European Central Bank (ECB) Vice President Luis de Guindos has identified escalating global trade tensions, high debt levels, and financial market volatility as significant threats to the eurozone's economic stability. In a speech on May 15, 2025, de Guindos emphasized the region's heavy reliance on international trade, making it particularly vulnerable to these challenges.

"The risks to growth resulting from trade tensions, combined with higher defense spending, may limit the fiscal space available to shield the economy from adverse shocks, address structural challenges associated with climate change, digitalization, and low productivity," de Guindos stated.

The eurozone's dependence on international trade has been underscored by recent U.S. tariffs. On March 27, 2025, the United States imposed a 25% tariff on all car imports, significantly affecting Germany, the world's largest automobile exporter. Subsequently, on April 2, former President Donald Trump announced a 20% tariff on all European Union imports, effective April 9, as part of his "reciprocal tariff" policy. In response, the European Union offered a "zero-for-zero" tariff agreement on industrial goods, including automobiles, pharmaceuticals, and machinery, on April 7. However, negotiations have yet to yield a resolution, leaving the eurozone exposed to ongoing trade disputes.

De Guindos also highlighted concerns regarding financial markets potentially underestimating geopolitical risks. "There is a risk that investors may be underestimating and underpricing the likelihood and impact of adverse scenarios," he warned.

The ECB's March 2025 projections indicate that the euro area budget balance is projected to remain broadly unchanged over the horizon, standing at -3.3% of GDP in 2027. The euro area debt-to-GDP ratio is seen to be on an increasing path, as continuous primary deficits and positive deficit-debt adjustments more than offset favorable interest rate-growth differentials.

Increased defense spending further complicates the fiscal landscape. The European Commission has cautioned that heightened defense expenditures could constrain fiscal flexibility, limiting resources available for addressing economic shocks and structural challenges like climate change and digitalization.

The Organization for Economic Co-operation and Development (OECD) has revised its eurozone GDP growth forecast to 1.0% for 2025, down from 1.3% in December, citing weak investment and rising geopolitical risks. Global growth is also projected to weaken, with the OECD cutting its forecast by 0.2 percentage points to 3.1%.

Despite these challenges, some economic indicators show resilience. Eurostat reported that industrial production in the eurozone surged by 2.6% in March 2025, significantly surpassing economists' expectations of a 1.8% rise and improving on February’s 1.1% increase. On a year-over-year basis, output rose 3.6%, outperforming the forecasted 2.5%. Additionally, employment in the region has remained robust, with a 0.3% increase from the previous quarter—the highest in a year.

However, ongoing trade disputes and economic uncertainties are expected to dampen consumer and business confidence, negatively impacting investment and spending. Mounting public debt and rising debt service costs could further constrain governmental capacity to respond to these challenges.

Vice President Luis de Guindos' address underscores the multifaceted risks facing the eurozone economy, including global trade tensions, high debt levels, financial market volatility, and increased defense spending. These challenges necessitate coordinated policy responses to safeguard economic stability and promote sustainable growth in the region.