Key insights from the European Commission’s Spring 2025 Economic Forecast
Growth continues, but not evenly. The EU enters the second half of 2025 navigating restrained recovery, tempered inflation, and a complex global backdrop.
The European Commission’s Spring 2025 Economic Forecast offers something that’s been in short supply in recent years: relative steadiness. Across the euro area, GDP is projected to grow by 0.8% in 2025, rising modestly to 1.4% in 2026. For the broader EU, growth is expected to hit 1.0% this year, climbing to 1.7% next year.
Still, the report makes one thing clear: the period of sharp rebounds is behind us. The outlook now is shaped by friction, between monetary tightening and fiscal support, between slowing global trade and domestic demand, and between low headline inflation and persistent price pressures in key services sectors.
What’s emerging is a climate of moderate recovery and uneven confidence, one that demands careful attention from business leaders operating across borders or industries.
Household consumption, which buoyed many economies through post-pandemic reopenings, is no longer the primary engine of growth. While disposable incomes are improving, thanks to falling inflation and real wage growth, consumer sentiment remains fragile. The report notes that private consumption is expected to recover gradually, but without the intensity of previous years.
Inflation fatigue plays a role here. Although headline inflation has receded, from 2.9% in 2024 to a projected 2.2% in 2025 for the euro area, the cost of services remains sticky. In some markets, that undermines the purchasing power gains that improved wage data might otherwise suggest.
For consumer-facing businesses, this signals a more segmented and price-sensitive demand profile. Broad-based confidence has given way to cautious spending patterns and increasingly diverse household responses by region and demographic.
Private investment is expected to strengthen over the forecast horizon, driven by improving financing conditions and robust corporate balance sheets. EU-level support programs such as NextGenerationEU continue to underpin public investment, especially in green and digital infrastructure.
Yet the rebound in investment is uneven. Sectors exposed to tighter financing conditions, or reliant on export demand, remain subdued. Industrial production, for instance, continues to face headwinds from weaker global manufacturing demand and geopolitical uncertainty.
That duality matters. Firms expanding into capital-intensive projects will find the cost of capital improving, but the appetite for risk remains cautious, particularly where trade exposure or regulatory uncertainty looms.
If there’s one stabilizing force in the outlook, it’s the labor market. Unemployment across the euro area is projected to remain near historic lows. 6.5% in 2025, with similar levels expected in 2026. Employment growth continues, albeit at a slower pace.
Notably, labor shortages remain an issue in specific sectors, especially in construction, healthcare, and digital services. Wage growth is expected to moderate slightly over the forecast period, but real incomes are recovering after two years of inflationary erosion.
For talent-focused organizations, the takeaway is nuanced. The war for high-skilled talent persists, but with slightly improved wage predictability. Regional differences remain, however, and skills mismatches continue to complicate workforce planning.
As temporary fiscal measures to shield households and firms from energy shocks are withdrawn, budget deficits are set to narrow across most member states. The euro area deficit is forecast to decline to 3.0% of GDP in 2025 and further in 2026, while public debt ratios continue to edge downward.
Yet this fiscal consolidation introduces trade-offs. Public investment will remain strong where EU support is targeted, but discretionary room for stimulus is shrinking, especially in countries with elevated debt burdens.
Boards should watch for changes in public procurement, infrastructure pacing, and regional incentives as governments rebalance their fiscal strategies.
The Commission is transparent about downside risks. Weak global trade, geopolitical tensions, and climate disruptions could all drag the outlook lower. Political uncertainty, within and beyond Europe, adds another layer of complexity, especially in a year of critical elections and shifting alliances.
On the upside, faster disinflation or stronger-than-expected private demand could accelerate recovery. But most indicators suggest this is a year of recalibration, not resurgence.
Read the full forecast
