EU Upgrades Eurozone 2025 Growth Outlook Despite Challenges

(RTTNews) - The European Commission said the euro area economy is set to grow more than projected in spring this year driven by a surge in exports ahead of anticipated tariff increases and higher investment in equipment and intangible assets.

In the Autumn Forecast released on Monday, the EU raised its economic growth outlook for the current year to 1.3 percent from 0.9 percent. "Continued growth in the third quarter is testimony to the resilience of the European economy and its ability to navigate unprecedented shocks," the EU said.

However, the growth projection for 2026 was lowered to 1.2 percent from 1.4 percent. Real growth is seen at 1.4 percent in 2027.

The EU said the global trade-weighted average tariff rates on US imports are estimated to be higher than assumed in the Spring 2025 Forecast, except for certain countries that have secured trade deals with the US, notably China.

Inflation is forecast to continue its decline in 2025, falling to 2.1 percent, and then hover around the central bank's 2 percent target over the next two years.

The inflation rate is seen at 1.9 percent in 2026 and 2.0 percent in 2027. However, this overall stability conceals varying trends across inflation components, the agency noted.

In the Spring forecast, inflation was projected at 2.1 percent in 2025 and 1.7 percent in 2026.

The euro area general government deficit is set to increase from 3.1 percent of GDP in 2024 to 3.2 percent in 2025, 3.3 percent in 2026 and 3.4 percent in 2027.

Tariffs and high global uncertainty are set to continue to weigh on German investment and exports. After two years of contraction, the German economy is set to broadly stagnate in 2025 and rebound with 1.2 percent GDP growth in 2026 and 2027, the EU noted.

Economic activity in France is set to decelerate to 0.7 percent this year and to grow by 0.9 percent in 2026, as economic and policy uncertainty and the necessary fiscal adjustment weigh on domestic demand. Activity is expected to improve slightly to 1.1 percent in 2027.

Meanwhile, Spain's real GDP growth is expected to remain strong in 2025, at 2.9 percent, moderating gradually afterwards. Real GDP growth is forecast to moderate gradually to 2.3 percent in 2026 and to 2.0 percent in 2027.

Italy's output growth is seen slowing down to 0.4 percent in 2025, with net exports subtracting 0.7 percentage points and domestic demand contributing around 1 percentage point driven by investment. Overall, GDP is forecast to rise 0.8 percent in both 2026 and 2027.