New Delhi, April 4 (NationPress) The current fragile economic landscape in Europe, influenced by geopolitical tensions, may lead to significant impacts on India’s trade dynamics and sectoral competitiveness, as highlighted by a recent report. The findings from EY suggest that India stands to benefit from enhanced trade relations with Europe, particularly in sectors like textiles.

Changes in tariff and trade policies from the United States, along with ongoing conflicts in West Asia, could pose challenges to Europe’s economy, thereby affecting global trade patterns and competition with nations such as India.

The report emphasizes that the newly established EU-India Free Trade Agreement (FTA) may produce varied sector-specific outcomes for European industries while intensifying competitive pressures in certain areas. It noted, "While the overall macroeconomic impact on Europe is minimal, the sectoral implications are significantly more pronounced," the report mentioned.

Particularly, the textile sector in Europe may experience heightened competition from India, while the minerals sector could gain from better accessibility to essential production inputs.

According to the advisory firm, US tariffs are projected to reduce EU's GDP growth by 0.5 percentage points in 2026, with the most adverse effects anticipated in Ireland and the Nordic countries. Nevertheless, it projected that the euro area economy will continue to expand, albeit at a slow rate, before gradually recovering.

The report forecasts that overall growth in the euro area is likely to decline to 1.3 percent in 2026 from 1.5 percent in 2025, but it should pick up to 1.4 percent in 2027 and 1.5 percent in 2028-29.

Furthermore, geopolitical tensions in the Middle East are expected to influence global energy prices, leading to a 0.3 percentage point increase in inflation in Europe by 2026 and a reduction in GDP by 0.2 percent.

The challenges posed by aging populations and labor shortages may weigh heavily on Europe’s long-term growth, especially in Central, Eastern, and Southern regions.

Investments in emerging technologies, such as artificial intelligence, could potentially enhance Europe’s productivity and economic outcomes in the next decade.

"AI has the potential to boost Western Europe's GDP by up to 4 percent by 2033," the report indicated, although it cautioned that Europe may fall behind the United States in AI investments.

Additionally, the report warned that a significant disruption, such as a blockade of the Strait of Hormuz, could lead to considerably larger economic repercussions.

aar/pk