Western European economies are demonstrating resilience in 2025, but the pace of recovery varies across countries. Germany and other central Eurozone nations continue to see weak growth, while Spain and Portugal benefit from strong private consumption and investment, supported by funds from the European Recovery and Resilience Plan.
The United Kingdom experienced the highest growth among G7 countries in the first half of the year, though this was accompanied by modest private consumption increases and declining investment. Despite these gains, UK economic output has not returned to its pre-pandemic trend level or growth rate. In contrast, the Eurozone as a whole has regained ground lost during the Covid-19 pandemic and is now growing at its pre-pandemic potential rate.
Labour supply remains robust in Europe, meeting demand even as economic cycles slow. The report notes that "the resilience of employment is essential to maintaining this narrative of cautious optimism." In the Eurozone, supportive economic policies and a recovering credit cycle are helping boost investment. However, high inflation in the UK is preventing further monetary easing by its central bank, while fiscal policy becomes more restrictive and unemployment is expected to rise.
Risks remain for both regions. The analysis states: "Although the EU and the UK have benefited from the most favourable terms among the new tariffs imposed by the United States on its trading partners, these remain punitive and uncertainty about future relations with the United States remains..." There are concerns that trade tensions could expand into areas such as foreign direct investment (FDI), digital services, financial stability, or defense. Additionally, there is emerging risk that Chinese exports could shift from North America to Europe—a potential deflationary threat for Europe.
Since summer 2024, Eurozone growth has stabilized at levels similar to those seen between 2013-2019 after overcoming challenges like inflation and tighter monetary policy. While previous headwinds mainly affected domestic demand, current challenges—including euro appreciation and higher tariffs—are impacting foreign demand more significantly. Nevertheless, domestic demand continues to support GDP growth; unemployment rates have remained low relative to GDP trends but job creation has slowed.
There are questions about whether employment strength will persist given pressure on corporate margins from external competitiveness issues linked to currency appreciation and customs duties. The report's scenario assumes continued resilience in employment with a slight decrease in unemployment rates. Corporate profitability is eroding but still aligns with historical averages; consumer savings also remain high.
Country-level forecasts show mixed results:
- France saw stronger-than-expected growth in Q2 2025; overall annual growth is forecast at 0.7% for 2025 with an acceleration to 1.2% projected for 2026.
- Germany’s economy continues to struggle due to weak manufacturing activity; it is expected to grow just 0.1% in 2025 but could reach 1.2% next year following additional government spending.
- Italy faces slow momentum with a projected 0.5% increase this year but may improve slightly next year due to resilient investment.
- Spain stands out with expected growth of 2.8% this year—well above regional averages—driven by domestic consumption despite weaker global trade conditions; expansion should moderate closer to its potential rate at around 2% in 2026.
For further details on these projections or their underlying data sources readers can consult Crédit Agricole’s full publication (available only in French).