Economist: Eurozone begins new year with optimism

TALLINN - Global trade grew steadily last year despite U.S. tariffs, with Chinese exporters performing particularly well. For the first time in history, China's trade surplus with the rest of the world surpassed the 1 trillion U.S. dollar mark, said Aleksandras Izgorodinas, an economist at Citadele bank.

"Last year, the global economy was clearly overshadowed by U.S. import tariffs, yet global trade still grew steadily. The manufacturing sector in developed countries remained relatively fragile. While conditions improved over the past year, the sentiment among Eurozone producers was still slightly negative at the start of 2026. However, positive trends have begun to emerge in the Eurozone's industry, with production growing year-on-year since February of last year, averaging 1-2 percent in recent months. Overall, the service sector was the primary driver of positive business sentiment in the Eurozone throughout last year and into the beginning of this year," he noted.

For the full year, the Eurozone's economic growth was approximately 1.5 percent. "This result is significantly better than what was expected at the start of last year, when GDP growth was forecast at around 1 percent. However, there's no cause for major celebration yet, as this year may not bring significant progress. According to analysts surveyed by Bloomberg, the Eurozone's economic growth is projected to slow to 1.2 percent in 2026," Izgorodinas explained.

Eurozone producers are gradually losing ground to Chinese exporters. In 2025, China's trade surplus with the rest of the world exceeded the 1 trillion U.S. dollar mark for the first time in history, despite growing protectionism worldwide. Eurozone exports to China have predominantly decreased over the past three years. At the same time, imports from China have been growing since mid-2024, widening the Eurozone's trade deficit.

NEXT CENTRAL BANK RATE MOVE LIKELY UPWARD

In the Eurozone, inflation fell below the ECB's 2 percent target at the beginning of 2026, standing at 1.7 percent in January. Core inflation, which reflects changes in consumer prices excluding food and energy, also slowed to its lowest level since the autumn of 2021, when inflation first began to accelerate.

"The European Central Bank (ECB) has held interest rates steady for five consecutive meetings, keeping the main rate at 2 percent since June of last year. While the ECB's future decisions will depend on incoming economic data, investors do not expect any further rate changes in the Eurozone this year. Previous rate cuts have helped stimulate lending and boost corporate bond issuance, with borrowing by both businesses and households on the rise. At the same time, the ECB has so far ignored the disinflationary pressure from a strong euro, as dollar-denominated imports become cheaper, negatively impacting the competitiveness of local companies. A further strengthening of the euro could prompt the ECB to reconsider rate cuts," said Izgorodinas.

"However, as significant strengthening of the euro is not anticipated, investors believe the ECB's rate-cutting cycle has concluded. The next move, expected in 2027-2028, is likely to be upward. This sentiment is reflected in current lending rates: the 6-month Euribor has stabilized in recent months between 2.10 and 2.15 percent, which is above the ECB's deposit facility rate," he noted.