New Delhi [India], April 4 (ANI): Europe's economic outlook remains fragile amid global trade tensions and geopolitical risks, which could have ripple effects on India's trade and sectoral competitiveness, according to a new report by EY

The EY European Economic Outlook (March 2026) notes that trade policy changes, tariffs, and geopolitical uncertainties continue to shape economic prospects in Europe, potentially affecting global trade flows and competition with countries like India.

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The report highlights that the recently announced EU-India Free Trade Agreement (FTA) could have mixed sectoral implications for European industries while creating competitive pressure in some segments.

"In this edition of the outlook, we also examine the recently announced EU-India Free Trade Agreement. While the aggregate macro impact on Europe is negligible, sectoral effects are somewhat more meaningful," the report said.

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It added that certain European industries could face stronger competition from India. "For example, minerals sector may benefit from improved access to production inputs, while clothing industry could face stronger competitive pressure from Indian producers," the report noted.

The report also flagged global trade tensions as a key headwind for Europe's economy. According to EY, tariffs introduced by the United States could dampen economic growth across the European Union.

"Tariffs will shave 0.5 pp off EU's GDP growth in 2026, with the most negative effects concentrated in Ireland and Nordic countries," the report stated.

Despite these challenges, the euro area economy is expected to continue growing, though at a modest pace. EY expects headline euro area growth to ease slightly in the near term before recovering gradually.

"Headline euro area growth is expected to slow to 1.3% in 2026 from 1.5% in 2025... Growth should re-accelerate to 1.4% in 2027 and 1.5% in 2028-29," the report said.

The outlook also warns that geopolitical tensions in the Middle East could affect global energy prices and economic activity.

The report estimates that such developments could "raise euro area inflation by 0.3 pp in 2026 and reduce GDP by 0.2%," while a major disruption such as a blockade of the Strait of Hormuz could have much larger economic consequences.

At the same time, structural factors such as ageing populations and labour shortages could weigh on Europe's long-term growth prospects. EY said "labor supply becomes a persistent drag on trend growth," especially in parts of Central, Eastern and Southern Europe.

However, the report highlighted that investments in new technologies such as artificial intelligence could provide a boost to Europe's productivity and economic output in the coming decade.

"AI could raise Western Europe's GDP by up to 4% by 2033," the report noted, though it cautioned that Europe risks lagging behind the United States in AI investments.

For India, the report suggests that deeper trade engagement with Europe and rising competitiveness in sectors such as textiles could open opportunities even as global trade uncertainties continue to shape the economic outlook. (ANI)

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