KBC lowers growth forecasts for Belgium and the eurozone due to Trump's policy agenda
The policy agenda of president elect US president Donald Trump has "significant consequences for the economic outlook worldwide" and will cause "stagflationary impacts: economic effects that lead to stagnation and inflation". This is what KBC chief economist Hans Dewachter stated on Monday during the presentation of his economic outlook. KBC is lowering the growth forecasts for 2025 for the US, the eurozone and Belgium.
The re-election of Donald Trump as US president, coupled with a Republican majority in Congress, has set the stage for significant economic and geopolitical shifts. With comprehensive plans for protectionist trade measures and stringent immigration policies, Trump has vowed to impose high tariffs on imports from major trade partners, including China, Mexico and Canada. While his policies aim to address domestic issues like drug trafficking and economic inequality, economists warn they could trigger global stagflationary impacts (simultaneous stagnation and inflation) affecting growth and inflation worldwide.
Three primary impacts
Dwachter outlined these risks during the bank’s presentation of its latest economic outlook. “Trump now has a window of around two years to push through his disruptive policy agenda,” he said, highlighting three primary impacts. First, a trade impact, driven by increased import tariffs, would elevate prices, reducing consumer purchasing power and discouraging investment. Second, a migration impact could slow or halt labour force growth, diminishing the country’s productive capacity. Lastly, a budget impact resulting from increased government spending and tax cuts may provide short-term relief but is unlikely to offset the negative impacts of the trade and migration policies.
One of Trump’s first decrees will introduce 25 per cent tariffs on goods from Mexico and Canada, citing immigration and drug trafficking concerns. Additionally, Chinese imports will face a 10 per cent tariff increase, justified by Trump as a response to China’s “broken promises” on fentanyl and its role in the US opioid crisis. These measures, he stated on Truth Social, are intended to protect American interests.
However, the policies are already drawing international criticism. Canada, a major energy supplier to the US, reminded the country of the mutual benefits of their relationship. “Our relationship is balanced and mutually beneficial, especially for American workers,” Canadian deputy prime minister Chrystia Freeland asserted. China also responded, with embassy spokesman Liu Pengyu stating that “there is no winner in a tariff or trade war,” advocating for multilateralism and global economic cooperation.
Economic Impact on the US
Domestically, Trump’s protectionist measures could lead to slower growth and higher inflation. KBC has revised its US growth forecast for 2025 downward from 1.9 per cent to 1.7 per cent, citing the expected drag from trade and migration impacts. “With inflation already above the target of 2 per cent, this additional increase is not desirable,” Dewachter said.
The Federal Reserve will face mounting challenges as inflation risks rise and Trump pushes for a weak dollar policy. While the Federal Reserve is likely to continue easing monetary policy, KBC predicts the pace will slow due to the complexity of managing inflation alongside stagnating growth.
Effects on Europe and Beyond
Trump’s trade policies are expected to echo through global markets, particularly in the eurozone and China. Higher tariffs on European exports will disrupt economic recovery in the region, while import-dependent industries in China face substantial setbacks. “Trump’s trade agenda will boost inflation but slow growth, putting the ECB under pressure,” Dewachter explained. KBC anticipates the European Central Bank will reluctantly prioritise growth support while inflation concerns complicate its strategy.
Belgium, whose economy relies heavily on exports, will feel the strain. The US accounted for over 6 per cent of Belgium’s total goods exports in 2023, making it the country’s largest non-EU trading partner. KBC has downgraded Belgium’s 2025 growth forecast to 0.6 per cent, a sharper revision than for the broader eurozone. “Belgian industry remains under pressure, with possible additional loss of employment,” Dewachter warned.
As the world’s ninth-largest economy, Brazil is also keeping an eye on Trump’s moves, given its trade ties with the US. Despite Trump’s intentions to bolster the US economy, economists warn that his agenda risks triggering a global slowdown. “The tasks of central banks will become more complex, and the protectionist turn could seriously damage both the US and its trading partners," Dewachter concluded.
© CHIP SOMODEVILLA / GETTY IMAGES via AFP
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