In the euro area, the economy remains subdued, with only moderate growth rates. After a relatively strong increase in economic output of 0.6 percent in the first quarter of 2025, the economy expanded by only 0.1 percent in the second quarter. While private — and especially public — consumption supported overall economic expansion, investment development was worryingly weak. Exports declined in the second quarter after strong increases in the first quarter, prior to the U.S. tariff hikes.

As usual, individual countries show heterogeneous developments. While the economy continues to struggle mainly in Germany, expansion in Spain has been robust. Inflation has normalized again, with the rate remaining at around 2 percent. Core inflation (excluding energy and food) remains somewhat higher.

Unemployment also shows similar heterogeneity. In Spain, the unemployment rate remains at around ten percent despite a decline. In Germany, it has increased slightly but remains low at around four percent. In the euro area as a whole, the rate is just over six percent, lower than in previous years.

The ECB has cut its interest rates in eight steps from June 2024 to June 2025. We do not expect any further interest rate cuts. Monetary policy is likely to be roughly neutral.

Fiscal stimulus, particularly from Germany, will give the economy some momentum. However, the sustainability of public debt in France is a cause for concern.

Overall, we expect gross domestic product growth rates for the euro area of 1.2 percent in 2025, and 1.3 and 1.5 percent in 2026 and 2027, respectively.