Euro Area: Economic growth rises in the third quarter of 2025
GDP growth beats market estimates: According to a preliminary reading, the euro area’s GDP increased 0.2% in seasonally adjusted quarter-on-quarter terms in Q3, following a 0.1% expansion in the prior quarter. The print marginally exceeded economists’ forecasts, underscoring resilient momentum after the export-frontloading boost seen in the first half of the year.
On a working day and seasonally adjusted year-on-year basis, GDP expanded 1.3% in Q3, following 1.5% growth in the previous quarter.
Services and tourism boost GDP growth; manufacturing drags: According to the European Central Bank (ECB), the services sector continued to expand, driven by robust tourism and a surge in digital activity; the latter, according to survey data, stemmed from companies upgrading their IT systems and adopting artificial intelligence. That said, manufacturing lost ground, weighed down by higher tariffs, lingering economic uncertainty, and a stronger euro.
Looking at the key euro area economies, Spain and France grew more than expected in Q3. At the other side of the spectrum, Germany and Italy stagnated amid headwinds stemming from U.S. tariffs.
GDP growth to remain resilient: In the last quarter of 2025, sequential economic growth should hover around Q3’s rate, supported by an expansion in private spending and a rebound in fixed investment.
In 2026, the euro area economy is set to expand at a slightly weaker pace vs 2025’s projected level.
Growth of private spending and fixed investment is projected to decelerate, and higher U.S. tariffs are set to push down export growth.
That said, limiting the slowdown, private spending is expected to benefit from tight labor market conditions, and government expenditure should be aided by infrastructure and defense outlays; finally, past interest rate cuts are set to support fixed investment.
Panelist insight: Commenting on the outlook, Nomura analysts stated:
“We expect the euro area economy to recover only gradually in the near term due to soft consumption and structural weakness. We believe US tariffs remain an important short-term headwind, whereas fiscal announcements from the EU and Germany will be tailwinds further ahead.”