Eurozone Economic Growth Slows as Germany Contracts, Spain Leads

Economic growth in the Eurozone has slowed significantly, with a reported increase of just 0.1% in the second quarter of 2025. This figure marks a sharp decline from the 0.6% growth recorded in the previous quarter, driven largely by contractions in Germany and Italy. In contrast, Spain emerged as a leader with a growth rate of 0.7%, significantly outpacing its counterparts.

New data released on July 5, 2025, reveals that the seasonally adjusted gross domestic product (GDP) for the Eurozone rose by 0.1%, while the European Union (EU) saw a slight increase of 0.2% compared to the first quarter. Although this result exceeded economists’ expectations of stagnant growth, it highlights a clear deceleration from the 0.6% and 0.5% expansions seen in the Eurozone and EU, respectively, earlier in the year. On a year-on-year basis, the Eurozone’s growth eased to 1.4%, with the EU at 1.5%, both figures lower than earlier in 2025.

In assessing the situation, Riccardo Marcelli Fabiani, a senior economist at Oxford Economics, noted, “Although the slowdown is to a large extent a by-product of a misleadingly healthy Q1 number, broad-based weakness across national data indicates that the economy lacks momentum, with only a handful of countries blowing into its sails.”

Regional Variations in Economic Performance

The economic landscape within the Eurozone is uneven, with Spain standing out as a beacon of strength. The country reported the highest quarterly growth rate of 0.7%, attributed to robust consumer spending, a rebound in business investment, and increasing export activity. Marcelli Fabiani remarked, “Spain is in another league, showing stubbornly robust dynamism.”

Additionally, both Portugal and Estonia recorded commendable growth rates of 0.6% and 0.5%, respectively. Conversely, Germany, traditionally viewed as the Eurozone’s economic powerhouse, experienced a contraction of 0.1%, marking its first downturn since mid-2024. This decline can be largely attributed to weakened investments in machinery and construction, although household and government spending provided some support.

Italy also faced challenges, with its GDP contracting by 0.1% in the second quarter, reversing a 0.3% gain from the previous quarter. This marked Italy’s first contraction since the second quarter of 2023, reflecting weak domestic demand and declining industrial activity.

Meanwhile, a brighter picture emerged from France, where GDP rose by 0.3%, the strongest growth in nearly a year. This increase was largely driven by stronger domestic demand, despite caution from Oxford Economics, which noted that this expansion may be misleading since it was heavily influenced by stockpiling, with both domestic demand and net trade negatively impacting GDP.

Market Reactions and Future Outlook

Financial markets reacted calmly to the latest economic data. Eurozone assets stabilized after recent volatility linked to a new US-EU trade deal, which many analysts perceive as favoring Washington over Brussels. The euro remained steady at $1.1550, recovering slightly after experiencing its worst two-day drop since February 2023.

The EURO STOXX 50 index rose by 0.1%, while the broader EURO STOXX 600 remained flat. Among notable performers were French consumer staples, with Danone increasing by 6.7% and L’Oréal rising by 4% due to strong quarterly earnings driven by demand from China. In contrast, Adidas fell by over 6% following a revenue miss and a profit warning, while Mercedes-Benz Group saw its first-half profits halve and cut its full-year revenue forecast below last year’s €146 billion.

The German DAX index remained unchanged at 24,200 points, approximately two percentage points below its all-time high, while Italy’s FTSE MIB climbed 0.3% to 41,350 points, marking its highest level since July 2007 and eyeing its ninth positive session in the last ten.

As the Eurozone navigates these economic challenges, the performance of individual countries underscores the complex dynamics at play, with Spain’s robust growth contrasting sharply with the contractions in Germany and Italy. The implications of these trends will be closely monitored by policymakers and investors alike in the coming months.