The eurozone is likely to enter a technical recession in the second half of 2025 due to the impact of Donald Trump's new trade tariffs, with growth this year and 2026 forecast to be slower than previously expected.
UBS now forecasts GDP growth of 0.5% for 2025 for the single currency bloc, softer than its earlier estimates of 0.9%. In 2026, the bank predicts growth will pick up to 0.8%, though this is down from its previous 1.1% due to the tariffs.
For 2027 the growth projection has been raised to 1.5% from 1.2% due to the benefit from increased defence and infrastructure spending across Europe.
UBS said the eurozone economy is likely to pull itself out of recession in 2026 as fiscal spending gains traction, with Germany seeing a strong benefit.
Germany is forecast to be the most affected large Eurozone country, with its 2025 GDP estimate cut by 0.6 percentage points to -0.3%. Growth is then projected to recover to 1.0% in 2026 and 1.9% in 2027.
France is expected to be least impacted, with 0.6% growth in 2025 and 1% in 2026, little changed from previous forecasts.
The UK's forecast for 2025 GDP was cut to 0.7% from 1.1%, and for 2026 to 1.0% (from 1.3%), while the 2027 forecast was slightly raised to 1.4%.
UBS expects the Bank of England to cut interest rates three times in both 2025 and 2026, reaching 3.0%.
It projects the European Central Bank will lower interest rates to 2% by mid-2025, with a potential further cut to 1.75%. In late 2026, the ECB is forecast to raise rates again by 50 basis points to 2.5%.