Growth expectations exceeded

In the 1st quarter of 2025, seasonally adjusted gross domestic product (GDP) in the eurozone and the European Union (EU) rose unexpectedly strongly by 0.6% compared to the previous quarter. Compared to the same quarter of the previous year, it increased by 1.60% in the EU and 1.20% in the eurozone. The data published so far for Q2 2025 suggest a normalization after the pull-forward effects in Q1 (trade with the US/industrial production/exports). We expect stagnation.

According to its spring forecast, the European Commission expects economic growth of 1.10% in the EU and 0.90% in the eurozone in 2025. In 2026, growth in the EU should then accelerate to 1.50% and in the eurozone to 1.40%.

Inflation is currently at the Governing Council's medium-term target of 2.00%. The European Central Bank (ECB) expects headline inflation in the eurozone to fall further to 1.60% by 2026 before rising again to 2.00% in 2027. Core inflation, which excludes volatile energy and food prices, is estimated at 2.30% in 2025 and is expected to fall to 1.90% in 2026 and 2027.

The European labor market is robust, with a record 1.7 million new jobs in 2024. The unemployment rate should fall to a new all-time low of 5.70% in 2026 due to another 2 million jobs.

GDP growth 2025                   + 0.90% (E)
EU inflation 2025                    + 2.00% (E)
Current 3-month Euribor        + 1.98%

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Tight cooperation in Europe

In Europe, strong fiscal stimulus measures are imminent and the ECB has reduced key interest rates to such an extent that monetary policy will at least no longer be slowed down. The European States have been forced into ever closer economic and military cooperation. EU loans amounting to EUR 150 billion are being granted for financing and the EU financial budget regulations have been amended to allow additional defense spending of EUR 650 billion over the next four years. Germany will achieve an increase of 1.00% of their GDP by 2030 with a EUR 500 billion infrastructure package. The increase in spending and potential realignment of the European manufacturing base will boost potential growth. On the negative side, the increase in defense spending in Europe will increase budget deficits and social spending will have to be cut significantly unless higher tax revenues are generated from structurally higher economic growth. It is still unclear how much the tariff conflict with the US will impact the economy.

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Daniel Beck, Member of the Executive Board of Chefinvest International AG

_{Sources: European Commission, Statista, HCOB, S&P Global}

‍^{As at: 07/07/2025}

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