US-EU trade deal not far from ECB's baseline forecast, Lagarde says

FRANKFURT, Germany: The trade deal between the U.S. and the EU is close to the baseline assumed by the European Central Bank, but uncertainty persists in key sectors like pharmaceuticals and semiconductors, ECB President Christine Lagarde said on Wednesday.

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The EU accepted average tariffs of 1216% on goods to prevent a trade war with the US.
The deal may slow EU growth, though it's less damaging than feared in earlier projections.
EU leaders urge expanding trade with other regions to offset tariff effects and support long-term growth.

The EU accepted 15% tariffs on most items in the deal agreed last month, averting an all-out trade war and providing businesses greater clarity, even if the new barriers slow economic growth.

"The trade deal establishes an effective average tariff estimated to lie between 12% and 16% for U.S. imports of euro area goods," Lagarde said in Geneva.

"This effective average tariff is somewhat higher than - but still close to - the assumptions used in our baseline projections last June," she said. "The outcome of the trade deal is well below the severe scenario for U.S. tariffs of over 20%."

The ECB's baseline projection assumes economic growth of 1.1% next year while the "severe" outcome would have lowered this to 0.7%, the ECB's June projections show.

The U.S.-EU trade deal is still likely to weigh on economic growth, Lagarde added, saying a long-predicted slowdown was already evident in second-quarter economic data.

The EU, which has always relied on extensive foreign trade for growth, should now diversify its trade with other nations to maintain growth and offset the negative impact of tariffs, Lagarde said.

"While the United States is - and will remain - an important trading partner, Europe should also aim to deepen its trade ties with other jurisdictions, leveraging the strengths of its export-oriented economy," she said.