EU to see GDP growth of 1.1%, euro area 0.9% in 2025: Spring Forecast

EU growth is likely to rise to 1.5 per cent in 2026, backed by continued consumption growth and a rebound of investment. Growth in the euro area is projected to reach 1.4 per cent in 2026.

Exports from the EU are expected to grow by a modest 0.7 per cent this year and by 2.1 per cent in 2026, in line with the lower global demand for goods, the Forecast notes. This marks a significant downward revision from the autumn projections—at 2.2 per cent and 3 per cent respectively.

Weakness in exports is amplified by competitiveness losses, as well as heightened trade uncertainty.

Although EU firms are adapting their trade strategies in response to geopolitical tensions and trade fragmentation, many might hesitate to bear the high fixed costs associated with product adaptation, regulatory compliance and finding new distribution networks, necessary to enter new export markets, the Forecast says.

Growth in imports was also revised down, in line with lower export growth and weaker domestic demand, although the re-routing of some Chinese exports and the euro's appreciation lend some support to import growth.

Consequently, in 2025, net external demand is set to subtract nearly 0.5 per cent from growth, but this drag is expected to fade in 2026, the Spring Forecast says.

Despite adverse trade volume developments, the sharp drop in energy commodity prices, cheaper industrial goods imports and a stronger currency will enhance the terms of trade further. These movements in terms of trade help maintain a largely unchanged inflow of income from the rest of the world.

Disinflation is anticipated to proceed more swiftly than expected in autumn, with new disinflationary factors from ongoing trade tensions outweighing higher food prices and stronger short-term demand pressures.

After averaging 2.4 per cent in 2024, headline inflation in the euro area is expected to meet the European Central Bank (ECB) target by mid-2025—earlier than previously anticipated—and to average 1.7 per cent in 2026. Starting from a higher level in 2024, inflation in the EU is projected to continue easing to 1.9 per cent in 2026.

The current account surplus is expected to fall only slightly from 4.4 per cent of GDP in 2024 to 4.2 per cent in both this year and the next.

Following a 1.9-per cent contraction in 2024, EU gross fixed capital formation is expected to expand over the forecast horizon. With a growth rate of 1.5 per cent in 2025 and 2.4 per cent in 2026, the expected rebound and acceleration are significantly less pronounced than projected in autumn.

As the labour force expands more modestly, the EU unemployment rate is projected to decline to a new historic low of 5.7 per cent in 2026. Tight labour markets and improving productivity are set to drive further wage growth.

After increasing by 5.3 per cent in 2024, growth in nominal compensation per employee is expected to slow to 3.9 per cent in 2025 and 3 per cent in 2026.

On aggregate in the EU, this year, real wages should fully recover the purchasing power losses accrued since mid-2021, though in a few member states the recovery in real wages is still lagging behind, the report adds.

Fibre2Fashion News Desk (DS)