Tariffs and looming trade conflict
The new U.S. administration has imposed unexpectedly high tariffs on imports from several countries, including the EU. European goods now face a total tariff rate of 20% – double the previous level. The global response to these measures remains uncertain. However, an escalating trade conflict poses significant risks to the fragile balance of the global economy.
Austria’s Institute for Advanced Studies (IHS) expects the new U.S. tariffs to cause an additional 0.2 percentage point decline in Austria’s GDP. As a result, a meaningful economic recovery may not be expected before 2026.
Moreover, the necessary austerity measures introduced by the new Austrian government, as well as the country’s strong economic ties with a sluggish German economy, are further weighing on growth prospects.
Stagflationary scenario
The global shift away from free trade, coupled with rising import prices in the U.S., is fueling uncertainty. Tariffs effectively act as taxes and ultimately burden American consumers as well. The effective U.S. tariff rate is rising from 2.3% to an estimated 20%—a shock that significantly increases the risk of recession. The effects are considered stagflationary: slower growth accompanied by upward price pressure.
Central banks under pressure
In March 2025, the European Central Bank (ECB) cut interest rates by 25 basis points, bringing the deposit rate to 2.5%. At the same time, Germany’s massive infrastructure and defense spending program has triggered notable movements in eurozone bond markets. Monetary policymakers are now facing a delicate balancing act: addressing economic slowdown on one side and inflationary pressure on the other. Multiple rate cuts by the U.S. Federal Reserve are expected by the end of the year.
Vienna Stock Exchange under pressure
The Vienna Stock Exchange has not been immune to global headwinds. While the ATX index gained ground until mid-March, it has since come under pressure due to rising uncertainty surrounding trade disputes and recession fears. Concerns about a potential U.S. downturn and increased market volatility are weighing heavily on cyclical stocks. A defensive investment strategy currently appears to be the prudent choice.
Author:
Paul Severin
Head of Communications Erste Asset Management
ÖVFA member of the Board
4 April 2025
 |  |
Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.