Economic growth picks up in the third quarter of 2025

GDP growth revised upward: According to a detailed release, the euro area's GDP grew 0.3% in seasonally and calendar-adjusted quarter-on-quarter terms in Q3, following a 0.1% expansion in the previous quarter. The print came in slightly above the 0.2% growth penciled in by the preliminary estimate. In working day and seasonally adjusted year-on-year terms, economic output grew 1.4% in Q3, following a 1.6% expansion in the previous quarter.

Fixed investment drives the acceleration: Compared to the previous quarter's data, figures in Q3 improved for government consumption (+0.7% in seasonally adjusted quarter-on-quarter terms vs +0.4% in Q2), fixed investment (+0.9% vs -1.7% in Q2), exports of goods and services (+0.7% vs -0.4% in Q2) and imports of goods and services (+1.3% vs -0.1% in Q2). In contrast, the reading for private consumption softened in Q3 (+0.2% vs +0.3% in Q2). The domestic sector was the main driver of growth, with fixed investment rebounding on the back of recent ECB interest rate cuts. Moreover, inventory buildup added impetus. In contrast, net exports detracted from the reading, as U.S. tariffs weighed on the external sector. Looking at key economies, France, the Netherlands, Italy and Germany posted stronger readings compared to the prior quarter. In contrast, Spain’s economy lost some steam, despite expanding at the fastest pace among major euro area economies.

U.S. tariffs to drag on economic growth: Sequential economic growth is expected to inch down from Q3’s level in Q4, dragged on by softer export growth due to U.S. tariffs. That said, private spending is expected to rise at a faster pace, bolstered by stronger consumer sentiment. Looking further ahead, year-on-year economic growth is expected to edge down from 2025’s projected level in 2026, as U.S. protectionism will likely continue to drag on the bloc’s expansion. However, past ECB rate cuts, Germany’s fiscal stimulus and lower inflation should provide tailwinds.

Panelist insight: Commenting on the outlook, analysts at Nomura stated: “We forecast euro area GDP growth to increase gradually and reach its pre-pandemic trend rate of 0.4% q-o-q by mid-2026 owing to domestic demand, with a marginal offset from net trade as US trade policy continues to weigh on the euro area economy. From H2 2026 and onwards, we expect Germany’s fiscal bazooka to meaningfully add to euro area GDP growth. Importantly, we believe the fiscal stimulus will more than offset the hit to GDP growth from US trade policy.”

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