European economy grows despite Trump’s tariffs

In September 2025, the European Central Bank decided to keep its benchmark interest rate at 2%, reflecting a stable economic environment amid external pressures, particularly from U.S. President Donald Trump's tariffs. The ECB's decision was influenced by the recent stabilization of inflation, which was reported at 2.1% in August, aligning with the bank's target. The economic growth recorded a slight increase of 0.1% in the second quarter compared to the prior quarter, indicating resilience in the eurozone economy despite the potential risks associated with tariffs. Despite the modest growth rate, analysts revealed that larger concerns remained regarding France's escalating fiscal troubles. With a deficit pegged at 5.8% of GDP last year, the challenges posed by a divided parliament made it difficult for the government to address these financial issues, leading to rising borrowing costs on the bond market. This situation has subsequently raised concerns about potential market turmoil and how the ECB would handle such eventualities. ECB President Christine Lagarde will need to navigate this delicate landscape in her communications to ensure market confidence while making it clear that support is limited for countries not adhering to EU fiscal regulations. Additionally, trade relations were influenced significantly by negotiations pertaining to tariffs. The EU’s executive commission successfully negotiated a 15% ceiling on U.S. tariffs on European goods, providing more clarity and stability for trade, albeit at a higher cost. This negotiation has somewhat alleviated fears of even higher tariffs that President Trump had threatened, allowing for continued trade with less uncertainty. Looking ahead, there is speculation regarding future interest rate cuts in light of ongoing analysis from economists who foresee that lower rates could stimulate economic activity, especially as it remains uncertain whether growth can sustain itself with the current economic pressures. With the mixed outlook for both growth and inflation, the ECB’s careful deliberation on interest rates signals its prioritization of economic stability over aggressive fiscal measures at present.