New Delhi, April 4 Europe’s fragile economic outlook amid geopolitical tensions could have ripple effects on India's trade and sectoral competitiveness with the latter to gain from FTA, a new report has said.
The report from EY noted that India could gain from new opportunities with deeper trade engagement with Europe and rising competitiveness in sectors such as textiles.
Tariff and trade policy changes by the United States as well as West Asian conflict will act as headwinds for Europe’s economy, potentially affecting global trade flows and competition with countries like India.
The report highlighted that the recently announced EU-India Free Trade Agreement (FTA) could have mixed sectoral implications for European industries while creating competitive pressure in some segments. "While the aggregate macro impact on Europe is negligible, sectoral effects are somewhat more meaningful," the report said.
European industries especially textile industry could face stronger competition from India. while minerals sector may benefit from improved access to production inputs.
US Tariffs will shave 0.5 pp off EU's GDP growth in 2026, with the most negative effects concentrated in Ireland and Nordic countries, according to the business advisory firm. However, it maintained that the euro area economy is likely to grow, though at a modest pace before it recovers gradually.
"Headline euro area growth is expected to slow to 1.3 per cent in 2026 from 1.5 per cent in 2025... Growth should re-accelerate to 1.4 per cent in 2027 and 1.5 per cent in 2028-29," the report said.
Geopolitical tensions in the Middle East could affect global energy prices and raise inflation in Europe by 0.3 pp in 2026 and reduce GDP by 0.2 per cent.
Ageing populations and labour shortages could weigh on Europe's long-term growth prospects especially in parts of Central, Eastern and Southern Europe.
Investments in new technologies such as artificial intelligence could provide a boost to Europe's productivity and economic output in the coming decade.
"AI could raise Western Europe's GDP by up to 4 per cent by 2033," the report noted, though it cautioned that Europe risks lagging the United States in AI investments.
A major disruption such as a blockade of the Strait of Hormuz could have much larger economic consequences, it warned.
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