Inflation in Europe expected to fall sharply in 2025, but the threat of a trade war intensifies

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The European Union could see inflation rates fall by more than 50% next year, amid a modest economic rebound and historically low unemployment, the European Commission said in a report published on Friday .

The news comes after a period of rising energy and food prices, partly caused by Russia’s full invasion of Ukraine in 2022.

The high cost of living was at the heart of the concerns of voters who went to the polls last June, during the European elections, which saw a significant increase in support for far-right parties.

After this period of high tension, inflation should therefore fall spectacularly in 2025. Concretely, prices in the EU should only increase by 2.4% in 2025, compared to 9.2% in 2022, a trend which will bring us closer to the European Central Bank’s objective of 2% inflation for the euro zone.

The Commission’s forecasts also highlight that unemployment in the EU “reached a new historic low of 5.9%” in October.

But these data, whose figures were finalized in October, before the results of the US elections, are accompanied by a warning from the Commission stressing that the Union’s open economy is “particularly vulnerable” to the rise of protectionism.

“A further increase in protectionist measures by trading partners could upend global trade and weigh on the EU’s very open economy”warns the report.

Donald Trump won the November 5 election by promising to impose 10% tariffs on imports from countries such as the EU, but Commission forecasts only take into account announced and specified policies “in sufficient detail” before a deadline set at the end of October.

As for the economic growth of the Old Continent, it is Germany which remains the weak link. Its economic activity will remain the weakest in 2025 and the second weakest in 2026, at 0.7% and 1.3%, respectively, according to forecasts – a result attributable to weak domestic and foreign demand for manufactured goods and to labor shortages affecting the construction sector.

The sluggishness of the German economy is likely to continue, especially after the collapse of the ruling coalition and the new elections which will have to be organized next February.