At the beginning of the current year, the eurozone economy demonstrated growth, the pace of which exceeded preliminary expectations regarding the dynamic of the relevant process, but this system has yet to face the impact of tariffs imposed by the President of the United States Donald Trump, in the plane of practical consequences.
In January-March 2025 gross domestic product (GDP) in the mentioned region increased by 0.4% compared to the figure recorded in the previous three months. The relevant information was published by Eurostat on Wednesday, April 30th. At the same time, analysts interviewed by the media predicted that the eurozone’s GDP for the first quarter of 2025 would show growth of 0.2%.
Data released on Wednesday shows that the specified block of 20 countries has boosted output for five consecutive quarters. The two largest economies in the region, including Germany and France, have returned to their growth trajectory. At the same time, in the relevant context, it is worth noting that the results of business surveys indicate that the situation is not unambiguously positive, especially in terms of the prospects for the further dynamics of the state of affairs in the eurozone. Business is concerned about the very high level of uncertainty associated with Washington’s intentions in the context of the tariff policy. At the same time, these alarming sentiments are compounded by the fact that levies from the United States have already become a fact of economic reality. The uncertainty is related to the potential further growth of tariffs. Brussels and Washington may reach an agreement on the normalization of trade cooperation, but this probability is one of the theoretical possibilities and does not belong to the category of guaranteed scenarios.
European Central Bank Chief Economist Philip Lane said last week that trade tensions are unlikely to be a factor in triggering a recession in the eurozone. At the same time, in the relevant context, it was separately noted that the mentioned circumstance would provoke a decrease in economic growth compared to the preliminary expectations regarding the degree of intensity of this upward process.
Philip Lane and his colleagues are currently considering the possibility of further interest rate cuts. It is worth mentioning that in the current month, the European Central Bank made its seventh decision on lowering borrowing costs as part of the present monetary policy easing cycle. Some officials of the mentioned financial institution expect that tariffs from the United States will become a factor of long-term damage to the eurozone economy. At the same time, most of them continue to be confident that inflation will steadily return to the 2% target in the current year.
In Germany, in January-March 2025, GDP showed growth of 0.2% compared to the previous three months. The relevant information was published by the country’s federal statistics office. It is also worth noting that this data is adjusted for price, calendar, and seasonal variations.
The German GDP growth for the first quarter of 2025 coincided with the preliminary expectations of analysts interviewed by the media. In the fourth quarter of last year, this indicator showed a decrease of 0.2%.
The statistics office stated that German GDP growth in January-March 2025 is because both household final consumption expenditure and capital information were higher than in the previous three-month period.
Carsten Brzeski, global head of macro at ING, said in a note that while acknowledging figures were positive, the quarterly increase is still far too small to end the country’s long-lasting stagnation.
The German economy, which is the largest in the eurozone, has been plunged into a state of stagnation for a long period. During 2023 and 2024, the country’s GDP was a flip-flop between growth and decline. So far, Berlin has managed to avoid a technical recession scenario. This state of affairs is defined as the established situation in the space of economic reality after two consecutive quarters of falling GDP.
Currently, the main sectors of the German economic system, including the automotive industry, are facing such a challenge as increased competition from China. Other industries, including housebuilding and infrastructure, are also going through difficult times. The relevant situation is related to higher costs, muted investment, and bureaucratic hurdles.
The current configuration of the United States tariff policy has generated uncertainty for the German economy, which relies heavily on exports. Moreover, in this context, it is worth noting separately that Berlin perceives Washington as its most important trading partner.
As part of the European Union, Germany faced 20% tariffs on goods exported to the United States. These figures were temporarily lowered to 10%. If during the tariff pause, Brussels and Washington do not agree on the normalization of trade cooperation, the German economy will find itself in the territory of increased pressure from external factors.
It is worth noting that US tariffs on steel, aluminum, and autos also have an impact on Germany. Last week, the government of the country cut its economic outlook. Berlin predicts stagnation in the current year. The outgoing economy minister Robert Habeck said Donald Trump’s trade policies and their impact on the country were the main factors behind the revision of the outlook.
In April, consumer inflation in Germany was 2.2% on an annual basis. This indicator decreased moderately compared to the reading recorded in March. Economists polled by the media predicted that consumer inflation in Germany in April would be 2.1%. The country’s consumer price index, harmonized for comparability across the eurozone, was recorded at the 2.3% mark on an annual basis in March.
The so-called core inflation, which does not take into account food and energy prices, was 2.9% in Germany in April. In March, this figure was recorded at the 2.6% mark.
The closely-watched services print reached 3.9% in Germany in April. In March, this figure was 3.5%.
Energy prices in Germany showed a significant decrease. According to data published by the statistics office, this indicator fell by 5.4%.
It is also worth mentioning that this year Berlin made changes to its long-standing debt brake fiscal rule, enabling higher defense spending, and generating a 500 billion euro ($570 billion) fund dedicated to infrastructure and climate investments. Experts assessed these actions as a positive factor for the German economy. At the same time, much still depends on how the relevant plans of Berlin will be implemented, which have not yet been fully materialized in the space of objective reality.
France’s GDP grew by 0.1% in the first quarter of 2025. This result coincided with the forecast of analysts interviewed by the media. Italy’s GDP grew by 0.3% in January-March of the current year. In this case, the final result exceeded the preliminary expectations.
The GDP of Spain, the Netherlands, Austria, Belgium, and Finland grew in the range from 0.1% to 0.6% for the mentioned period. Ireland’s GDP increased by 3.2% in the first quarter of 2025.
At the same time, the mentioned data does not fully reflect the impact of tariffs from the United States. The main part of the relevant measures of the current configuration of Washington’s trade policy was announced in the first half of April. The eurozone is currently immersed in uncertainty. Any clarity about the future prospects will be formed after the first results on progress in trade negotiations between Brussels and Washington become known. A positive outcome is not guaranteed in this case.
Separate data suggests that France’s sluggish economy is already dragging down inflation. In April, this figure was 0.8%. In March, inflation in France was recorded at the 0.9% mark. The April indicator is the lowest since February 2021. This figure can potentially be interpreted as an argument in favor of further lowering the cost of borrowing by the European Central Bank.
The media, citing analysts, reported that data to be published on Friday, May 2, is currently expected to show that prices in the eurozone rose by 2.1% year-on-year in April. At the same time, the underlying measure, which strips out volatile elements such as energy, is projected to increase by 2.5%.
In France, upheaval caused by the US’s trade threats and U-turns forced the government to cut the economic outlook for 2025. Nowadays, the country’s GDP growth in the current year is expected to be 0.7%. The previous version of the forecast provided that this indicator would increase by 0.9%. With the economy weakening, the French government has taken additional measures on spending cuts in an attempt to rein in the budget deficit.
For Paris, the current situation at the previous stage of its implementation was exacerbated by the political crisis, which delayed the implementation of fiscal measures for 2025. This crisis has also become a factor in growing uncertainty about possible tax increases. Data published in the current week shows that investments from businesses, households, and the public sector decreased in France in the first quarter of 2025. Moreover, there was a 0.7% drop in French exports.
France’s Finance Minister Eric Lombard said at the same time that the country’s economy is on track to meet the growth forecast contained in the budget for 2025. During a conversation with media representatives on Wednesday, he said that Paris is in line to achieve the goal of increasing GDP by 0.7%. Also, in the relevant context, it was separately noted that investment and earnings publications are pointing in the right direction.
As we have reported earlier, US Economy Shrinks.
