By Samuel Indyk

LONDON (Reuters) – European shares are expected to reach new peaks in 2025 but with only a modest rise as uncertainty surrounding U.S. President-elect Donald Trump’s tariff plans and weak euro area growth limit gains, a Reuters poll of equity strategists found.

The pan-continental STOXX 600 index is expected to rise to 536 points by end-2025, according to the median forecast in the poll, up more than 5% from Monday’s close of 508.78 and above a record high of 528.68 touched in September.

Predictions in the Nov. 15-26 poll of 14 analysts ranged from 470 to 590.

The journey to this upside won’t be painless,” said Michael Field, European market strategist at Morningstar, who predicts a little over a 3% increase.

“The volatility in European equities we’ve seen since the U.S. election will likely be a theme that endures throughout 2025.”

European shares have underperformed their U.S. counterparts this year as sluggish domestic growth, political uncertainty and the threat of tariffs on goods imported by the U.S. have weighed.

While the STOXX 600 has gained about 6% this year, the U.S. benchmark S&P 500, powered by tech-behemoths such as Nvidia and Apple, has surged more than 25% to record highs, extending gains after Trump’s re-election in November.

Tax cuts, deregulation and import tariffs are on the agenda for the second Trump administration, which some analysts say could further fuel U.S. exceptionalism.

But the relative underperformance in Europe could also offer a buying opportunity, according to Kevin Thozet, a member of the investment committee at asset manager Carmignac, who sees the potential for positive spillovers from Trump’s proposals.

Trump’s policies “are readily associated with a weaker EUR, lower oil prices and lower Euro bond yields“, Thozet said.

All of which would have an aggregate positive impact on European companies‘ earnings.

Deutsche Bank, which has the most optimistic forecasts for 2025, said the earnings recovery in Europe has started, but earnings beats are unlikely to be the main driver for markets as macro forces remain in focus.

Investors also said they would be watching global central banks and the pace at which they ease monetary policy, which could help limit weakness in the economy and spur equity gains.

Money market traders expect the European Central Bank, which sets interest rates for euro-using countries, to lower borrowing costs by about 140 basis points by the end of next year, implying almost six quarter-point rate cuts.

A 25 bps cut is fully priced at its December meeting, with markets assigning around a 35% chance of a larger 50 bps move.

Investors were pricing further easing after a preliminary survey last week showed business activity deteriorated in the bloc this month.

“The slowdown, by generating deflation, will allow the ECB to pursue a more accommodative policy, which will increase the purchasing power of domestic demand and support some growth,” said Marco Vailati, head of research and investments at Cassa Lombarda.

The Euro STOXX 50 index of the euro zone’s 50 largest and most liquid stocks was expected to rise about 5% to 5,047 points, the poll found.

On a regional level, Germany’s DAX is forecast to add nearly 6% by end-2025, with the country set to face a federal election in February after the breakdown of the governing coalition.

Expectations for France’s CAC 40 are slightly more optimistic. The index will rise almost 9% from its current level, survey medians showed.

France’s blue-chip index has struggled in 2024 and is down almost 9% from when President Emmanuel Macron called a snap election in June, underperforming Germany’s DAX which is up almost 5% in that timeframe.

(Other stories from the Reuters Q4 global stock markets poll package)

(Reporting by Samuel Indyk and Danilo Masoni, additional reporting by Lucy Raitano; additional polling by Jaiganesh Mahesh and Rahul Trivedi; editing by Jan Harvey)