Europe’s Weak Growth Outlook Could Impact India Trade: EY Report

The report noted that the recently announced EU-India Free Trade Agreement (FTA) is expected to have limited macroeconomic impact on Europe but could lead to meaningful sectoral shifts, reported ANI. While sectors such as minerals may benefit from improved access to inputs, European clothing manufacturers could face stronger competition from Indian exporters, indicating potential gains for India in labour-intensive industries. Tariffs to Weigh on Growth EY flagged US-imposed tariffs as a key downside risk, estimating they could reduce European Union GDP growth by about 0.5 percentage points in 2026, with Ireland and Nordic economies likely to be the most affected. Overall, euro area growth is projected to slow to 1.3 per cent in 2026 from 1.5 per cent in 2025, before gradually recovering to 1.4 per cent in 2027 and stabilising around 1.5 per cent in the following years. Geopolitical Risks Add to Uncertainty The report warned that escalating tensions in West Asia could push up global energy prices, raising euro area inflation by 0.3 percentage points and reducing GDP by 0.2 per cent in 2026. A severe disruption, such as a blockade of key energy routes, could have significantly larger economic consequences. Structural Challenges Persist Long-term growth in Europe continues to face structural constraints, including ageing populations and labour shortages, particularly in Central, Eastern and Southern regions. These factors are expected to weigh on productivity and economic expansion. Technology as a Growth Lever Despite these challenges, EY noted that investments in emerging technologies, particularly artificial intelligence, could boost productivity. AI adoption has the potential to raise Western Europe’s GDP by up to 4 per cent by 2033, although the region risks lagging behind the United States in investment levels. Opportunities for India For India, the report suggests that deeper trade engagement with Europe and improving competitiveness in sectors such as textiles could create new opportunities, even as global uncertainties continue to shape the economic landscape. (KNN Bureau)