.4% last year to an average of 2.1% this year and 1.7% next year.
In the EU as a whole, inflation is set to follow similar dynamics, dropping from a slightly higher rate in 2024 to 1.9% in 2026.
Several factors are exerting downward pressure on EU inflation.
Significantly lower energy commodity prices are driving consumer energy inflation into negative territory in 2025 and 2026.
Besides energy, disinflation is also being driven by intensified price competition in non-energy goods — linked to shifting trade dynamics — and the appreciation of the euro, which reduces import prices.
While inflation keeps decreasing in all Member States, its pace differs widely between them.
As you can see in the map behind me, inflation is set to remain higher in central and eastern European countries, due to stronger growth in unit labour costs.
However, over time, the difference between inflation in Member States is expected to become smaller.
Now turning to public finances.
After declining to 3.2% in 2024, the EU general government deficit is projected to increase to 3.3% in 2025 and to remain at that level next year.
After stabilising in 2024 at around 82%, the debt ratio is expected to edge to about 83.2% of GDP this year and 84.5% next year.
This modest increase is driven by a less favourable difference between interest rates and economic growth.
That is to say, interest rates on debt have increased and nominal growth has slowed, resulting in a higher level of debt to GDP ratio.
The impact of the applications for the National Escape Clause of the Stability and Growth Pact, which can provide Member States with flexibility for higher defence expenditure, is not yet accounted for in this forecast.
While by the cut-off date of the forecast a majority of Member States had requested its activation, their defence spending plans were not specified enough to be included in the baseline projections.
The same applies to Germany's decision to boost defence and investment spending, this could not be included in the forecast projections.
Eleven Member States reported a deficit exceeding 3% of GDP in 2024.
These were: Belgium, Spain, France, Italy, Malta, Austria, Slovakia, Finland, Hungary, Poland and Romania.
This number is set to remain stable in 2025 before dropping to nine Member States in 2026.
In 2026, most Member States, are projected to record deficits lower than before the pandemic.
As usual, the projections for 2026 are based on unchanged policies, in the absence of budgetary plans for that year.
Now moving to the overall risk analysis.
The risks to the outlook remain tilted to the downside.
They are dominated by potential developments on the trade front.
Trade tensions between the US and the EU and the US and China could depress GDP growth and rekindle inflationary pressures.
On the upside, further de-escalation of EU-US trade tensions, or faster expansion of EU trade, including through new free trade agreements, could help sustain EU growth.
Increased defence spending could also contribute positively to growth as a secondary benefit to the primary goal of enhancing the EU's security.
Finally, implementing reforms to boost competitiveness, such as deepening the Single Market, advancing the Savings and Investments Union along with our ambitious simplification agenda, would further strengthen the resilience of the EU's economy.
Then, the Spring Forecast also includes several analytical studies.
Allow me to briefly introduce two of them.
Firstly, on the macroeconomic effects of US tariffs.
In our Forecast it is impossible to disentangle the effects of tariffs, heightened uncertainty and tighter financial conditions on the growth and inflation outlook.
A simulation exercise nevertheless allows us to explore the impact of different shocks.
We simulated the impact of the US tariffs announced up to 2 April.
These near-universal tariff hikes would cause a notable contraction in global trade and economic activity.
By the end of 2026, Global GDP would be 0.4% below baseline and world trade would fall by 2.9%.
Consistent with textbook economic theory, the results show that everyone would lose from the imposition of such measures.
However, while cumulative growth over 2025 and 2026 in the US would be about 1 percentage point lower than a baseline without tariffs, the EU would experience a significantly milder hit – of around 0.2 percentage points.
Of course, these numbers do not include indirect effects on confidence and investor sentiment as well as fall-outs from potential market turmoil and volatility.
In short, and by contrast: if you want a stable, sound and predictable place to do business and to invest, the EU is the place for you.
The second analysis looks at the potential economic impact of higher defence spending in the EU.
Based on information available at the cut-off date, the forecast projects an increase in EU defence spending from 1.4% of GDP in 2024 to 1.6% in 2025 and 2026.
These figures are based on the so-called "COFOG" defence definition, which is consistent with the other indicators used for fiscal surveillance.
The activation of the national escape clause would allow Member States to increase defence spending by up to 1.5 percentage points of GDP annually between 2025 and 2028.
By the cut-off date of the forecast, a majority of Member States has already decided to request the activation of the national escape clause: Belgium, Bulgaria, Denmark, Germany, Estonia, Greece, Latvia, Lithuania, Hungary, Poland, Portugal, Slovenia, Slovakia, and Finland.
In line with the no-policy-change assumption, the forecast did not make assumptions on policy choices still to be taken, and it does not include plans that are not credibly announced or sufficiently detailed by the cut-off date.
A linear increase in defence spending of all Member States, of up to 1.5% of GDP in 2028, would lift GDP in the EU by about 0.5% by 2028.
It is important to note that the positive effect would be larger if spending were to be targeted at European R&D, infrastructure, and production, and rely less on imports.
This increase in expenditure would temporarily raise government debt.
The additional flexibility, moreover, is broadly equivalent to the fiscal adjustment requirements over the same time.
As a result, the underlying EU fiscal position in 2028 would not be weaker than in 2024, and in most cases, the start of debt reduction would simply be delayed rather than derailed.
With that, I will conclude my presentation and stand ready for your questions.
