Stronger GDP growth expected

The financial markets are currently sending out positive signals for the economic outlook. The European economy is benefiting from low interest rates and increasing fiscal spending on defense and infrastructure. We expect the European Central Bank (ECB) to leave its deposit rate unchanged until 2026. Due to the attractive valuation and the positive and robust earnings prospects, we remain positive about the European equity market.

In the third quarter of 2025, gross domestic product (GDP) in the eurozone increased by 0.2%, slightly more than expected. The eurozone economy was able to absorb the impact of US tariffs thanks to solid domestic demand. US tariffs are estimated to have depressed economic growth by 0.5% this year. At country level, growth momentum varied greatly, as in the previous quarters. While Spain's (+0.7% Q/Q) and France's (+0.5% Q/Q) growth was above average, the German and Italian economies stagnated. These 2 countries are more dependent on trade with the US.

Significant events of the last 3 months
- Easing of global tariffs, but trade risks remain
- Fall in energy prices supports consumers
- More stable financing conditions after the latest interest rate cuts

The European economy remains on a solid economic path and for the 4th quarter of 2025, initial leading indicators show that the economy will continue to grow. The first early indicators for the fourth quarter of 2025 show slight growth momentum in the service sector, while industry is expected to remain stable. The service sector remains the driving force.

In its autumn forecast, the European Commission expects real GDP in the European Union (EU) to grow by 1.4% in 2025 and 2026, rising to 1.5% in 2027. In the eurozone, they expect an increase of 1.3% in 2025, 1.2% in 2026 and 1.4% in 2027.

Inflation will continue to fall and is expected to average 2.1% in 2025 and 1.7% in 2026. A slight increase to 1.9% is expected in 2027.

The European labor market remains surprisingly robust, as confirmed by low unemployment rates and stable wages. However, the labor market has cooled and employment growth is low. The unemployment rate in Europe in September 2025 is 6.0% in the EU and 6.3% in the euro area.

GDP growth 2025 + 1.4% (E)
EU inflation 2025 + 2.1% (E)
Current 3-month Euribor + 2.1%

Fiscal policy - stimulating the economy

The hopes of the European economy are pinned on fiscal policy and the fact that extensive investment will stimulate the economy. The EU Commission has already begun to tackle reforms (e.g. reducing bureaucracy, expanding defense) in order to improve competitiveness and boost low production growth. The investments in defense decided this year as well as Germany's large fiscal package will boost the economy in Europe.

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Daniel Beck, Member of the Executive Board

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

_{As at: 24.11.2025}