Eurozone Growth Outpaces Forecasts but Faces Trade Headwinds

Eurostat reported that the eurozone economy grew by 0.4% in the first quarter of 2025, surpassing the 0.2% forecast and doubling the previous quarter’s pace.

This marks the fifth straight quarter of expansion and offers a modest boost for business sentiment across the 20-nation currency bloc. The wider European Union also grew, with GDP rising by 0.3% over the same period.

Ireland led the growth table with a 3.2% surge, largely due to the activity of multinational corporations. Spain and Lithuania each posted 0.6% growth, while Italy expanded by 0.3%.

Germany, Europe’s largest economy, reversed its prior contraction and posted 0.2% growth. France and the Netherlands both recorded smaller gains of 0.1%. Hungary was the only member state to see a decline, with GDP falling by 0.2%.

Despite these headline numbers, underlying economic trends remain fragile. Much of the first quarter’s growth came from higher exports to the United States, as European firms rushed shipments ahead of new U.S. tariffs that took effect in April.

Eurozone Growth Faces Challenges Amid Trade Tensions

Analysts say this frontloading effect offered a temporary lift and warn that the true impact of the tariffs will emerge in the coming months. The European Central Bank projects eurozone growth for the full year at around 0.9%.

However, most forecasts now expect a sharp slowdown in the second and third quarters, with growth possibly stalling or dipping close to zero. The ECB and other institutions cite ongoing trade disputes, weak investment, and subdued consumer demand as key risks.

Germany’s planned fiscal stimulus may help later in the year, but economists do not expect it to offset the drag from trade tensions in the short term. Meanwhile, Spain’s strong start could be dampened by a recent power outage, which analysts estimate might trim up to 0.4% from its second-quarter GDP.

Annualized, the eurozone economy grew by 1.2% in the first quarter, while the EU as a whole expanded by 1.4%. The figures highlight persistent regional disparities, with southern and smaller economies outperforming the core, but the bloc as a whole remains vulnerable to external shocks and policy uncertainty.