Growth fades in Europe: Is the recovery already | Money News

Europe’s financial momentum practically stalled in the second quarter of 2025, with growth barely registering and industry output sliding sharply—raising issues over whether or not the area’s recovery is already operating out of steam.

According to Eurostat’s second estimate launched on Thursday, seasonally adjusted GDP in the euro space rose by simply 0.1% in the three months to June, unchanged from the initial flash studying. The wider European Union (EU) grew by 0.2%, additionally in line with earlier estimates.

These figures mark a stark slowdown from the strong first quarter, when GDP expanded by 0.6% in the eurozone and 0.5% throughout the EU due to robust export growth.

In distinction, the United States financial system bounced back strongly, posting a 0.7% quarterly growth following a slight contraction in the first quarter. On an annual foundation, eurozone GDP rose 1.4%, effectively behind Washington’s 2.0% tempo.

Diverging national performances

Beneath the headline figures, the recovery stays extremely uneven throughout the bloc.

Spain led the pack with 0.7% quarterly growth, fuelled by robust home demand and capital investment. Portugal adopted with a 0.6% gain, whereas France managed a modest 0.3% growth.

However, each Germany and Italy, the eurozone’s largest and third-largest economies, slipped by 0.1%.

For Germany, the contraction displays continued weak point in investment, notably in construction and capital items, whereas Italian output suffered from subdued consumption and softening industrial exercise.

Ireland noticed the steepest drop, with output contracting by 1%.

Elsewhere in the EU, growth was more strong in Eastern Europe, with Romania and Poland increasing by 1.2% and 0.8%, respectively, helped by resilient home demand and inflows from the Next Generation EU (NGEU) programme.

Industrial downturn clouds outlook

Adding to the worries, industrial manufacturing in the euro space dropped by 1.3% in June, reversing a 1.1% rise in May and lacking expectations of a more average decline by 1%.

The fall was broad-based, with capital items manufacturing down 2.2% and non-durable client items plunging 4.7%.

In the wider EU, output fell by 1%. Among member states, Ireland recorded the largest month-to-month drop in industrial manufacturing at -11.3%, adopted by Portugal and Lithuania.

In distinction, Belgium, France and Sweden posted notable features.

US outpaces Europe, however sentiment is shifting

While the euro space continues to lag behind the US, in phrases of each output and productiveness growth, Goldman Sachs believes that the sentiment is shifting in direction of Europe.

Economists Giovanni Pierdomenico and Sven Jari Stehn be aware that Germany’s fiscal coverage pivot and heightened macroeconomic uncertainty in the US are serving to shift investor attitudes.

Goldman Sachs has upgraded its euro space growth forecast for 2027 by 1.2% since the begin of the yr, whereas downgrading its US projection by 1.7% over the similar period.

Portfolio flows into Europe have picked up, and the euro has strengthened notably towards the greenback.

Europe’s long-term challenges and alternatives

Despite the improved temper, Europe nonetheless faces deep structural challenges.

Elevated vitality prices—notably for gasoline and electrical energy—proceed to erode competitiveness.

Low investment in high-growth sectors, regulatory fragmentation, and sluggish productiveness features additional weigh on potential.

In addition, China, as soon as a key export market, has more and more change into a competitor, squeezing Europe’s manufacturing base.

Yet there are causes for optimism. Increased public investment, pushed by the NGEU programme and Germany’s €500bn infrastructure plan, may assist medium-term growth.

Europe additionally stays a world chief in prescription drugs and has vital untapped potential in capital markets integration, digitalisation and inexperienced infrastructure.

“Europe has opportunities to improve its economic performance through increased public investment, leadership in growth industries such as pharmaceuticals and green technologies, financial market reforms, and further integration of the internal market,” Pierdomenico mentioned.

Efforts to deepen the single market—spurred by the European Commission’s Competitiveness Compass, knowledgeable by the Draghi and Letta reviews—are seen as very important steps to unlocking future growth.

“European policymakers have a window of opportunity to build on this improved macro picture with reforms that lead to a lasting improvement in Europe’s economic performance,” Pierdomenico added.

Goldman Sachs stays constructive on Europe’s medium-term outlook, forecasting euro space growth above consensus for 2025–2028.