Economic growth revised downward for Q4 2025

GDP growth eases from Q3: According to a third estimate, the euro area's GDP grew 0.2% on a calendar- and seasonally adjusted quarter-on-quarter basis in Q4, following a 0.3% expansion in the prior quarter. Q4’s reading was revised slightly downward from the 0.3% growth reported in earlier releases, due to a meaningful downward revision to growth in Ireland. On a calendar- and seasonally adjusted year-on-year basis, the economy expanded 1.2% in Q4, following a 1.4% expansion in the prior 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%.

Net exports and inventories weigh on GDP growth: Relative to the previous period's data, readings in Q4 softened for government consumption (+0.5% on a seasonally adjusted quarter-on-quarter basis vs +0.7% in Q3), fixed investment (+0.6% vs +1.3% in Q3), exports of goods and services (-0.4% vs +0.8% in Q3) and imports of goods and services (-0.2% vs +1.8% in Q3). In contrast, the reading for private consumption improved in Q4 (+0.4% vs +0.2% in Q3). Inventories and net exports dragged on GDP growth, as higher U.S. tariffs capped external demand. On the flipside, private consumption rose at a faster pace in the final quarter of 2025, buttressed by stable, near-target inflation, a sustained record-low unemployment rate and improved consumer sentiment. Looking at major euro area economies, France expanded at a softer pace quarter-on-quarter, while sequential GDP growth picked up in Italy, Germany and Spain. Finally, economic growth in the Netherlands remained stable at Q3’s rate.

Middle East conflict darkens outlook: Our panelists expect sequential economic growth to remain close to Q4’s rate in Q1 2026, spearheaded by resilient growth in private spending and fixed investment, which should benefit from low unemployment rates and infrastructure investment, respectively. That said, the conflict in the Middle East and the subsequent surge in oil prices threaten to derail the bloc’s growth. The euro area relies heavily on imported fossil fuels, leaving several major bloc economies vulnerable to energy supply shocks. If crude and natural gas prices stay elevated, inflation could flare up. This would put the ECB in a bind and may force policymakers to raise rates sooner than markets expect. Some panelists have already trimmed their 2026 GDP forecasts, and more downgrades are likely if energy costs remain high.

Panelist insight: Commenting on the outlook, Nomura analysts stated: “We see the euro area recovering, but gradually due to soft consumption and structural weakness. The euro area has proved resilient to last year’s tariffs, while fiscal support from the EU and Germany should be tailwinds further ahead. But rising energy prices pose a challenge. At 2.00%, we believe the ECB is done cutting rates and see hikes in 2028. The risk is tilted towards earlier tightening if energy prices remain elevated.” Nordea analysts commented: “For the eurozone, the ECB assesses that a 20% increase in oil prices could increase inflation by 0.2 to 0.4 percentage points, while GDP growth could be reduced by approximately 0.4 percentage points in the medium term. However, since the euro has strengthened significantly – about 10% against the dollar over the past year – the effect will be at the lower end of the mentioned range. […] It is clear that if the ECB starts raising rates to combat potentially increasing inflation expectations, the impact will be greater on GDP and lower on inflation. It is also clear that these standard multipliers apply to energy prices that are in a 'normal range'. The oil price can become so high that it becomes prohibitive for economic activity, just as it can become so low that a price increase of, for example, 20% will have no or very limited significance for economic activity or inflation.”

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