Goldman: Trump re-election would hit Eurozone GDP, earnings

In the wake of recent events, prediction markets are now assigning a high probability, or around 70%, to a Donald Trump re-election.

For Europe, the primary concern regarding a potential second term for Trump is related to tariffs. The former U.S. president has already pledged to impose a 10% tariff on all US imports. According to Goldman Sachs economists, this could reduce the Euro area's GDP by 1 percentage point and US GDP by 0.5 percentage points.

Each 1 percentage point drop in sales-weighted GDP could reduce European earnings per share (EPS) by about 10%, Goldman added. However, European companies' global exposure may soften the impact slightly.

“Also, there are other offsets such as a stronger dollar, and potential US tax cuts/deregulation,” economists wrote.

Moreover, the market is now heavily concentrated in high-quality large caps in Europe, “which should be more insulated,” Goldman’s team added.

Overall, Goldman Sachs estimates the hit to Europe EPS would be about 6-7 percentage points. If the entire impact occurred in 2025, this would negate any growth for that year.

In terms of market impact, during the 2018-2019 tariff announcements, Emerging Markets were the worst performers, especially China. Europe was moderately affected, with Germany more impacted than France. The US, along with more defensive markets like the FTSE 100, was the least impacted.

Defensive sectors such as Utilities, Healthcare, and the GRANOLAS – a group of high-quality large caps in Europe – tend to benefit the most from rising trade risks, while Cyclicals like Autos, Industrials, and Financials suffer. Sectors exposed to global trade, including Industrials, Basic Materials, and European companies reliant on China, were the worst performers during tariff events, Goldman pointed out.

While the uncertainty surrounding the election outcome and policy implementation remains, Goldman said several of its recommended industries could be affected by a Trump re-election.

Specifically, the Wall Street giant remains Underweight on Autos and Chemicals, Overweight on Healthcare, Telecoms, and Media publishers, and has recently initiated a long position on Europe Defense.