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Stronger European growth provides ECB with room to stand still

The eurozone demonstrated stronger-than-expected growth in the third quarter, reducing the likelihood of any changes from the European Central Bank (ECB) in the near future. Data from Eurostat confirmed that the currency bloc's economy expanded by 0.3% quarter-on-quarter, surpassing the preliminary estimate of 0.2%. Year-on-year growth stood at 1.4%, slightly below the pace of the previous quarter.

Analysts at ABN Amro labeled 2025 as the year of resilience and cautious optimism, noting that despite tariff pressures from the US, the eurozone's economy managed to avoid a recession and disproved expectations of a more pronounced slowdown. The bank now forecasts a growth rate of 1.4% for 2025 and anticipates a pickup in 2026 due to increased German budget spending and a revival of domestic demand amid lower ECB rates.

The regulator reduced rates by two percentage points over the year up to June but then paused as inflation approached target levels. ABN expects rates to remain unchanged until 2026-2027, although there is a short-term risk of further cuts if inflation begins to fall short of targets again. However, risks may shift toward an increase as 2027 approaches.

Nonetheless, prospects remain mixed. Germany, the region’s largest economy, is slowly moving toward recovery, but at a very gradual pace: exports are facing challenges, and global trade is losing momentum. The German Economic Institute IW projects that the country’s GDP will rise by just 0.1% this year after two years of decline and will accelerate to 0.9% in 2026. Chief economist Michael Grömling described the situation as Germany gradually emerging from a state of shock. It is a cautious phrasing that seems to best reflect the overall state of the eurozone economy.

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