Investing.com — The Eurozone economy faces a delicate balancing act in 2025, with growth expected to strengthen but many uncertainties loom, according to UBS.

The bank’s analysts believe that the main questions for the regional economy revolve around consumer spending, inflation, external trade risks, and the impact of political changes.

They explained that a key area of ​​focus is whether the consumer recovery will gain momentum.

UBS expects “growth this year to come in around trend at 0.9%” as “household consumption” gains traction, fueled by strong wage growth and falling interest rates.

As the most critical driver of economic activity in the region, UBS said a strong recovery in consumer spending could lay the foundation for a more sustainable expansion, despite the challenge in other areas of the economy.

However, they added that the prospect of a renewed trade war with the US, especially under President-elect Trump, remains a key concern.

UBS warned that the tariffs, particularly on exports of EU products, could damage the economy, although analysts suggested the impact could be contained.

A scenario of “selective tariffs” targeting specific sectors could lead to a moderate GDP loss of 0.2-0.5%, according to the bank. However, UBS does not see these risks putting the Eurozone into recession.

On the monetary policy front, the European Central Bank (ECB) is expected to continue easing rates, possibly bringing the deposit rate down to 2%. As inflationary pressures decrease, UBS says that the risk of further economic challenges may prompt further rate cuts, although the risks in this view are considered “balanced.”

On the political front, the upcoming elections in Germany and the ongoing instability in France may indicate further uncertainty.

UBS suggested that the change in leadership in Germany could lead to a “more decisive approach to economic policy.” In the meantime, the ongoing war in Ukraine remains a wildcard, with any shift to peace likely to raise sentiment in Europe.