Eurozone GDP saw a modest increase of just 0.1 percent in the second quarter of 2025, a decline from 0.6 percent in the first quarter, as both Germany and Italy entered contraction. Spain emerged as the leader in growth at 0.7 percent, while France delivered a surprising 0.3 percent growth.
After a robust start to the year, the eurozone economy began to lose momentum in the second quarter of 2025, with new data indicating a clear deceleration. Germany, the bloc’s economic engine, fell back into contraction, while Spain continued to outperform its counterparts.
According to the preliminary flash estimate released on Wednesday, the seasonally adjusted gross domestic product (GDP) rose by 0.1 percent in the eurozone and by 0.2 percent in the European Union in the second quarter of 2025 compared to the previous quarter.
Growth exceeds expectations despite slowdown
While this figure slightly exceeded economists’ expectations of flat growth, it represents a major slowdown from the 0.6 percent and 0.5 percent expansions recorded in the eurozone and EU, respectively, in the first quarter.
On a year-on-year basis, growth also moderated slightly, with the eurozone increasing by 1.4 percent and the EU by 1.5 percent, both figures a bit below the pace observed earlier in 2025.
The slowdown was not uniform across the continent. Spain distinguished itself with the strongest quarterly growth at 0.7 percent, fueled by strong consumer spending, a rebound in business investment, and rising exports.
“Spain is in another league, showing robust dynamism. The moderate Q2 decline in Irish GDP suggests that there is ample room for further correction,” Marcelli Fabiani added.
Portugal and Estonia also posted solid results, expanding by 0.6 percent and 0.5 percent, respectively.
Calm market reactions to economic data
Germany contracted by 0.1 percent, marking the end of a period of modest growth. This contraction was primarily due to weaker investment in machinery and construction, although household and government spending continued to provide some support.
Italy’s GDP saw a contraction of 0.1 percent in the second quarter, reversing the 0.3 percent gain recorded in the first quarter and defying market expectations of a 0.2 percent increase. This represented the country’s first contraction since the second quarter of 2023, reflecting weak domestic demand and a softening industrial sector.
On a positive note, France’s economy outperformed expectations, with GDP rising by 0.3 percent—the best result in nearly a year—supported by stronger domestic demand.
Financial markets reacted calmly to the data, with eurozone assets stabilizing after recent volatility linked to the U.S.-EU trade deal, which analysts largely view as favoring Washington over Brussels.
The euro held steady at $1.1550, showing a slight recovery after experiencing its most significant two-day drop since February 2023. The EURO STOXX 50 index edged up by 0.1 percent, while the broader EURO STOXX 600 remained flat.
Modest GDP growth projections by ECB
The European Central Bank’s (ECB) macroeconomic projections published in June 2025 suggest that eurozone GDP growth will remain modest this year and next, with forecasts pointing to annual expansion of approximately 1.2 percent in 2025 and a slight acceleration to around 1.5 percent in 2026. Inflationary pressures are expected to ease further, enabling the ECB to maintain a steady monetary policy stance.Â
According to Eurostat’s latest comprehensive data set, investment activity in the eurozone remains fragile, especially in Germany and Italy, where industrial confidence indicators have declined amid global supply chain disruptions and cautious business sentiment. Consumer confidence, however, held firm in southern European countries like Spain and Portugal, supporting resilient private consumption numbers.
The International Monetary Fund (IMF), in its World Economic Outlook update released in April 2025, highlighted downside risks for the eurozone’s economy, citing geopolitical tensions, energy price volatility, and slower-than-expected global trade growth as potential dampeners. The IMF projected eurozone GDP growth of 1.3 percent in 2025, with uneven performance across member states.Â
Investor confidence in eurozone equities
On the financial markets side, the stability in eurozone equities following the U.S.-EU trade deal partly reflects investor confidence that the agreement will foster trade and investment despite perceptions that the terms favor the U.S. The European Securities and Markets Authority (ESMA) reported stable capital inflows into European equities in Q2 2025, supporting muted volatility during the period.
Further structural challenges for the eurozone include demographic shifts and productivity growth concerns, as analyzed by the European Commission’s 2025 Economic Forecast, reinforcing the need for continued reforms and investment in innovation sectors to sustain long-term growth.
In summary, while the second quarter of 2025 saw a softening of eurozone GDP growth with notable underperformance by Germany and Italy, countries like Spain and France are driving pockets of dynamism. The outlook remains cautiously optimistic, supported by moderate inflation, steady consumer spending, and an environment of resilient financial markets, yet subject to ongoing geopolitical and economic risks.
