Eurozone: Tariff reversal is some relief, but no game changer – ABN AMRO

High uncertainty continues to impact the eurozone economic recovery. The recovery is halted by tariffs in the near term; fiscal policy raises growth outlook in 2026 . Disinflationary forces mean the ECB is likely to cut rates further to 1.5% by September, ABN AMRO's economists Jan-Paul van de Kerke and Bill Diviney note.

Tariff uncertainty clouds Eurozone outlook

"Liberation Day was supposed to provide clarity on future US tariff policy and by that a more certain eurozone economic impact. Liberation day, and one week later “Reversal Day” have – if anything – only lead to more policy uncertainty. This culminated in a 90-day pause for the reciprocal tariffs. The universal tariff of 10% stays in place, as do the separate 25% tariffs on steel & aluminium and cars & car parts."

"Inflation in March edged lower with headline moving down to 2.2% from 2.3% in February, and core falling to 2.4% from 2.6%. Elevated services inflation has been the focal point of the ECB. Recently the outlook on that front is improving markedly. The most important driver is falling wage growth, with for instance the Indeed tracker moving another leg lower to a new post-pandemic low of 2.7% in Q1."

"The ECB cut the deposit rate by 25bp to 2.25%, as widely expected. The tone in the press conference was dovish, reflecting the tariff hit to the growth outlook. More importantly, the April cut revealed a more dovish reaction function to tariffs; before, some Governing Council members still favoured a pause."