December 2025 EUROPEAN GROWTH OUTLOOK
Investments on hold Growth in Europe set to remain moderate in 2025 and 2026
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Euro area on moderate growth path despite intensified global competition: Foreign trade is under great pressure despite the tariff compromise reached with the United States. The appreciation of the euro and diversion effects in global trade are increasing the strain on European companies. We expect the euro area to grow by around 1.2 percent in 2025 and 1.1 percent in 2026, mainly on the back of domestic consumption.
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Fiscal impetus concentrated with limited impact overall: Germany is the biggest generator of impetus in the euro area with extensive infrastructure and defence spending. Many other member states are curbing their spending due to pressure to consolidate their finances resulting in a largely neutral fiscal stance overall.
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Investment agenda remains central challenge: Defence spending is clearly on the increase and there have been some positive announcements recently regarding investments in the digital sector. Overall, investment ratios in the EU nonetheless continue to be slightly downward. The implementation of Mario Draghi’s proposed investment agenda is still highly doubtful with first indicators showing that the expansion of private and public investment is falling well short of the mark.
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Strengthening drivers of growth: Recovery in the euro area remains subdued with growth potential too low to secure competitiveness in the long term. Europe must improve its investment environment, strategically align the EU budget towards forward-looking projects, deepen the internal market and resolutely implement structural reform. Progress in innovation, digitalisation and industrial resilience as outlined in the Draghi report and the EU Competitiveness Compass is needed now. Declarations of intent are no longer enough; concrete action is overdue.
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