Economic growth edges up in the first quarter

Momentum strengthens: According to a preliminary estimate, GDP growth surprised markets on the upside in Q1, clocking 0.4% on a seasonally adjusted quarter-on-quarter basis, up from 0.2% in the fourth quarter of last year. On an annual basis, economic growth was stable at 1.2% in Q1, marking the joint-best result since Q1 2023.

Germany and France bounce back: Looking at the Euro area’s largest economies, Germany’s rebounded thanks to improvements in private spending and total investment. In addition, the French economy bounced back, though it was solely due to stockbuilding, potentially in anticipation of greater U.S. tariffs. Moreover, the Italian economy gained steam due to sturdier domestic demand. Meanwhile, Spain grew at a softer pace than in Q4 due to smaller expansions in private spending and fixed investment. Nonetheless, the country remained the fastest-growing among large Euro Area economies. Lastly, the Irish economy—highly volatile due to the prominence of multinational companies—contributed 0.1 percentage points to overall Euro area growth, likely due to export front-loading efforts ahead of U.S. tariffs.

Momentum to soften ahead: Our panel expects GDP growth to remain below Q1’s level in Q2 and the remainder of the year. Exports will be dampened by higher U.S. tariffs. Moreover, heightened uncertainty regarding U.S. trade policy and its impact on the economy will cap private spending and fixed investment in the near term. Accordingly, GDP growth over the year as a whole will likely remain well below its 10-year pre-pandemic trend. That said, ongoing ECB monetary policy easing should boost investment activity in H2.

Panelist insight: ING’s Peter Vanden Houte commented: “In today’s world, first quarter GDP figures are already ancient history and do not provide much insight into future performance. April's initial data already shows a notable decline in confidence. Our base scenario anticipates a negative impact from net exports, weaker consumption growth due to a rising savings ratio, and stagnant investment caused by increased uncertainty. This is expected to result in two quarters of near-stagnation before growth resumes in the fourth quarter. For the entire year, average GDP growth will benefit from a strong first quarter, but even then, overall growth for 2025 is likely to reach 0.7% at best.”

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