Euro area GDP annual growth rate tops estimates

The GDP in the Euro Area grew by 1.4% year-on-year in the second quarter of 2025, according to the preliminary flash estimate released by Eurostat.

While this marked a slight deceleration from the 1.5% expansion seen in Q1, it surpassed market expectations of 1.2%, suggesting that the bloc's economy has retained some resilience amid a challenging global environment.

The quarterly performance reflected modest domestic demand, marginal improvements in services activity, and a slight pickup in industrial output in select economies.

Among the member states with available data, Ireland stood out as the clear outlier, posting a staggering 16.2% annual growth—primarily attributed to the volatile performance of multinational corporations in sectors such as pharmaceuticals and technology, which often inflate headline GDP figures. Excluding Ireland, regional growth would appear significantly more subdued.

Lithuania followed with a respectable 3% increase, while other southern European economies like Spain (2.4%) and Portugal (1.9%) outperformed the Eurozone average, helped by robust tourism revenues and improving consumer sentiment.

The Netherlands (1.5%) and Belgium (1%) also posted solid gains, while France managed a modest 0.7% expansion, as it continued to face headwinds from weak consumer spending and industrial stagnation. At the lower end of the spectrum, Estonia and Finland both reported 0.5% growth, while the Eurozone’s two largest economies—Germany and Italy—eked out meager gains of just 0.4%, weighed down by weak manufacturing activity and ongoing structural challenges.

Germany, in particular, continues to grapple with a downturn in industrial exports and a sluggish construction sector, both of which have been compounded by geopolitical uncertainty and tighter financial conditions.

Looking ahead, the European Central Bank (ECB) maintains its forecast for Eurozone growth at 0.9% for the full year, though downside risks persist. One of the most pressing concerns is the recent trade agreement between the US and EU, which—despite being framed as a resolution to escalating tensions—includes a controversial 15% tariff on a broad range of European goods exports.

While the deal aims to prevent further deterioration in transatlantic trade ties, many of its provisions remain vague, and its potential economic fallout has yet to be fully quantified.

Businesses across the bloc have voiced strong opposition, arguing that the agreement disproportionately benefits US firms while placing undue burden on European exporters already contending with high energy prices and regulatory costs.

If implemented in its current form, the tariff regime could weigh heavily on export-oriented economies, particularly Germany, France, and Italy, further complicating the ECB’s path toward stabilizing inflation and supporting growth. As such, the coming months will be critical for policymakers and businesses alike, as they navigate an increasingly uncertain external environment and seek clarity on the direction of trade and monetary policy.