The euro zone economy grew slightly more than expected in the second quarter of 2025, defying fears of a slowdown amid ongoing global trade uncertainty. According to preliminary figures released by Eurostat on Wednesday, gross domestic product (GDP) in the 20-member currency bloc expanded by 0.1% quarter-on-quarter, surpassing analysts’ forecasts of zero growth.
Year-on-year, the economy grew by 1.4%, ahead of expectations for a 1.2% increase. While the data still reflect a sharp deceleration from the 0.6% growth recorded in the first quarter, economists noted that Q1 figures were inflated by US firms accelerating imports ahead of new tariffs, making the latest results a more accurate measure of underlying resilience.
The modest but positive figures suggest that businesses are adapting to shifting global trade dynamics, possibly easing pressure on the European Central Bank (ECB) to make further interest rate cuts. Over the past 13 months, the ECB has halved its benchmark rate to 2% in an effort to stimulate economic activity.
Recent survey data further support the picture of resilience. The latest Purchasing Managers’ Index (PMI) readings showed a faster-than-expected rebound in business activity, led by strength in services and a gradual recovery in the manufacturing sector.
Among member states, Spain led the pack with 0.7% quarterly growth, while France posted a better-than-expected 0.3% increase. Ireland also outperformed. In contrast, Germany and Italy—the euro zone’s first and third largest economies—both contracted by 0.1%, underlining the uneven nature of the recovery.
The euro zone’s outlook has also brightened following the announcement of a new trade deal with the United States. While the agreement includes higher tariffs, economists say the estimated 0.2 to 0.4 percentage point drag on annual growth has already been factored into forecasts. Additional trade agreements with the UK and Japan have added to the sense of stability.
Germany’s plans to significantly increase spending on infrastructure and defence starting next year are also expected to bolster regional growth and help offset tariff impacts.
Still, risks remain. The EU-US trade deal has yet to be formally signed, leaving some uncertainty about its final details and timing. Meanwhile, China’s unresolved trade tensions with the US raise concerns that excess Chinese goods could flood global markets, depressing prices and potentially lowering euro zone inflation.
If inflation trends down again, the ECB could be forced to resume rate cuts—echoing the bloc’s pre-pandemic struggle with below-target inflation.
For now, however, economists see only a 50% chance of one more rate cut by December, with markets cautiously optimistic that rate hikes could return by late 2026 if momentum continues to build.
