The strong Q1 performance does not provide much insight into the rest of 2025, as growth momentum is expected to decrease. The growth forecast for this year remains unchanged at 0.8%, but there are concerns about a potential recession in the near future. Trade uncertainty continues to have a negative impact and has led to a revision of the 2026 growth forecast to 1.0% (from 1.2%). Additionally, the 2027 forecast has been revised downward to 1.6% (from 1.1%) due to the expected lag in the effects of German fiscal policies and defense spending, as noted by economist Christopher Graham from Standard Chartered. The outlook for the euro area remains uncertain and fragile, with anticipated slower growth in the coming quarters due to US tariffs affecting demand for export goods and the overall uncertainty in global trade. Despite maintaining a 0.8% growth forecast for 2025 based solely on strong Q1 performance, we acknowledge the high risk of recession in the next few quarters, largely dependent on the outcome of US-EU trade negotiations. Our prediction is that the euro area will face tariffs between the baseline 10% and original 20%, but there is a chance of a worse outcome resulting in a bigger blow to economic growth. As the euro area adjusts to the trade impact by expanding trade with other regions, the negative effects from tariffs are expected to gradually decrease. This should be reflected in improved quarterly growth in 2026, although the underwhelming end to 2025 and lingering effects in the beginning of the following year have led us to lower our full-year growth forecast to 1.0% (from 1.2%). However, with the dissipation of trade effects and the boost from German infrastructure and continent-wide defense spending, we are positive about a better outlook in 2027 and have raised our growth forecast to 1.6% (from 1.1%).