Investing.com -- U.S. President Donald Trump’s plan to impose 25% tariffs on imports from the European Union could further strain economic growth in Central Europe and exacerbate existing fiscal difficulties, according to a Reuters report citing S&P Global (NYSE:SPGI) Ratings on Monday.
Trump announced last week that his administration would soon implement the tariffs, claiming that the EU’s trade policies were designed to disadvantage the United States, the report added.
In response, the European Commission stated it would take firm and immediate action against trade barriers, following the enforcement of U.S. tariffs on imports from Canada and Mexico, which begins Tuesday.
While Central and Eastern Europe’s direct trade exposure to the U.S. is relatively low, S&P Global warned that the region’s economic outlook could suffer, particularly through the impact on Germany’s automotive industry.
This is especially relevant for Czechia, Hungary, Slovakia, Slovenia, and Romania, the report noted, highlighting that machinery and transport equipment exports to Germany make up over 10% of these countries’ total exports.
Foreign trade plays a crucial role in the economies of Central European nations. According to 2023 Eurostat data, exports account for 92% of Slovakia’s GDP and 69% of the Czech Republic’s, while Romania’s export share of 39% is below the EU average, the report said.
Poland, the region’s largest economy, is expected to be less affected due to its lower reliance on car exports, a strong domestic market, and substantial EU recovery fund inflows.
The tariff threats have already impacted financial markets, with Hungary’s forint and the Czech crown weakening past key levels and Poland’s zloty pulling back from a 10-year high on Friday.
Nicholas Farr, an Emerging Europe analyst at Capital Economics, estimated that a 25% U.S. tariff on EU goods could reduce Central Europe’s GDP growth by approximately 0.5%, a more significant impact than earlier projections based on milder tariff scenarios.
A slowdown in the region could hinder its post-pandemic recovery, which had already been weakened by surging inflation following Russia’s 2022 invasion of Ukraine, alongside economic struggles in Germany, a key trading partner.
However, S&P Global pointed out that declining Chinese demand for German cars may pose an even greater threat to Central European economies than U.S. tariffs. The agency cited Volkswagen (ETR:VOWG_p), Mercedes, and BMW (ETR:BMWG), noting that China accounts for around a third of their sales, compared to 10-15% in the U.S.
S&P Global said that weaker growth among Central and Eastern European sovereigns could intensify their existing fiscal challenges, which the firm has long identified as a major regional risk, the report added.
The European Commission initiated disciplinary procedures last year against seven EU countries, including Hungary, Poland, and Slovakia, due to excessive fiscal deficits. Romania, in particular, faces the most significant budget shortfall in the bloc.