U.S. tariffs are impacting euro zone growth and inflation, with sectors sensitive to interest rates. ECB economists found that demand drop from tariffs outweighs any inflation-boosting supply effects. Euro zone exports to the U.S. are down about 6.5%, affecting inflation which fell to 1.7% in January, below the ECB’s target.

The most affected sectors by tariffs also respond strongly to interest rate changes. Machinery, autos, and chemicals sectors are hit the hardest but expand with lower borrowing costs. This pattern holds for about 60% of sectors studied, representing roughly 50% of total euro zone industrial output and goods exports to the U.S.

Read more at Yahoo Finance: Euro zone inflation to take hit from tariffs but rate cuts could offset, ECB economists find