Volkswacht Bodensee - Eurozone economy grows more than expected despite US tariff turmoil

The EU's official data agency said the 20-country single currency area recorded growth of 0.4 percent over the January-March period from the previous quarter.

The figure was higher than the 0.2 percent forecast by analysts for Bloomberg, and comes after the eurozone economy grew by 0.2 percent in the final quarter of 2024.

The 27-country European Union economy expanded by 0.3 percent, after 0.4 percent between October and December.

The better-than-expected data appears to be linked to advance purchases in the United States, before Trump's tariffs came into effect.

But for the year as a whole, the outlook remains lacklustre, according to experts.

Trump on April 2 slapped sweeping 20 percent levies on a majority of European goods before announcing a 90-day pause, but a worldwide 10-percent levy rate remains.

If Brussels and Washington fail to reach an agreement, the higher tariffs will kick in, unleashing chaos and a painful trade war for Europe.

But Trump's 25-percent tariffs on steel, aluminium and auto imports also remain.

"The economy started the year on a stronger footing than we expected and activity surveys suggested," said Franziska Palmas, senior Europe economist at London-based Capital Economics.

"Nevertheless, we still expect growth to slow sharply in the next six months as the US tariffs introduced in April will hit activity and any boost from German fiscal stimulus will mostly be felt next year," Palmas added.

- Faster German expansion -

Several European companies shipped a larger number of goods at the start of the year to avoid Trump's higher tariffs.

For example, Ireland's exports to the United States jumped 210 percent in February to nearly 13 billion euros ($14.8 billion), with 90 percent of those being pharmaceutical products and chemical ingredients.

The eurozone's strong performance in the first quarter "is partly due to the 3.2 percent q/q increase in GDP in Ireland, where GDP tends to be very volatile and the boost from front-running of US tariffs is likely to have been quite big", Palmas said.

Europe has been mired in stagnation for two years, held back especially by soaring energy costs following Russia's invasion of Ukraine in 2022.

The International Monetary Fund this month cut its annual growth forecast for the eurozone by 0.2 percentage points to 0.8 percent in 2025, as it expects trade tensions with the United States to hurt Europe.

Among the major economies, Spain stood out with growth of 0.6 percent in the first quarter compared to the previous three-month period.

But France, hampered by political instability and a planned austerity programme, weighed down the eurozone, with growth of only 0.1 percent between January and March.

Germany, Europe's biggest economy, also grew more than expected, by 0.2 percent in the first quarter of the year compared to the previous quarter.

O.Schlaepfer--VB