Growth Against the Odds: Eurozone Outperforms, but Tariff Threat Looms Large

Image Source: The Economic Times

The eurozone economy produced a stronger-than-expected performance in the first quarter of 2025, beating expectations and pointing to resilience before a looming global trade war. Eurozone GDP rose by 0.4% quarter-on-quarter, twice the expected 0.2% increase and a significant pickup from the prior quarter's 0.2% increase, official Eurostat figures showed. The growth also beat the wider European Union, which recorded a 0.3% expansion.

Major contributors were Ireland, which recorded a remarkable 3.2% increase, and Spain, with 0.6% growth leading major economies. Italy and Germany also beat forecasts, with Germany significantly reversing a previous contraction. Some of this momentum, analysts say, is due to exporters pushing through shipments prior to the introduction of new U.S. tariffs, set to slow activity in upcoming quarters.

Despite the positive beginning, economic storm clouds are forming. The newly imposed U.S. tariffs, part of rising trade tensions, are estimated to cut eurozone GDP growth by about 0.2 percentage points, with additional threats of a deeper slowdown if the trade war escalates. Agencies such as Fitch have already reduced their 2025 eurozone growth forecast to only 0.6%, flagging recessionary dangers and a potential deceleration of the recovery.

While markets have cheered the upside surprise, economists warn that the subsequent months can witness a sharp slowdown as the impact of the trade war percolates through the region's export-oriented economies.

Source: Investing.com, Politico, Reuters, Fibre2Fashion