1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 70
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
Intellectual Property investment has made up for generally softer machinery and
construction spending
6.3%
% YoY growth, 1Q-3Q25
5.2%
4.6%
3.9%
3.6%
2.9%
2.9%
1.4%
1.5%
0.7%
-1.3%
-1.9%
Germany
Italy
Intellectual property investment
France
Netherlands
Spain
Eurozone ex.
Ireland
Machinery, construction, and other investment
Source: Eurostat, Scotia Wealth Management.
With or without Ireland, the Eurozone economy outperformed our expectations in 2025, with
growth tracking well above the worst-feared 0.5% expansion that we had pencilled in for the
whole of 2025 in mid-April, on the heels of the U.S.’s Liberation Day tariffs announcement. The
Eurozone (or the E.U.) certainly avoided the worst of tariffs, which helped to contain the damage
to exports or the region’s industrial economy, but we believe the U.S.’s 15% tariff on most imports
from the E.U. will still dampen external tailwinds for Eurozone GDP in 2026 and keep investment
and hiring plans subdued.
A change of mind in the White House regarding tariffs on European goods cannot be ruled out,
particularly as the U.S. administration has now taken aim at the E.U. regarding the latter’s fines
on U.S. tech giants such as Alphabet’s Google and social media site X in line with the E.U.’s Digital
Markets Act (fair online competition) and Digital Services Act (content moderation). The E.U. is
unlikely to pull back on anticompetitive and content-moderation efforts, nor are individual
countries such as France or Italy who have implemented digital services taxes that represent an
important burden for the U.S.-based companies that dominate this sector. The latter has long
been a sensitive topic in U.S.-E.U. relations and the White House may deploy additional trade
measures on U.S. goods imports from Europe or impose its own fines or taxes on major European
firms (having singled out Accenture, Siemens AG, and Spotify, recently).
Our base case therefore remains that the odds of higher tariffs or barriers to U.S.-E.U. trade are
significantly higher than those of a rolling back of current U.S. (and retaliatory) measures. Beyond
tensions in goods and services trade, U.S. political interference in European matters is bound to
keep tensions elevated and reduce any goodwill or flexibility in trade negotiations that the E.U.
may have in the near-term. Reports of a leaked U.S. national security document that the U.S.
would want to convince Italy, Poland, Austria and Hungary to leave the E.U. or “pull them away”
from the bloc’s groupthink, alongside the White House’s voiced wishes about annexing
Greenland (etc.), have not sat well with European leaders, driving a bigger wedge across the
Atlantic.
69
