Modest Expansion in Q2 Reflects Ongoing Resilience
The euro zone economy posted a slight 0.1% growth in the second quarter of 2025, outperforming expectations of zero growth, according to preliminary data released by Eurostat on Wednesday. This comes after a stronger 0.6% expansion in the first quarter, which had been bolstered by anticipatory trade activity ahead of U.S. tariff implementations.
Despite ongoing uncertainty linked to U.S. trade policy and sector-specific tariffs, the latest figures suggest the euro zone economy has maintained a degree of resilience. Market reaction remained muted, with 10-year bond yields in both France and Germany registering minimal movement following the release.
U.S. Tariff Policy Adds Pressure, but Impact Contained
Second-quarter performance was shaped in part by shifting trade dynamics. After the initial imposition of U.S. reciprocal tariffs in April, the European Union and the United States entered into negotiations that resulted in a revised trade framework. As part of the agreement, a 15% tariff rate was applied to the EU, although exemptions were introduced and auto tariffs were reduced to baseline levels.
The transition from early-year trade acceleration to a more cautious environment contributed to slower economic activity. Nonetheless, the broader economic structure remained stable, with limited disruptions across sectors outside of those directly impacted by tariffs.
Germany Records Slight Contraction
Germany, the largest economy within the euro zone, reported a 0.1% contraction in the second quarter, marking a notable decline from the revised 0.3% growth recorded in the first quarter. Destatis, Germany’s federal statistics office, attributed the dip to reduced investment in machinery, equipment, and construction. However, private and government spending saw modest increases, offering a partial offset to the downturn.
These figures align with expectations and reflect broader regional trends, where investment activity is showing signs of pressure, while consumption remains comparatively steady.
Outlook Remains Uncertain Amid Policy Shifts
The second half of the year will likely hinge on the implementation of the new EU-U.S. trade agreement and the response of export-driven economies like Germany. While the initial impact of tariff uncertainty appears limited, continued clarity on trade terms will be essential to maintain investor and business confidence.
With inflationary pressures stable and core sectors adapting to external shifts, the euro zone’s ability to navigate global policy realignment will be key in sustaining growth into the next quarters.
