Eurozone economy beats estimates in defiance of Trump's trade turmoil

Vehicle production in Spain. Spain proved the stand-out performer through expansion of 0.8%. Photo: Angel Garcia/Bloomberg

The euro-area economy grew more than expected at the end of last year, demonstrating resilience to the trade turmoil unleashed by Donald Trump.

Fourth-quarter gross domestic product rose 0.3% from the previous three months — maintaining the pace it set in the previous period — Eurostat said on Friday ahead of forecasts by economists.

Germany, Italy and Spain all surpassed estimates, with the latter proving the stand-out performer once again through expansion of 0.8%. At 0.2%, meanwhile, France matched forecasts.

Ireland, however, slipped into a recession as the vast multinational sector contracted, driven by a decrease in the industry sector, which includes pharmaceuticals.

However, the data shows the euro bloc is holding up well after the US raised tariffs last year and should see growth of more than 1% in 2026 as a spending splurge hauls Germany out of its long malaise. It’s too soon to sound the all-clear, though, following Trump’s latest trade threats over Greenland and a rally in the euro that could put pressure on exporters.

Inflation

The region can, at least, breathe easier as regards inflation, which is settling around the European Central Bank’s target, keeping interest rates steady at 2%.

Spain said Friday that consumer prices rose 2.5% from a year ago in January — down from 3% the previous month. 

Regional data from Germany suggest its national figure may slightly exceed the 2% estimate, according to Bloomberg Economics, though it won’t stray far from that level.

An ECB poll of euro-area consumers showed inflation expectations over the next 12 months held steady at the end of 2025. 

EU growth

That survey indicated a slightly more positive mood around the economy. Indeed, other parts of the bloc also recorded growth: GDP was up by 0.5% in the Netherlands, 0.2% in Austria, 0.8% in Portugal and 1.7% in Lithuania.

An early indicator pointed to expansion of 0.6% in Finland.

In Germany, household and government consumption drove growth of 0.3% between October and December. Chancellor Friedrich Merz’s outlays on infrastructure and defence should add to momentum as the year progresses — particularly if he can also deliver on promises to slash bureaucracy and boost competitiveness.

The government predicts GDP will rise 1% this year — progress for a country that only narrowly avoided a triple-dip recession in 2025.

Businesses may need more convincing. Confidence remains muted, and while a trade deal between Europe and India opens up new export avenues, it may also draw Trump’s ire.

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Spain’s economy has outperformed its peers for several years, helped by a booming tourism industry and immigration. Its latest growth success was fueled by household consumption, its statistics office said.

While Italy saw trade act as a drag on its economy, that was more than offset by domestic demand, resulting in expansion of 0.3%.

For France, the second half of 2025 was clouded by another government collapse and rows over tax hikes and spending cuts that are needed to rein in a gaping budget deficit.

Fourth-quarter investment, however, increased by 0.2% while consumer-spending growth accelerated to 0.3%. For 2025, GDP rose 0.9% — matching the pace the government was banking on in its budget plans.

Finance minister Roland Lescure said that resilience bodes well for this year. “Business turned up in 2025 with investment and exports,” he told TF1 television. “I hope that in 2026 we’ll at least get the 1% we’re expecting.”

Bloomberg