Big-Picture Snapshot

The Euro Area’s GDP expanded by 0.30% quarter-on-quarter in December 2025, according to the latest Sigmanomics database release. This matches November’s 0.30% and is a notch above the 0.20% seen in October. The 12-month average for 2025 stands at 0.23%, making December’s print a clear outperformance. Year-on-year, growth has accelerated from the 0.10%–0.20% range seen in mid-2025, reflecting a gradual recovery from earlier stagnation.

Drivers this month

• Private consumption rebounded, contributing an estimated 0.12 percentage points (pp).
• Net exports added 0.06 pp, as external demand improved modestly.
• Government spending remained supportive, offsetting weak construction activity.

Policy pulse

The European Central Bank (ECB) maintained its policy rate at 4.00% through December, signaling a data-dependent stance. With inflation easing to 2.30% in December, the growth print strengthens the case for a potential rate cut in Q2 2026, though policymakers remain cautious amid global uncertainties.

Market lens

Immediate reaction: EUR/USD rose 0.15% in the first hour after the release, reflecting relief at the upside surprise. Eurozone 2-year yields edged down 3 basis points, while the Euro Stoxx 50 gained 0.40% intraday as investors priced in a soft-landing scenario.

Foundational Indicators

The December 2025 GDP growth rate of 0.30% is the joint-highest since June 2025’s 0.60% surge, and above the 0.10%–0.20% readings from July through October. The Sigmanomics database shows a marked improvement from the sluggish first half of 2025, when growth averaged just 0.18% per quarter. Compared to December 2024, when GDP growth was 0.10%, the current reading signals a notable acceleration.

Drivers this month

• Services sector output expanded 0.40% MoM, led by tourism and digital services.
• Manufacturing stabilized after three quarters of contraction.
• Energy prices remained subdued, supporting real incomes.

Policy pulse

Fiscal policy remained mildly expansionary, with several member states extending energy subsidies and targeted tax relief. The Euro Area’s government budget deficit narrowed to 3.10% of GDP in December, down from 3.40% in October, reflecting improved tax receipts and restrained spending growth.

Market lens

Eurozone credit spreads narrowed by 7 basis points post-release, while the DAX index climbed 0.50%. Market-implied ECB rate cut probabilities for June 2026 rose to 64% from 58% pre-release, as investors interpreted the data as supportive of a soft-landing narrative.

Chart Dynamics

Drivers this month

• Household spending (0.12 pp) and net exports (0.06 pp) were the main contributors.
• Business investment remained flat, reflecting lingering uncertainty.

Policy pulse

The GDP print sits above the ECB’s baseline forecast for Q4 2025, increasing the likelihood of a dovish tilt if inflation continues to moderate. The ECB’s forward guidance remains cautious, but the growth trend supports a gradual normalization of policy.

Market lens

Immediate reaction: EUR/USD rose 0.15% and Euro Stoxx 50 gained 0.40% in the first hour. The euro’s modest appreciation reflects relief at the upside surprise, while equities rallied on hopes of a soft landing. 2-year German bund yields fell 3 bps, signaling expectations of easier policy ahead.

Forward Outlook

The Euro Area faces a complex macroeconomic landscape as it enters 2026. The steady GDP growth in December, combined with easing inflation and improving fiscal balances, supports a cautiously optimistic baseline. However, risks remain from external shocks, including potential energy price spikes, geopolitical tensions, and slowing global trade.

Scenarios and probabilities

• Bullish (30%): Growth accelerates to 0.40%–0.50% QoQ in Q1 2026, driven by robust consumer demand and a synchronized global recovery. ECB cuts rates by 50 bps by mid-year.
• Base case (55%): GDP growth holds at 0.20%–0.30% QoQ through H1 2026. ECB delivers a single 25 bp cut in Q2 as inflation stabilizes near target.
• Bearish (15%): Growth slips below 0.10% amid renewed energy shocks or a sharp slowdown in China/US. ECB remains on hold, and fiscal policy turns more restrictive.

Policy pulse

The ECB’s next moves will hinge on incoming inflation and wage data. Fiscal policy is likely to remain neutral, with limited room for further stimulus given debt constraints in several member states.

Market lens

Markets are pricing in a 64% chance of an ECB rate cut by June 2026. Eurozone equities and the euro are likely to remain sensitive to growth and inflation surprises, while sovereign spreads could widen if fiscal risks re-emerge.

Closing Thoughts

December 2025’s GDP growth print confirms that the Euro Area is regaining momentum after a challenging 2025. While the outlook is brighter, the region remains exposed to external shocks and policy missteps. Investors should monitor upcoming inflation, wage, and trade data for early signals of trend shifts. The Sigmanomics database will continue to provide timely updates as the macro landscape evolves.