Brussels downgrades Eurozone growth forecast to 1.3%

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The European Commission has downgraded its forecasts for Eurozone growth to 1.3 per cent next year, as the German economy’s problems weigh on the region.

The downgrade compares with the commission’s previous 2025 Eurozone growth forecast from May of 1.4 per cent and highlights mounting gloom over the region’s prospects as it falls further behind the US.

Brussels’ estimates remain more optimistic than that of the private sector. Forecasts aggregated by Consensus Economics predict that the Eurozone economy will expand by 1.1 per cent next year — significantly less than the 2 per cent they expect for the US.

The commission’s sluggish outlook for the Eurozone compared with a brighter view on the US economy, which Brussels estimated would grow by 2.1 per cent in 2025 and 2.2 per cent in 2026.

Germany, the region’s largest economy, has stagnated over the past two years, as its manufacturing companies struggle to compete with their foreign rivals.

The commission now forecasts its economy will contract by 0.1 per cent this year, compared with May’s expectation of a 0.1 per cent expansion.

Donald Trump’s second term in the White House is expected to exacerbate the challenges facing the region’s exporters. The US president-elect has pledged to impose tariffs of between 10 and 20 per cent on all exports and has previously hit out at Europe’s large trade surplus with its transatlantic counterpart.

While Germany, France and Italy are all expected to grow less in 2025 than was anticipated by the commission in May, Spain’s projections were upgraded. It is expected to remain the fastest-growing large EU economy for the second year in a row, after a strong 2024.

For this year, the commission expects 0.8 per cent Eurozone growth, while private sector economists predict 0.7 per cent.

The commission said it expected inflation to hit 2.1 per cent next year, in line with its May estimate.

The forecasts indicate that Eurozone households are saving much of their income, rather than spending it, holding back growth in a region where consumption remains the motor of GDP.

Structural challenges plaguing Europe’s industrial sector — from high energy prices to weak export demand — have taken a toll on investment, which declined by more than 2.5 per cent in the first half of the year, the commission said.