Economic growth beats expectations in Q4

GDP growth surprises to the upside: According to a preliminary reading, the euro area's GDP grew 0.3% on a seasonally adjusted quarter-on-quarter basis in Q4, stable from the previous quarter's reading but slightly above market expectations. In working day and seasonally adjusted year-on-year terms, the economy expanded 1.3% in Q4, following a 1.4% expansion in the previous quarter. As a result, the bloc’s economy expanded by 1.5% in 2025 as a whole, marking a three-year high and outpacing its 2010-2024 average growth rate of 1.3%.

Services sector underpins growth: According to the European Central Bank (ECB), economic growth in the quarter was underpinned by the services sector, notably the information and communication subgroups. Moreover, stronger momentum in the construction sector likely aided growth.The full breakdown is due on 6 March, but preliminary data show all of the euro area’s largest economies exceeded expectations—except France—buoyed by stronger domestic demand despite a weakening global backdrop.

GDP growth to ease this year: In the first quarter of 2026, sequential economic growth should hover around Q4’s rate, supported by resilient private spending and accelerating fixed investment. Euro area economic growth is expected to ease in 2026 as a whole from 2025’s pace, as private consumption and investment cool and higher U.S. tariffs weigh on exports. The slowdown should be cushioned by a tight labor market, increased infrastructure and defense spending, and the lagged impact of earlier interest rate cuts.

Panelist insight: Commenting on the outlook, analysts at Berenberg stated: “Europe’s industrial sector is facing stiff headwinds from abroad. With exports to the U.S. and China declining, growth will need to be driven by domestic demand. Support comes from reform progress in southern Europe and Germany’s fiscal impulse, while low ECB interest rates and a resilient labor market are also providing a lift. We expect the euro-area economy to grow broadly in line with its trend […] in 2026. Overall, the outlook for 2026 is moderate, but not unfavorable.”

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