06:52 AM EDT, 04/07/2025 (MT Newswires) -- Outside the United States, the prime victims of President Donald Trump's trade wars will likely be emerging markets heavily geared towards selling goods to the U.S., said Berenberg.

The export-oriented countries of Europe may also take a significant hit, noted the bank, but for two reasons the U.S. is likely to suffer more than the Europe:

-- U.S. consumers will have to pay higher prices for almost all of their imported goods. In the same vein, U.S. producers may face retaliation in most of their external markets. Although imports and exports are a smaller share of gross domestic product in the U.S. than in other countries, these other countries will suffer similar problems only in their exchanges in one of their markets, the U.S., and not in almost all of their markets.

-- In the U.S., the Federal Reserve has no clear reason to cut rates because the Trump tariffs will likely add significantly to inflation in addition to subtracting from growth. In other countries, inflation is more likely to fall as reduced exports to the U.S. will increase the available supply of goods at home. Lower oil prices will add to that. As a result, central banks outside the U.S. can cushion the blow through rate cuts.

The recent news flow is reflected in Berenberg's key economic forecasts. Since the inauguration of Trump on Jan. 20, the bank has lowered U.S. GDP growth to 1.7% from 2.6% for this year and to 1.6% from 2.2% for 2026. Core PCE inflation up from 2.4% to 3.0% year over year for Q4 2025 and it projects no Federal Reserve rate cut.

For the eurozone, the bank reduced GDP growth to 0.9% from 1.0% for this year, while 2026 is unchanged at 1.5%. It sees the European Central Bank cutting rates to a trough of 2.0% instead of 2.25% by June 2025

For two reasons, Berenberg hasn't lowered its calls for eurozone growth much despite the trade war damage. First, some of the data for late 2024, such as Q4 GDP, and for early 2025, such as stronger German retail sales and a record low in eurozone unemployment, have surprised slightly to the upside. Second, the unexpectedly huge and timely German fiscal stimulus can help to offset some of the trade war damage.

The risks to the bank's forecasts are tilted towards lower growth and additional ECB and other central bank rate cuts in response. For its calls, Berenberg assumes that the crippling uncertainty will be largely over by mid-2025 as the bank expects Trump and the European Union to strike a deal by then.