The euro zone economy demonstrated stronger-than-expected growth in the first quarter, expanding by 0.4%, according to flash data released by Eurostat on Wednesday. This positive performance comes amidst the backdrop of global tariff tensions, which are casting a shadow of uncertainty over the bloc’s future trajectory.
Economists surveyed by Reuters had anticipated a more modest 0.2% expansion for the first three months of the year, following a revised 0.2% growth figure in the final quarter of 2024.
Earlier data on Wednesday revealed that Germany, Europe’s largest economy, saw its gross domestic product (GDP) increase by 0.2% during the same period, while French GDP grew by 0.1% over the three months.
Continuing a recent trend, southern European and smaller economies showed stronger performance. Spain and Lithuania both recorded a 0.6% increase in GDP, and Italy’s economic output rose by 0.3%. Ireland, known for its volatile readings due to a high concentration of multinational companies, experienced a significant 3.2% expansion in the first quarter.
Franziska Palmas, senior Europe economist at Capital Economics, noted that the latest euro zone GDP reading indicates the region’s economy started 2025 on a firmer footing than suggested by earlier activity surveys.
“Nevertheless, we still expect growth to slow sharply in the next six months as the US tariffs introduced in April will hit activity,” Palmas cautioned, adding that the impact of significant fiscal stimulus expected in Germany is likely to be felt primarily next year.
The euro experienced some volatility on Wednesday, trading 0.08% lower against the U.S. dollar at 10:35 a.m. in London following the data release, and 0.2% higher against the British pound. The yield on Germany’s 10-year bond, a key benchmark for the euro area, decreased by three basis points.
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