Eurozone Cautious Despite Growth Surpassing Expectations in Q1

The Eurozone economy showed surprising strength in the first quarter of 2025, growing by 0.4%.

This marks an acceleration from the 0.2% growth seen in the previous quarter and exceeded market forecasts, which had anticipated a more modest 0.2% increase. This solid performance was largely influenced by improved domestic demand, supported by easing inflationary pressures and lower interest rates.

More support came from renewed confidence across the region, particularly after Germany's decision to ease fiscal rules, allowing for more public spending. Expectations of increased defense budgets across the Eurozone also contributed to the stronger momentum. These positive factors helped offset ongoing concerns surrounding U.S. trade policies and tariff-related uncertainties.

However, despite this encouraging start to the year, a note of caution still hangs in the air regarding the future economic outlook. The upcoming arrival of new U.S. tariffs is predicted to create volatility for EU exports, and heightened uncertainty could well put a damper on both investment and consumer spending in the quarters to come.

Across individual member states, the pace of growth varied. Germany experienced a 0.2% expansion, while Spain and Italy showed stronger growth at 0.6% and 0.3% respectively. In contrast, France and the Netherlands recorded more moderate growth rates of just 0.1% each.

Source: Eurostat

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