Investing.com -- Goldman Sachs (NYSE:GS) expects 2025 to be another challenging year for the European economies, the Wall Street firm said in a Friday note.
The bank cites several factors contributing to the expected slowdown, including the impact of tariffs planned by US President-elect Trump, structural headwinds in manufacturing, and ongoing fiscal consolidation across the euro area.
Goldman projects the euro area to see a growth of 0.8% and the UK 1% in 2025, both figures falling below the consensus.
The labor market in the euro area has shown more resilience than anticipated this year, according to the bank, but wage growth has decelerated as pay adjustments align with past price increases.
Underlying inflation also cooled significantly post-summer, prompting the European Central Bank (ECB) to cut policy rates by 100 basis points over the year. Goldman strategists anticipate further 25 basis point reductions sequentially to 1.75% by next July, with the possibility of more aggressive cuts if economic conditions deteriorate beyond expectations.
In contrast, the UK has experienced persistently high wage growth and services inflation, leading the Bank of England (BoE) to adopt a more cautious stance than other major central banks.
The BoE has reduced the Bank Rate only twice this year, with Goldman Sachs expecting additional quarterly rate cuts throughout 2025 “as a weaker labor market cools underlying inflation, more than currently priced,” the report said.
2024 was a year of sluggish growth for both the euro area and the UK. Early in the year, economic activity showed promise as real incomes rose, financial conditions improved, and hopes for recovery grew.
However, from mid-year onward, growth fell short of expectations as cautious consumer behavior, elevated energy prices, and mounting competition from China weighed on performance. As a result, economic expansion in the euro area and the UK lagged behind the U.S. once again.