National statistics published on Friday indicate that the euro zone's biggest economies posted measured but steady growth in the last quarter of 2025, driven primarily by stronger consumption and investment that offset weak export performance and ongoing uncertainty tied to erratic U.S. trade policy.
Across the bloc of roughly 350 million people, each quarter of the previous year produced growth that was respectable if unspectacular, even as industry and exports - historically central pillars of expansion - struggled to regain momentum. The data underline the bloc's capacity to absorb external shocks without sliding into recession.
Country-level performance
Spain remained the fastest-growing major economy in the currency area, expanding by 0.8% quarter-on-quarter - comfortably above consensus expectations of 0.6%. Germany, the euro zone's largest economy, also outperformed forecasts with 0.3% quarterly growth versus a predicted 0.2%. France's output increased by 0.2%, matching analyst expectations and easing concerns that political instability would dent activity. Italy recorded 0.3% growth, slightly beating forecasts, while the Netherlands expanded by 0.5%.
The national results suggest that the euro area aggregate figures, scheduled for release at 1000 GMT, will likely be close to economists' projections of 0.2% expansion on the quarter and 1.2% growth compared with the same period a year earlier.
Signs of momentum heading into 2026
Other indicators already point to a reasonably firm start to 2026. A key sentiment gauge published on Thursday rose unexpectedly, a movement largely led by France and Germany and showing broad-based improvements across major sectors. Industrial activity shows tentative signs of stabilisation, households have begun to draw down historically high savings rates, unemployment remains near record lows and inflation is sitting around the European Central Bank's 2% objective.
Prospects for stronger activity are further supported by Germany's planned surge in infrastructure and defence spending. While the rollout of these programmes may be gradual, they are expected to produce measurable contributions to growth beginning in the second quarter. That boost is likely to reverberate across Europe because Germany's industrial demand depends on a wide supplier network spanning the bloc.
Trade headwinds and the domestic growth imperative
Despite the positive domestic picture, exports are unlikely to return to robust growth in the near term. The interaction of U.S. tariffs, tougher competition from China and a weakening dollar over the past year point to a potentially lasting shift in trade patterns. That reality increases reliance on domestic sources of demand and intra-EU trade to sustain expansion.
Economists remain relatively upbeat because consumption still appears to have room to run and intra-EU commerce can help offset some external shortfalls. Most forecasts currently envisage multi-year growth in a band roughly between 1.2% and 1.5%, in line with the bloc's estimated potential.
Monetary policy implications
With inflation near the 2% target, interest rates sitting at what many regard as a neutral setting and growth tracking potential, policymakers describe a notably tranquil configuration for the European Central Bank - a combination some officials regard as central banking 'nirvana'. As a result, market participants are pricing the outlook for steady policy rates through the year, barring fresh shocks that could alter the calculus.
Overall, the data paint a picture of an economy that ended 2025 on solid footing and entered 2026 with reinforced resilience, though structural trade challenges leave an elevated premium on domestic demand and public investment to sustain momentum.