The European Union economy stands at a pivotal historical juncture. Chun Lee, an associate research fellow of the Taiwan WTO & RTA Center at the Chung-Hua Institution for Economic Research (CIER), points out that while post-pandemic inflationary pressures have gradually eased and economic growth is expected to maintain moderate expansion, the two core economies of Germany and France remain weak. Germany’s projected GDP growth rate for 2025 stands at merely 0.2%, indicating that the foundation of Europe’s recovery remains fragile.
From a long-term perspective, the EU’s historical reliance on Russian energy, Chinese markets, and American security is simultaneously unraveling. The uncertain outlook of the Russia-Ukraine war, the Trump administration’s renewed tariff and investment restriction policies, and China’s rapidly rising product competitiveness have all contributed to the swift erosion of the stability dividend Europe has long enjoyed, compelling the EU to accelerate its transformation.
Cooling Inflation Fails to Mask Underlying Concerns as EU Confronts Structural Transformation Challenge
Associate Research Fellow Chun Lee observes that according to the European Commission’s November 2025 economic forecast, the EU’s GDP growth rate for both 2025 and 2026 is projected at 1.4%, with inflation declining to 2.1%, suggesting that inflation risks are temporarily under control. However, energy de-Russification, the redirection of Chinese exports triggered by the US-China trade war, the fiscal burden of Ukraine’s reconstruction, and US demands for increased European security spending continue to generate uncertainty for medium- to long-term economic and fiscal conditions.
Under slowing growth and cost-of-living pressures, right-wing political parties have gained strength across multiple European nations, advocating economic nationalism and the return of powers to the national level. The future impact of these forces on EU governance direction remains a subject of considerable attention.
In response to these challenges, the EU has adjusted its policy priorities following the 2024 elections, placing enhancement of long-term competitiveness at the core. Initiatives include launching a new economic governance framework that replaces rigid annual deficit reviews with medium-term fiscal planning, revising climate legislation to postpone high-intensity emission reduction timelines in order to balance energy security considerations, and advancing deregulation reforms aimed at substantially reducing administrative burdens on businesses and small & medium-sized enterprises. Whether the EU can successfully reshape its competitiveness during this transformation process will prove critical to its future development.
Author: CIER Editorial
Team Date: January 12, 2026