EU-India free trade pact likely to boost India’s competitiveness in some sectors: EY report

New Delhi: Europe’s economic outlook remains fragile due to persistent global trade tensions and geopolitical risks, which may have spillover effects on India’s trade and competitiveness, according to EY’s European Economic Outlook (March 2026).

The report notes that evolving trade policies, tariffs and geopolitical uncertainties continue to influence Europe’s economic trajectory, with potential implications for global trade flows and competition with countries such as India. It highlights that the recently announced EU-India Free Trade Agreement (FTA) is expected to have limited overall macroeconomic impact on Europe but could create notable sectoral shifts.

Certain European industries may face increased competition from India. While sectors like minerals could benefit from improved access to inputs, the clothing industry may come under pressure from competitive Indian producers, the report said.

Global trade tensions remain a key headwind. EY estimates that US-imposed tariffs could reduce EU GDP growth by 0.5 percentage points in 2026, with Ireland and Nordic countries likely to be most affected.

Despite these challenges, the euro area is projected to grow at a modest pace. Growth is expected to slow to 1.3 per cent in 2026 from 1.5 per cent in 2025, before gradually recovering to 1.4 per cent in 2027 and 1.5 per cent during 2028-29.

Geopolitical tensions in the Middle East could further impact energy prices and economic activity. The report estimates such risks could raise euro area inflation by 0.3 percentage points and lower GDP by 0.2 per cent in 2026, with more severe disruptions posing greater risks.

Structural issues, including ageing populations and labour shortages, are also expected to weigh on long-term growth, particularly in parts of Central, Eastern and Southern Europe.

However, investment in emerging technologies such as artificial intelligence could support productivity, with AI projected to boost Western Europe’s GDP by up to 4 per cent by 2033. For India, the report suggests that deeper trade ties with Europe and growing competitiveness in sectors like textiles could create opportunities despite global

uncertainties.