Eurozone economy booms, propelled by standout performances from Ireland and Spain
Economic growth in the Eurozone surpassed estimations, registering a 0.4% increase during the first quarter.
The European economy thrived in Q1 2025, racking up a remarkable 0.4% growth rate, almost tripling the previous quarter's pace and surpassing expectations. This stellar performance serves as a breath of fresh air amidst an era of rampant inflation and steep interest rates, giving policymakers a glimmer of hope.
The growth rate reported by Eurostat on Wednesday offers a strong indication of the economic revival being experienced within the 20-member currency bloc. This impressive pickup marks the fifth consecutive quarter of growth and signals a boost in economic momentum across the continent.
In the face of dizzying inflation and elevated interest rates, the eurozone economy showed remarkable resilience, with the annual GDP expanding by a robust 1.2%. Even more fascinating is the fact that the quarterly expansion doubled the 0.2% growth noted in the final three months of 2024.
The broader European Union economy also experienced growth, albeit at a slightly decelerated pace compared to the previous quarter. Though the GDP increased by a reasonable 1.4% on an annual basis, the rate remained unchanged.
Rising stars: Ireland, Spain, and Lithuania
Among leading countries with available data, Ireland led the pack with GDP skyrocketing by an astounding 3.2%. Spain took second place with a 0.6% expansion, while Lithuania trailed close behind with a similar growth rate.
Germany, the largest economy in the bloc, bounced back from a brief downturn, slotting in a 0.2% growth in Q1 2025. This was just enough to meet analyst expectations following a contraction of 0.2% at the end of 2024.
France, on the other hand, eked out marginal growth of 0.1%, managing to inch above a 0.1% contraction in the prior quarter, though the figure fell short of the anticipated 0.2% growth. Hungary showed a quarterly contraction, shrinking by 0.2%.
Mixed market reaction before key US data
Despite the positive news, financial markets reacted in a muted fashion following the release. The euro held its ground at $1.1370 by 11:20 CET as investors remained cautious, awaiting fresh GDP and inflation data from the U.S. later in the day.
Sovereign bond yields in the eurozone saw only modest changes, with German 10-year Bund yields dropping 3 basis points to 2.46%. European equity markets painted a mixed picture, with the Euro STOXX 50 index falling 0.3% to 5,160 points, weighed down by a decline in Spanish banking shares.
Notable declines were seen in Banco Santander, slipping 4.8%, and BBVA shedding 2.5%, despite the latter reporting revenue that surpassed expectations. Deutsche Bank declined 2% amid concerns about trade tariffs weighing on the outlook, despite a solid earnings beat. The broader banking sector faced pressure, with Caixabank, Crédit Agricole, and Erste Bank dropping 5%, 4.5%, and 4%, respectively.
In stark contrast, Germany's DAX index shone brightly, gaining 0.8%, propelled by strong showings from Deutsche Post, Rheinmetall, and Deutsche Börse, which each rose between 2% and 3%.
Additional insights
Ireland's extraordinary growth of 3.2% can be largely attributed to robust contributions from its volatile sectors, such as multinational activity. Even if Ireland is factored out, the eurozone still expanded by 0.3%. Spain's 0.6% growth denotes a service-sector recovery. While Germany's modest rebound signals lingering industrial weakness, France's stagnant growth mirrors broader demand challenges. The absence of data for Hungary and Lithuania in reports suggests these countries played a minor role in the eurozone's remarkable growth.
While the eurozone's growth exceeded expectations, the full-year 2025 projection remains downgraded to 0.8% (from 0.9%) due to U.S. tariffs. To learn more about the economic landscape in Europe and other regions, check out the links below.
- Power outages in Europe: https://radioschuman.eu/is-europe-at-risk-of-another-power-outage/
- U.S. tariffs impact on the Chinese manufacturing sector: https://www.ft.com/content/dcc0a06c-50c9-4392-bfa4-d8a491f3e876
- EU-U.S. trade relations under the Trump administration: https://www.nytimes.com/2025/03/27/business/europe/trump-autos-tariffs.html
[1]: Data taken from Eurostat reports and Capital Economics analysis.
- The robust growth of the Eurozone economy, stimulated by outstanding performances from Ireland and Spain, has tripled the pace from the previous quarter and surpassed expectations.
- The growth in the European economy is a clear indicator of the economic revival within the 20-member currency bloc, marking the fifth consecutive quarter of growth.
- While Ireland led the pack with a GDP growth of 3.2%, Spain took second place with a 0.6% expansion, indicating a service-sector recovery.
- Despite the positive growth figures, some countries like France and Hungary showed only marginal or even negative growth rates, signaling lingering challenges.
- Investors in the finance industry, including those focused on wealth management and personal-finance, are watching the continued economic trends as potential opportunities for investing in growth industries like real-estate.
- As global commerce evolves, policymakers and business leaders in the Eurozone and U.S. are continuing to navigate U.S. tariffs, which may impact future growth and investment strategies, while also addressing disruptions like power outages and fluctuating trade relations.
