Expansion observed in Eurozone economy, yet potential impact of tariffs lingers
The Eurozone economy has shown resilience in the face of trade tensions and tariff hikes, with the region's GDP growing by 0.1% in the second quarter of 2025. This growth was unexpected, as analysts had predicted a stagnant 0.0% growth for the quarter [1].
France, the second-largest economy in the Eurozone, beat expectations with a growth of 0.3% in the second quarter. Economy Minister Eric Lombard attributed this growth to the resilience of French companies in the face of U.S. tariff hikes [2]. Germany, on the other hand, unexpectedly shrank by 0.1% from the previous quarter [3].
Italy's economy also contracted by 0.1% in the same period, mirroring Germany's performance [3]. However, Spain was the star performer, recording growth of 0.7% between April and June [4]. This growth bodes well for Spain's future, as the country shifts towards high-value-added services beyond just tourism [5].
The Eurozone's growth comes despite the ongoing trade tensions and U.S. tariff hikes. Europe's second-largest economy, France, has been actively working to mitigate the impact of these tariffs. French companies have been rushing to ship more goods in the first half of the year to avoid higher U.S. tariffs, and France is pushing for zero tariffs on alcohol including champagne and wines as well as spirits in ongoing talks with the U.S. [2].
The EU has reached an agreement with the U.S., which includes a majority of EU products facing a 15-percent tariff rate, including pharmaceuticals and semiconductors [6]. However, the specific goods that will be exempt from tariffs under the bilateral tariff exemptions have yet to be determined [7].
Economists predict that the deal will inflict some damage on the Eurozone economy, potentially subtracting around 0.2% from the region's GDP [8]. Despite this, the outlook for the Eurozone economy following the EU-U.S. trade agreement is cautiously optimistic, with a forecast of a modest recovery in 2025 with growth between 0.9% and 1.3% [9]. The direct impact of the trade deal is not yet clearly reflected in growth projections, and some risks remain.
The Eurozone economy is expected to see GDP growth rise from about 0.7%-0.9% in 2024 to between 1.0% and 1.3% in 2025, with further moderate expansion anticipated in 2026 (around 1.3% to 1.8%) before growth slows somewhat in 2027 [9]. Inflation in the region is expected to remain slightly above 2%, prompting continued European Central Bank (ECB) support through potential rate cuts to stimulate growth [1][2]. The IMF recently raised its 2025 growth forecast for the Eurozone from 0.8% to 1.0%, although it cautioned that the new EU-U.S. trade deal had not yet significantly influenced this outlook [4].
In conclusion, the Eurozone economy is projected to modestly recover overall in 2025 and beyond, with some country-level divergence. Southern economies like Spain are notably outperforming, while France and Germany maintain steady but slower growth and labor market conditions. The impact of the new EU-U.S. trade agreement appears to be limited so far, with growth forecasts largely reflecting pre-existing trends and ongoing monetary policy support [1][2][3][4].
References:
- Bloomberg
- FactSet
- Eurostat
- IMF
- European Commission
- The Guardian
- Reuters
- The Financial Times
- European Central Bank
Despite the ongoing trade tensions and U.S. tariff hikes, the French finance industry has been proactive in mitigating the impact, with French businesses expediting shipments during the first half of the year to dodge higher U.S. tariffs [2]. The business sector in France, being the Eurozone's second-largest economy, has played a significant role in the region's GDP growth, contributing to a resilient Eurozone economy.
