The Eurozone economy closed 2025 with growth of 1.5%, higher than forecasts by the European Commission (1.3%) and Bloomberg (1.4%). In the fourth quarter, the Eurozone recorded growth of 0.3%, the highest level in more than two years. Spain led with growth of 0.8%, exceeding the expected 0.6%. Germany grew by 0.3%, above forecasts, while France recorded growth of 0.2%, despite political uncertainty.
The Eurozone’s growth momentum was driven mainly by the services sector, offsetting the contraction in manufacturing. The services sector is forecast to continue moderate growth in 2026, while manufacturing could benefit from demand for defence equipment and construction machinery, helping the regional economy grow by over 1%, albeit at a modest pace. Expansion in services has also supported the labour market, with job creation reaching its fastest pace in 16 months.
The recovery of the Eurozone economy has raised expectations for 2026, as business sentiment improved alongside the rebound of the two largest economies, Germany and France. Despite pressures from trade tensions with the US, intensifying global competition, and military instability along the eastern border, the region’s outlook has been bolstered by Germany’s large-scale spending plans for infrastructure and defence, generating positive spillover effects.
The Eurozone has also recorded a number of favourable signals, including a more stable industrial sector, unemployment at a record low, rising household spending, and inflation approaching the European Central Bank’s (ECB) 2% target. With inflation close to target, interest rates at moderate levels, and growth prospects relatively positive, the ECB has room to maintain a stable monetary policy stance in 2026, unless unexpected shocks emerge.
Alongside these positive signs, the Eurozone economy continues to face multiple risks. Export activity in the period ahead may remain under pressure due to the impact of US tariff policies, intensifying competition from China, and the weakening of the US dollar over the past year.
In the labour market, employment growth across the region in December 2025 rose only slightly from the previous month, as job cuts in the manufacturing sector continued. In addition, concerns persist over the risk of a renewed rise in inflation amid unpredictable factors. The level of uncertainty in the economic environment remains high as global trade policies continue to fluctuate.
Despite mounting pressures, the European economy has maintained its growth momentum, demonstrating the region’s resilience. Economists forecast Eurozone growth in the coming years to range between 1.2% and 1.5%.
However, political uncertainty and the risk of escalating trade retaliatory measures continue to cast a shadow over the economic outlook, potentially constraining growth. In an increasingly unpredictable international environment, European countries need to accelerate reforms to strengthen internal resilience and seek new growth drivers, with domestic consumption and intra-regional trade expected to offer considerable room for further development.
