The EU–US trade agreement concluded in August brought some relief to markets, but it did not materially change estimates of how tariffs will affect the economy. Although a full-blown trade war was avoided, Europe’s recovery remains shallow and uneven. According to the latest EY European Economic Outlook, euro area GDP is expected to grow 1.3% in 2025, slowing to 1.1% in 2026. Poland stands out against this backdrop — projected to maintain 3.3% growth in 2025 and 3.4% in 2026, despite rising political and fiscal tensions.
In the first half of 2025, Europe’s economy was strongly influenced by US tariff policy. GDP growth initially accelerated as American firms front-loaded imports ahead of tariff implementation, then slowed as US demand weakened. Except for Ireland, growth remained relatively low, close to 2024 levels. With elevated tariffs in place, expectations for the second half remain cautious.
Growth in 2025 will be highly differentiated: Ireland (+11.8%) and Spain (+2.8%) are performing well, while Germany (0.2%) and Italy (0.5%) hover near stagnation.
Against this backdrop, Poland maintains stable growth. EY’s Economic Analysis Team forecasts 3.3% in 2025, followed by 3.4% (2026) and 2.5% (2027). The current momentum is driven by consumer spending (+3.0–3.4% y/y), supported by rising real wages and improving consumer sentiment. A key challenge is the growing deficit, which is set to reach 6.5–7.0% of GDP annually in 2025–2026. As a result, public debt could exceed 70% of GDP by 2028.
“Poland’s growth is anchored in domestic demand. Strong private consumption and public spending are offsetting weak private investment, which is slowly recovering after the late-2024 decline. EU Recovery and Resilience funds and defence outlays provide support. The key challenge in the coming years will be the state of public finances,”
says Marek Rozkrut, EY Partner, Head of the Economic Analysis Team and EY Chief Economist for Europe and Central Asia.
Inflation Under Control
In the euro area, headline inflation has stabilised at 2.0–2.1%, with core inflation at 2.3–2.4%, driven mainly by services. EY’s team projects inflation to fall to 1.8% in 2026, then tick up slightly in 2027 due to the expansion of the ETS.
In Poland, price pressures have eased markedly. Core inflation fell to 3.3% in Q3 2025, while headline inflation is forecast at 3.9% for the full year, dropping to 2.3% in 2026, returning to the NBP’s target. The main disinflationary factors are a strong zloty, lower energy prices, and slowing wage growth. Regionally, Poland compares favourably: Romania exceeds 8%, while Czechia and Hungary remain above 4%.
Monetary Easing Gathers Pace
Monetary policy remains differentiated across central banks, but the direction is clear — rates are moving down. The ECB cut the deposit rate to 2.0%; EY expects it to stay there for the near term, though further cuts are possible if growth or inflation undershoot. The Fed has resumed its cutting cycle, currently at 4.00–4.25%, and the NBP has lowered rates to 4.5%, with further reductions projected.
“We expect Poland’s Monetary Policy Council to lower rates to 4.0% in early 2026, then pause to assess inflation dynamics. Additional cuts totalling 50 bps may come only in 2027, as demand growth starts to soften,”
says Maciej Stefański, Senior Economist on EY’s Economic Analysis Team.
Trade Deal: Less Risk, Limited Gain
The EU–US trade agreement reached in August 2025 reduced the intensity of tensions that had weighed on global trade since the start of the year. The parties set a 15% tariff cap for most goods, avoiding escalation to 30–50% rates. However, 50% tariffs on steel and aluminium remain in force, continuing to burden heavy industry. Some products — including aircraft, generic medicines, and selected raw materials — were exempted.
“The agreement reduces uncertainty in European markets, but it does not fundamentally change our view of the tariffs’ macro impact. We still expect tariffs to reduce EU GDP growth by around 0.5 percentage points in 2026 relative to a no-tariff scenario,”
says Maciej Zdrolik, Senior Economist on EY’s Economic Analysis Team.
While Poland is not heavily exposed directly to US tariffs, it feels indirect effects via the German automotive and machinery industries, where Poland is a key supplier. EY estimates Poland’s GDP growth in 2026 will be 0.3 pp lower than in a no-tariff scenario.
Geopolitical and Structural Risks Are Rising
Despite the détente on trade, Europe’s structural risks remain significant. EY forecasts euro area GDP growth of 1.3% in 2025, with a slight slowdown to 1.1% in 2026. Improvement is expected thereafter — 1.6% in 2027 and 1.8% in 2028 — supported by fiscal expansion in Germany and the gradual fading of US tariff headwinds.
However, high energy costs, a stronger euro, intensifying Chinese competition, and weak productivity growth threaten further erosion of industrial competitiveness. Without faster investment in technology, digitalisation and the energy transition, GDP growth could underperform.
“Europe has entered a phase of stability without meaningful acceleration. Short-term risks have receded, but growth remains constrained. Monetary policy is accommodative, inflation is under control, and labour markets are stable. While we expect growth to gradually pick up from next year — aided by German fiscal expansion — the balance of risks is tilted to the downside,”
concludes Marek Rozkrut.
