Deutsche Bank: 10% Drop in European Stocks and Recession if Tariffs Escalate

Deutsche Bank predicts a 10% drop in European stocks and a recession if tariffs escalate to 20%. According to the bank, the EU's GDP may decline further due to trade uncertainty, potentially reaching -0.8%.

Despite trade tensions and the Trump deadline for imposing tariffs from August 1st, Deutsche Bank maintains its target for a 6% increase in the Euro Stoxx 50 by the end of 2025.

The bank's base scenario assumes a basic 10% tariff along with sector-specific tariffs, considering that the impact is already incorporated into current earnings estimates. Maximilian Uleer, Head of European Equity and Multi-Asset Strategy at Deutsche Bank, states that this is reflected in the negative earnings revisions of 10% for 2025 since October 2024.

Uleer estimates that the base scenario for tariffs would result in a hit of just under 4% to 2025 earnings, a percentage considered absorbed by the earnings downgrades since October 2024.