Intesa Sanpaolo : The beginning of April will be the moment of truth as far as the evolution of the ‚trade war‘ is concerned, as the US Administration has announced a tightening of tariffs based on a very broad concept of reciprocity.
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Weekly Economic Monitor – 28. March 2025
Intesa Sanpaolo – Research Department – Luca Mezzomo Economist – Paolo Mameli Economist – Andrea Volpi Economist Euro Area – Mario Di Marcantonio Economist US
The less adverse scenario, by no means warranted, is that we may see a softening of the threats of the past weeks. In the meantime, the tariff announcements are causing a sharp drop in household confidence, due to expectations of higher inflation, and the employment report due next Friday could show a more significant slowdown in the labour market.
In Europe, the announced US tariffs on cars could cost a tenth of growth for Italy and two tenths for Germany. March surveys were mixed but overall consistent with euro area GDP growth around 0.2% q/q. Next week will see the release of the March consumer price data, which could see a marginal slowdown to 2.2% y/y.
Today we published the new edition of our Macroeconomic Scenario. The report updates the forecast scenario by including more unfavourable assumptions on the development of trade wars, but also the recent positive developments in fiscal policy in Germany. Our working assumption on US tariffs is that they will initially be placed at high levels (20% in effective terms) against countries with large trade surpluses vis-à-vis the US, and that selective retaliatory measures will be announced by the affected countries.
However, we expect the inflationary impact of the measures to slow interest rate cuts and depress US household confidence over the coming months, increasingly threatening Republican control of the House of Representatives in the run- up to the November 2026 elections and prompting the Trump presidency to change course by the first half of next year. Therefore, we expect the effective level of tariffs to drop to 10% from next year. Compared to three months ago, the revisions of growth projections are mostly downwards, but overall moderate.
For Italy, we now estimate GDP growth of 0.7% in 2025, reflecting the impact of the protectionist wave. Resilience to the impact of US tariffs and increased uncertainty reflects the assumption that the negative shock will be partly cushioned both by the fiscal policy reaction (certainly in China and Germany) and by the intensified support provided by the transmission of the rate cuts already implemented and those to come. In fact, we also confirmed the central forecast of a 50bp cut in Fed and ECB official rates in 2025.
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