EU GDP Growth Revised Up, Inflation Expected to Drop

The Eurozone economy expanded 1.5% in 2025, up from 0.9% in 2024 and exceeding the European Commission’s projection of 1.3%. Economic activity was supported by resilient household consumption, benefiting from lower borrowing costs and easing inflation, a surge in exports to the US as companies stocked up ahead of tariffs under the Trump administration, and stronger-than-expected investment in both equipment and intangible assets. Looking ahead, both the European Commission and the ECB expect growth to moderate to 1.2% in 2026, amid ongoing geopolitical tensions and trade policy uncertainty, before rebounding slightly to 1.4% in 2027.

The European Commission has upgraded its growth forecast for the Eurozone economy in 2025 to 1.3%, up from 0.9% projected in its spring forecasts, according to the Autumn update. Growth is then expected to slow slightly to 1.2% in 2026, before rising to 1.4% in 2027. The EC noted that economic activity exceeded expectations in the first nine months of the year, supported by a surge in exports to the US as companies stocked up ahead of Trump’s tariffs, and stronger-than-expected investment in equipment and intangible assets. Among major Eurozone economies, Germany is projected to grow 0.2% in 2025 (up from -0.2%), rebounding to 1.2% in 2026 and 2027. France is expected to expand 0.7% this year (down from 1.2%), rising to 0.9% in 2026 and 1.1% in 2027. Spain will outperform with growth of 2.9% in 2025, 2.3% in 2026, and 2.0% in 2027, while Italy is set to grow 0.4% in 2025, and 0.8% in 2026 and 2027.

The Euro Area economy is projected to grow by 0.9% in 2025 and 1.4% in 2026, down from 1.3% and 1.6% respectively forecasted last autumn, according to the European Commission’s Spring outlook. The downgrade is primarily attributed to the impact of rising tariffs and increased uncertainty stemming from recent abrupt shifts in US trade policy. On the inflation front, disinflation is now expected to proceed more rapidly than previously anticipated. Inflation in the Eurozone is projected to ease to 2.1% by mid-2025, reaching the ECB’s target earlier than previously expected, and to decline further to 1.7% in 2026, down from the 1.9% projected in the autumn. For Germany, the bloc’s largest economy, the Commission expects economic activity to broadly stagnate in 2025. Heightened trade tensions are set to weigh heavily on exports, though private consumption is expected to rise modestly. Investment is likely to remain flat this year. However, growth is expected to rebound to 1.1% in 2026.