Volkswacht Bodensee - Eurozone growth beats 2025 forecasts despite Trump woes

Europe is working to close the gap with economic rivals China and the United States, and spiking tensions with President Donald Trump's administration over trade have created added impetus to bolster its competitivity.

Last year's uptick in the single-currency area's economy builds on the modest 0.9 percent expansion recorded in 2024, after an anaemic 0.4 percent a year earlier.

Analysts at Bloomberg had forecast growth to be 1.4 percent, while the European Commission itself predicted 1.3 percent.

Quarter-on-quarter growth for the eurozone reached 0.3 percent in the last three months of 2025, according to statistics agency Eurostat.

"Accelerating growth in Germany, Spain and Italy, to a lesser extent, made up for slow growth in France," said ING chief economist Bert Colijn.

The eurozone ended the year with "decent economic growth despite significant uncertainty and economic tension," he wrote.

Data released Friday in Germany showed its economy grew faster than expected at the end of 2025, expanding 0.2 percent over the year, suggesting a recovery is gathering pace in Europe's struggling industrial powerhouse.

But annual growth in the eurozone's second-biggest economy France slowed to 0.9 percent, national data showed, impacted by a disappointing fourth quarter as the government wrestled with passing a new budget.

Spain's economy meanwhile grew at more than twice the eurozone average last year, expanding 2.8 percent, fuelled by strong consumer demand, rising exports and robust tourism.

The eurozone's fourth-largest economy has outshone its peers since 2021, supported by low energy costs, domestic consumption and a tourism boom since the end of the Covid pandemic.

Analysts at Capital Economics said they expected Spain to "continue to outperform for some time as high immigration boosts employment and domestic demand."

Spain's left-wing government credits immigration for much of the country's dynamic economic growth of recent years, and has recently moved to regularise around 500,000 undocumented migrants.

- 'Upbeat' -

ING's Colijn said the eurozone-wide outlook for 2026 was "becoming more upbeat", with industrial production expected to benefit from defence investments and German infrastructure spending in particular.

He predicted "accelerated growth over the coming quarters," noting that even a "modest" pickup would be something to celebrate given the "significant turmoil" in international relations.

But he warned other factors were set to keep dragging on growth, from the uncertain global environment to a loss of competitiveness across the eurozone.

"These broader structural concerns are not being addressed quickly enough at the moment, which curbs longer-term prospects," he said.

Across the broader 27-country European Union, the economy expanded by 1.6 percent last year, the data showed.

EU leaders will hold talks on competitiveness next month in Belgium as the bloc seeks to revive its economy and foster innovation.

The bloc's competitiveness push has produced mixed outcomes so far, according to an annual assessment published Friday by the European Commission, which is pushing for stepped-up action.

Of a broad set of indicators examined in the report, six showed declines, six improved and 15 remained broadly unchanged.

Areas showing improvement ranged from the use of artificial intelligence by businesses to renewable energy production and the mutual recognition of diplomas and professional qualifications across member states.

By contrast, the share of intra‑EU trade in the bloc's economy showed a decline, as did private investment levels and European students' results in the PISA international education survey.

P.Keller--VB